Organisational Behaviourdmcodyssey.org/.../Organizational-Behaviour-2004.pdf · Module 1 The Basics of Organisational Behaviour and its Relation to Management 1/1 1.1 Why Managers

OrganisationalBehaviour

Robert Dailey is Professor of Management at Drake University, Des Moines, Iowa. Beforetaking up his present position, Professor Dailey was Associate Professor of OrganisationalBehaviour on the Faculty of the Freeman School of Business, Tulane University. Inboth positions he has prepared and taught courses in management, organisationalbehaviour, organisational development, organisational theory, interpersonal behaviour,human resource management, business strategy and behavioural science research. Thesecourses have been taught to undergraduate, MBA, PhD, executive MBA and Master ofScience students.

He has received the Howard Wissner Award three times for excellence in teaching atTulane University. While at Drake, he has been on the teacher honour roll on severaloccasions. His publications have appeared in numerous journals. In addition, he is theauthor of Understanding People in Organizations, West Publishing Company, 1988.He has completed over 50 consulting projects in American corporations and hospitals.Recently he was named an honorary professor at Edinburgh Business School.

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HERIOT-WATT UNIVERSITY

OrganisationalBehaviour

Professor Robert Dailey

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Contents

Acknowledgements 7Introduction 9

Module 1 The Basics of Organisational Behaviour and its Relation toManagement

1/1

1.1 Why Managers Need to Understand Organisational Behaviour andits Theories

1/2

1.2 Values: The Building Blocks of Individual Differences 1/101.3 The Study of Personality and Employees’ Personal Traits 1/121.4 The Crucial Role of Job Satisfaction 1/201.5 Developments in the Study of Employee Work Attitudes 1/28

Module 2 Stress and Well-Being at Work 2/12.1 Introduction to Stress and Well-Being at Work 2/22.2 Understanding Job Stress and its Components 2/32.3 A Model of Causes and Consequences of Stress 2/42.4 Individual Approaches to Managing Stress 2/112.5 Organisational Programmes of Wellness and Job Stress Management 2/132.6 Downsizing: A New Form of Permanent Job Insecurity? 2/162.7 A Semi-Last Word on Downsizing 2/19

Module 3 Contemporary Theories of Motivation 3/13.1 Introduction 3/23.2 Content Theories of Motivation 3/43.3 Process Theories of Motivation 3/113.4 Cultural Differences in Motivation 3/20

Module 4 Organisational Control and Reward Systems 4/14.1 Why Organisations Need to Assess Employees’ Performance 4/24.2 Goal-Setting and Management by Objectives (MBO) 4/104.3 Rewards and Reward Systems 4/144.4 Components of Executive Compensation 4/194.5 A Comparison of Company Pay Practices 4/254.6 Individual and Group-Based Reward Systems 4/29

Module 5 Job Design and Employee Reactions to Work 5/15.1 Understanding Job Design 5/25.2 Making Use of Job Design for Individual Employees 5/95.3 The Team Approach to Job Design 5/13

Module 6 Understanding Work Group Dynamics and Group-Based Problem-Solving

6/1

6.1 Describing Work Groups and their Characteristics 6/26.2 Work Group Composition, Cohesiveness and Norms 6/6

Organisational Behaviour Edinburgh Business School 5

Contents

6.3 Significant Aspects of Work Group Structure 6/126.4 From Statics to Dynamics: Work Group Development and Decision-

Making6/15

6.5 Practical Guidelines for Managing Groups 6/216.6 Decision-Making in Teams: Deciding on the Extent of Participation 6/266.7 Work Groups in Competition and Conflict 6/28

Module 7 The Influence Processes in Organisations: Power, Politics, Leadershipand Entrepreneurship

7/1

7.1 An Example of Power 7/27.2 Uses and Abuses of Power: Playing Politics 7/107.3 Leadership: A Conundrum of Theory 7/147.4 The New Age of Entrepreneurs 7/26

Module 8 Organisational Design and New Forms of Service-DrivenOrganisations

8/1

8.1 Making Sense of Organisational Anatomy 8/38.2 Organisational Structure: Understanding the Basics 8/138.3 Understanding the Responsive Organisation 8/278.4 Drivers of Growth in Customer Service 8/358.5 How Good Service Retains Customers 8/368.6 Organising Principles of Service Quality 8/408.7 Creating a Service-Driven Organisation 8/44

Module 9 Managing Transitions: Organisational Culture and Change 9/19.1 Organisational Culture: Its Meaning and Relationship to Successful

Strategy9/2

9.2 Organisational Life-Cycle Theory 9/119.3 Organisational Change 9/139.4 Methods of Change in Organisation Development 9/23

Appendix 1 Answers to Review Questions and Worked Solutions to Case Studies A1/1

Appendix 2 Practice Final Examinations and Worked Solutions A2/1

Index I/1

6 Edinburgh Business School Organisational Behaviour

Acknowledgements

I wish to thank Professor Keith Lumsden, the Director of the Edinburgh BusinessSchool (EBS), for creating the opportunity for me to be a part of the MBA coursewriting team. I have found the process to be challenging and rewarding andnever-ending.

Professor Alex Scott of EBS has also been a source of improvements in mywriting. He has offered many suggestions to improve the text and the newCD-Rom. His suggestions are always valuable because he makes most of themwith the student reader in mind.

Finally, I wish to thank Professor Kenneth Boudreaux, Professor of Financeat the A. B. Freeman School of Business, Tulane University for encouragingme to send a proposal for the Organisational Behaviour (OB) distance learningcourse to Professor Lumsden. Since that time in 1987, only challenging andrewarding outcomes have come from my association with the fine academic andprofessional staffs at EBS, the Esmee Fairbairn Research Centre (TEFRC) andHeriot-Watt.

A special thanks must go to Sylvie Pelvilain-Smith, Media Administrator atEBS. She has been a thoroughly reliable and able manager of the complex processof creating a new edition of the OB text. Also, Charles Ritchie, programme editor,has been closely involved in the editing process of the second edition. Much ofthe success of the course can be attributed to his sharp-eyed editing job on thefirst edition.


Introduction

The competitive pressures on organisations continue to mount and skilful man-agements seek to strengthen their firms’ competitive advantages. The effec-tiveness of organisations’ technological resources and their strategic initiativesalways depends on the quality and motivation of their work-forces. The con-sistent theme through all of the modules in this revised text is the creationand strengthening of organisational competitive advantage by strengthening themanager’s grasp of human forces that are constantly in play in organisations.

As you read these modules, you will find an excellent balance betweentheory and practice. The text introduces you to the theories that have createdsolid advances in the field of organisational behaviour. The examples and casesthroughout the course show the practical side of these theories in terms of howyou can exploit them to enhance competitive advantage in your firms. In manyplaces in the text, the examples and cases that are presented have been takenfrom the experience of companies that compete in the global marketplace. Asyou apply yourself to these materials, you will become quite accustomed to theirsmooth shifts from ‘explanation to application’.

Our MBA students have told us repeatedly, ‘we want an up-to-date, timelyand absorbing text that actively involves us in the learning process’. I believe thishas been accomplished in the new organisational behaviour course. I know thatyour time is very valuable and that your self-guided study of this course is veryimportant to you. Further, you probably believe that this course and the Heriot-Watt MBA Programme can greatly enhance your own competitive advantagein your career, your job and your organisation. Why else would you allocateyour scarce time resources to such a demanding educational endeavour? Theseconsiderations cause you to make serious judgements about how you allocateyour intellectual, financial and temporal resources. You have made an excellentdecision to pursue the Heriot-Watt Distance Learning MBA. As you begin yourstudy of organisational behaviour, I’ll try to make your journey interesting andchallenging.

New Topics and ThemesThe text has a consistent ‘global’ competitiveness theme that is carried throughthe modules. This theme is introduced in Module 1 by showing you the effectsof cultural differences on organisational operations and decisions. A secondtheme is how ethics and personal values in concert with competitive forcesshape managements’ decisions that influence employees, the work-force and theorganisation. Examples of this dynamic are seen in the world-wide trends ofdownsizing, re-engineering, employee empowerment and use of self-managedteams in organisations. The third theme in the course is the competitive necessityof applying the principle of continuous improvement throughout the organisa-tion. For about 10 of the last 15 years, this principle has meant total qualitymanagement to most managers. In the second edition of the organisationalbehaviour course, this theme is carried through to its most recent permutations:


Introduction

shortened work cycle times, improved total customer service and new organisa-tional designs that are not based just on the pursuit of manufacturing efficiencyand low unit costs.

The cases and their study questions are revised to reflect the new themesdescribed above. Likewise, the practice exams at the end of each module nowhave multiple choice questions which match the new material in each module.The summary points at the end of each module are also completely revised andupdated to capture new organisational behaviour knowledge and managementpractices.

Timely New Topics

Module 1 presents new material on the manager’s job in the twenty-first century,work-force diversity, and the nature of values, beliefs and ethics. The conceptof whistle-blowing is presented in a case and you are challenged by questionsabout organisational ethics in the case. A new Module 2 has been written onjob stress and how employees and organisations can attempt to handle it.

In Module 3 equity theory and social comparison are covered in greaterdepth; distributive and procedural justice and employees’ perceptions of thefairness of management’s decisions are explored. Module 4 adds new materialon company pay plans and the processes behind executive compensation in the1990s with global comparisons. Self-managed teams and employee empower-ment are extremely important subjects in organisational behaviour and they arethoroughly addressed throughout the course and in Module 5. Here you willlearn about re-engineering and lean production methods from the standpointof employment management practices. Cross-cultural work teams are also dis-cussed in Module 5. New materials in Module 6 include the nature of socialloafing, and the design of reward systems to increase work team productivity.In Module 6 the Vroom–Yetton–Jago Normative Model of decision-making ispresented along with its relationships to group decision-making and employeeparticipation. Module 7 probes the differences between entrepreneurial andadministrative behaviour. It suggests to you ‘how you should try to manageyour boss’ (upward management). It also develops fully the significance ofleaders’ rewarding and punishing behaviours and the effects that each has onwork groups and organisations. This new edition places organisational designand strategic issues connected to organisational structure in Module 8. It givesnew treatment to interorganisational designs and some of their global forms.The nature of strategic alliances is discussed and the module concludes with ananalysis of new, ‘boundaryless organisations’. Module 9 now covers organisa-tional culture and the nature of planned change; it stresses high-performanceorganisational culture and the ‘life-cycle theory’ of organisations.

10 Edinburgh Business School Organisational Behaviour

Module 1

The Basics of OrganisationalBehaviour and its Relation toManagement

Contents

1.1 Why Managers Need to Understand Organisational Behaviour andits Theories

1/2

1.1.1 Distinguishing between Organisational Behaviour and Management 1/31.1.2 New Perspectives on the Manager’s Job 1/51.1.3 Making Sense of Human Behaviour in Organisations 1/81.1.4 Defining Employee Needs and Organisational Productivity 1/9

1.2 Values: The Building Blocks of Individual Differences 1/101.2.1 Implications of Values in Global Organisations 1/11

1.3 The Study of Personality and Employees’ Personal Traits 1/121.3.1 What Is the Difference between Kendrick and Deiter? 1/131.3.2 How Is Locus of Control Related to Work Behaviour? 1/131.3.3 Extroversion and Introversion 1/151.3.4 How Can Organisations Use Information about Introversion and

Extroversion?1/16

1.3.5 The Machiavellian Personality 1/161.3.6 Can High Machs Have a Negative Influence on the Organisation? 1/161.3.7 Socially Acquired Needs 1/17

1.4 The Crucial Role of Job Satisfaction 1/201.4.1 The Meaning of Job Satisfaction 1/201.4.2 Determinants and Consequences of Job Satisfaction 1/211.4.3 Job Satisfaction and Performance 1/251.4.4 How Organisations Can Measure Job Satisfaction 1/26

1.5 Developments in the Study of Employee Work Attitudes 1/281.5.1 Organisational Commitment and its Consequences for Employees

and the Organisation1/28

1.5.2 Job Involvement and its Consequences 1/30

Summary Points 1/31

Review Questions 1/32

Case Study 1.1: Measuring Job Involvement in the Work Setting 1/36

Case Study 1.2: General Electric Has a Whistle-blower 1/38

Organisational Behaviour Edinburgh Business School 1/1

Module 1 / The Basics of Organisational Behaviour and its Relation to Management

Learning Objectives

By the end of this module, you will be able to:

• Distinguish organisational behaviour and management as different yetrelated disciplines.

• Define organisational behaviour.• Develop the characteristics of the manager’s job in the twenty-first century.• Describe issues related to organisational productivity and employee needs.• Characterise the meaning of values and their relationship to personality.• Describe the differences between terminal values and instrumental values.• Explain the significance of various psychological traits of employees that

systematically influence their behaviour on the job.• Explain the meaning of introversion and extroversion.• Explain the nature of job satisfaction.• Recognise the determinants and consequences of job satisfaction.• Explain the role of intervening factors which influence the relationship

between job satisfaction and performance.• Choose an appropriate method for measuring job satisfaction in the work

setting.• Describe the importance of organisational commitment and job involvement.• Note the effects of economic insecurity on organisational commitment and

job involvement.• Relate the concept of personal values to whistle-blowing behaviour at work.

1.1 Why Managers Need to Understand OrganisationalBehaviour and its Theories

As you begin your study of organisational behaviour (OB), you will be struckby the fact that you can apply immediately what you are learning to the prob-lems you confront at work. Not only will you be gaining a broad view of thishighly applied discipline, but you will also find ways to alter your manage-ment philosophy to accommodate your new-found OB knowledge and to applyit to your work. As your knowledge of, and comfort with this subject grow,you will become increasingly skilful in understanding the behavioural impli-cations of organisational problems. In this course you will become acquaintedwith the latest developments in the field and you will have an opportunityto see how well-known, global companies deal with the challenges of manag-ing their diverse work-forces in highly competitive markets around the world.Our aim throughout this course is to help you see how the field of organisa-tional behaviour contributes knowledge of how organisations behave. In turn,this knowledge can be turned into competitive advantages that can help firmsrealise higher returns through the best use of their human capital. Let us beginby developing a definition of the field of organisational behaviour.

Organisational behaviour is the study of the behaviour and attitudes of peoplein organisations. Its focus is on human behaviour and attitudes which contribute

1/2 Edinburgh Business School Organisational Behaviour


to the effectiveness of any organisation. The field has three units of analysis:the individual, the group and the organisation. A ‘micro’ approach to the fieldemphasises the first two units of analysis and it stresses topics such as personalityand individual differences, employee attitudes and behaviour motivation, groupformation and group decision-making. The ‘macro’ or big-picture approachaddresses the organisation as the primary unit of analysis. Here the topics oforganisational structure, design, culture, climate and change are addressed.

Both the micro and macro perspectives have their roots in the behaviouraland social sciences of psychology, sociology, economics, political science, anthro-pology and social psychology. The field of OB makes extensive use of theoriesto explain the behaviour of organisational participants. Throughout this moduleand all the others in the organisational behaviour course there will be exten-sive explanation of behavioural theories that will be grounded in managerialexamples and organisational cases.

1.1.1 Distinguishing between Organisational Behaviour and Management

What is the Relationship of Management to Organisational Behaviour?

The traditional field of management is defined as the process of planning, organ-ising, leading, and controlling the human, material and financial resources of anorganisation. Management is best viewed as a process which is employed byindividuals(managers) who are responsible for achieving organisational objec-tives through people. Managers are individuals who achieve results by super-vising and motivating people in work organisations. Newer definitions of man-agement have de-emphasised the ‘activities’ approach suggested above.

These more recent views of management focus more on the roles of ‘coach-ing’, integrating, advocating, tracking forms of unit performance and allocatingresources among more autonomous employees or among their self-directedteams. They will be discussed in the next section.

A significant relationship exists between management and organisationalbehaviour. Organisational behaviour is an applied discipline which attemptsto explain behaviour in organisations in terms of valid theories. Many of thesetheories address problems which managers face on a regular basis, for examplemotivation of subordinates, managing effective performance, delivering superiorcustomer service, coaching and integrating the work of self-managed teams andcreating reward systems that recognise individual achievement in an environ-ment of employee empowerment which uses self-directed teams.

Managers are held accountable for achieving goals in these areas. As a con-sequence, they often look for theories which help them interpret organisationalevents and processes in behavioural terms. The field of organisational behaviourcontributes knowledge in critical areas important to any manager. So, part ofthe answer to the question above is that organisational behaviour is concernedwith describing organisational phenomena while management is a professionaldiscipline which stresses applied skills. One of the most basic skills needed bymanagers is problem-solving.



What Role Does Management Play in Organisational Problem-Solving?

Supervisors and managers are responsible for the work of the organisation. Theydo not directly produce specific goods and services. Instead, they supervise thework of subordinates who do produce products and services. A manager’s jobhas three basic components. They are:

1 A technical component concerned with the efficient use of resources toachieve output goals, and the application of technology to achieve produc-tivity goals.

2 A conceptual component concerned with the development of new systemsand methods of operation. An example would be improving a pricingsystem to provide salesmen with more up-to-date pricing information.

3 A human component concerned with employee welfare. Examples in thisarea include setting a programme to assist troubled employees, and design-ing an employee health programme to reduce insurance costs.

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

Management and Technical Problem-Solving

Virtually all organisations want managers and employees to be technical problem-solvers in the areas of product and service quality improvement. Managers arepromoted almost always on their ability to resolve complex technical issues,e.g., new process and product development, the creation of better distributionsystems, more accurate pricing systems and enhanced service delivery systems.Organisations often promote on the basis of technical work expertise alone.Managers emphasise the acquisition of technical skills in their careers becausethey know that organisations will reward them for these abilities. This can createa temptation to focus on those situations which demand technical work skills.Success in entry-level managerial positions is almost exclusively defined in tech-nical terms. If managers demonstrate conceptual skills as well, their promotionprospects are greatly enhanced.

The missing ingredient in the skill mix for many managers is skill in thehuman component of managerial work. The problems caused by ‘poor peopleskills’ are becoming increasingly evident to managers. It is no longer sufficientto be skilful only in conceptual and technical work. Increasingly, organisationsexpect their managers to demonstrate well-developed skills in the managementof human resources. This practical need creates a wide bridge between the fieldsof organisational behaviour and management.



1.1.2 New Perspectives on the Manager’s Job

As we have noted, the key concept in the manager’s job is ‘getting things donethrough people’. In organisations of the twenty-first century, the manager’sjob will evolve from an authority-derived ‘issuer and interpreter of rules andorders’ to creating an entrepreneurial work climate that facilitates teamworkand employee empowerment. When studying what managers do, ProfessorHenry Mintzberg found that the manager’s day is broken up into a fragmentedcollection of brief episodes.1, 2 These episodes hardly allow for long periodsof uninterrupted contemplation of the tasks of planning, organising, leadingand controlling the human, material and financial resources of the company.In his research, he found that only five per cent of a manager’s time wasspent on tasks lasting more than one hour. Just what are the fragmented tasksand activities performed by managers on a daily basis? In large surveys ofthousands of managers and executives, respondents were asked to rank therelative importance of 57 different managerial and executive duties. Analysis ofthe results suggests seven basic features to the manager’s job:

1 Managing individual performance (supervising).2 Instructing subordinates (teaching and training).3 Representing one’s staff (representation and advocacy).4 Managing group performance (facilitation).5 Planning and allocating resources (decision-making).6 Co-ordinating interdependent groups (collaboration).7 Monitoring the business environment (scanning).3

These seven managerial tasks are common to all management levels in com-panies. The perceived importance of each task and the amount of time spentby managers on the tasks at different organisational levels vary substantially.Researchers found that tasks 1 and 2 are more relevant to lower-level super-visors, tasks 3, 4 and 5 capture the time of middle managers and tasks 6 and7 monopolise the time of senior executives. Said another way, managers andexecutives perform the same tasks but with different emphasis as the level oforganisational hierarchy shifts.

The workplace of tomorrow will be transformed to achieve greater speed, effi-ciency, responsiveness and flexibility. Organisational control structures empha-sising command and control are giving way to those which stress participativedecision systems and employee empowerment.4 Managers who are only com-fortable with exercising authority and command are being retrained or replacedby those who emphasise collaboration with subordinates and team-based worksystems. Table 1.1 shows the differences between managers of the past andtheir replacements of the future. The shifts shown in the table are on-goingand evident in large and small companies engaged in domestic and globalcompetition.



Table 1.1 Managers’ challenges in the twenty-first century

Past challenges Future challenges

Principle duties Give orders to subordinates andcontrol their behaviour

Encourage the development ofsubordinates and their work teams

Training and development Reduce these costs by hiring workerswith requisite skills

Training and employee developmentare continuous to achieve the goalof a flexible and cross-trained workforce

Reward bases Seniority, rank and effort Merit-based individual and teamcontributions to competitiveadvantage

Influence base Hierarchical position Technical, interpersonal andorganisational expertise

Communication patterns and styles From top to the bottom in highlyformal terms

Diffusion-based so that informationgoes rapidly to where the decisionhas to be made

Decision-taking style Superior/boss centred andauthoritarian

Team-based and participative

Approach to organisational change Resist change and cling to the statusquo

Embrace change and find waysto improve strategic, competitiveprocesses

The speed of change in the manager’s job (as shown in Table 1.1) will increasebecause:

1 The work-force is changing. Companies must deal increasingly with mat-ters of work-force diversity, work-force skills and training and work-forcevalues and beliefs. Less restrictive labour regulations and immigration poli-cies will create work-forces with employees of different ethnic and racialbackgrounds. These diverse work-forces will have employees who differ byage, gender, life-style preference and personal and religious values. Theirformal educations may not have adequately prepared them for the demandsof new technologies and jobs with rapidly changing skill requirements. Thesuccessful managers in the twenty-first century understand diversity andknow how to optimise the fit between employees with diverse needs andexpectations and their jobs and work groups.

2 Customer expectations are changing. Now and in the future customers willonly support companies which deliver high-quality goods and services atthe best price. The age of total quality management is here and companiesthat do not adhere to its principles will disappear. The successful twenty-first century manager understands the new discipline created by continuousimprovement (TQM) and he develops in his subordinates the commitmentto seek continuous improvement in products and customer services. Thecompetent TQM-focused manager realises that the fundamental principle ofTQM is a relentless search for ways to increase the organisation’s ability toadd value to products and services from the customer’s point of view.

3 Organisations are changing. Eroding trade barriers and instantaneous cap-ital flows greatly increase competition and these forces prod companies to



search for new sources of competitive advantage. Thus, they downsize, re-engineer, form strategic alliances, alter their organisational structures, try tocompete globally, vertically integrate backward and forward and embracenew technologies and information systems. They press their work-forcesfor performance and productivity gains and they expect all employees tobe ‘empowered’ and to find creative solutions to vexing organisationalproblems. These complex forces tear away the traditional definition of themanager’s job and they create new demands on managers to be creative,resourceful, inspiring, facilitative and collaborative.

Why Do Managers Care about Organisational Behaviour?

When managers are interviewed about the problems they face, they invariablyturn to annoying issues in human work. The quotes which follow are fairlytypical.

A manager of special events: ‘My employees won’t give that extra five per cent whena crisis occurs on the convention floor.’

A sales manager: ‘My sales staff is constantly making errors in quoting prices anddelivering service. How can I get them to be more customer focused?’

A union official: ‘We no longer have a membership who are committed to unionvalues. They carry their cards, and that’s all.’

A marketing manager: ‘My employees refuse to work with the fellows from produc-tion. They believe production managers are only interested in production quotasand inventory. Their lack of a customer orientation is causing us severe problemsin our product warranties.’

The problems noted above are aptly referred to as ‘people problems’. They rep-resent opportunities for managers to apply knowledge of organisational behav-iour in their jobs. The solution to such problems is management responsibilityand it is the focus of on-going research in organisational behaviour. Managersmake important decisions which influence organisations and their employees ona regular basis. Making high-quality decisions depends on a working knowledgeof organisational behaviour theories for the following reasons:

1 Behavioural theories help solve problems in the work setting. As a man-ager, you should use objective methods to attack problems related to theneeds of employees and the interests of the organisation; these often conflict.

2 Knowledge of behavioural theories helps you understand new develop-ments in the field of organisational behaviour. You must be an educatedconsumer of new developments which might improve or refine your man-agerial abilities.

3 An understanding of behavioural theories helps you to evaluate effec-tively the proposed solutions to behavioural problems in organisations.Just as you need knowledge of production and control systems, you needalso a knowledge of behavioural theories to evaluate information related tohow employees and organisations act.



1.1.3 Making Sense of Human Behaviour in Organisations

Kurt Lewin has postulated that human behaviour is a function of the person andthe environment: B = f (P, E). The SOBC model amplifies this simple idea andprovides us with a mechanism for systematically considering human behaviourin organisations. SOBC is an acronym where S represents the stimulus situationwhich includes such things as light, sounds, job demands, supervisors, co-workers’ characteristics and equipment. O (organism) refers to the characteristicsof the person including personality, needs, attitudes, values and intentions. Brefers to the person’s behavioural responses or actions in the situation underconsideration. Finally, C represents the consequences or outcomes associatedwith the behavioural responses. The action sequence is illustrated in Figure 1.1.

S

Stimulussituation

O

Organism

B

Behaviourand actions

C

Consequencesor outcomes

S:

.

O:

B:

C:

All sensations from the environment which trigger humanperception. In organisational behaviour these include allfeatures of the work environment which activate employee behaviour.

The finite capacities of the individual which are governed byheredity, maturity and biological needs. These capacities also includeknowledge, skills, attitudes, intentions, sentiments and values.

Overt behaviours and actions such as performance or emotional responsesand conceptual activities which are apparent only to the individual.

The outcomes of behaviour and performance such as recognition andneed satisfaction. The outcomes represent the activity triggeredin the environment by the behaviours under study

Figure 1.1 The SOBC sequence

The SOBC model is a ‘micro’ model in that it specifies a sequence for under-standing the behaviour of individuals. It does suggest that differences in per-formance are a function of numerous factors. Managers are concerned with anemployee’s performance (behaviour). They try to influence performance throughdirection and guidance. Frequently managers ask an employee to attempt a trialrun before the actual task is attempted. Additionally, after a task is completed,the manager will review the employee’s performance to provide constructivefeedback. The act of reviewing performance is the C in the SOBC model. Forevery employee action there are reactions at the managerial and environmentallevels. To understand the interplay between managers and their organisationsand employees, it is necessary to characterise the difference between employeeneeds and organisational productivity.



1.1.4 Defining Employee Needs and Organisational Productivity

As the organisations we live and work in become more complex, we neednew knowledge about how they evolve and change. This knowledge can helpus understand the conditions which create organisational survival, growth anddecline. The two most pressing issues governing organisational success or failureare the needs of organisational members and organisational productivity. Someexamples of employee needs of organisational participants are job satisfaction,adequate pay and fringe benefits and safe working conditions. Organisationalproductivity refers to the production or output of goods and services with theleast expenditure of resources.

To become a well-rounded manager, you must develop an objective under-standing of how the organisation’s work-force can be a source of sustainablecompetitive advantage. Your management philosophy would be incompletewithout values which reflect how work can be made more meaningful and chal-lenging. To achieve this understanding, you must understand the pivotal role ofwork in your life and the lives of your colleagues and subordinates Achievingand sustaining a competitive advantage based on the quality of a company’swork-force requires managers to appreciate and respect employees. In our studyof organisational behaviour, we shall examine many themes that bear on thenature of competitive advantage obtained through employment practices andorganisational processes. At the centre of all of these practices and processes isthe undiminishing importance of respect for employees.

The field of organisational behaviour focuses heavily on the connectionbetween employee behaviour, attitudes and the productivity of the organisa-tion. Consider the following example:

Rene is a recently naturalised French citizen. He emigrated to France nine yearsago. For four years, he has worked for a distribution firm while he has attendedthe technical institute at night. He will graduate in May with a degree in technicalstudies. His superior has only praise for Rene’s work. Indeed, Rene’s businessabilities are often singled out because he has found ways to save his employermoney through more efficient work methods. His most recent innovation is adispatching system which uses the drivers’ knowledge of routes to save deliverytime. The drivers are excited about the new plan because it allows them to be homeon weekends on a more regular basis. The centre’s manager is particularly pleasedbecause the plan saves money due to lower overtime pay, fuel and maintenancecosts. The manager hopes to keep Rene after he graduates, and there is a goodchance that he will be offered a promotion.

The example demonstrates the firm’s joint concern for employee needs (moresatisfied drivers who may be motivated to do a better job of deliveries)and organisational productivity (improved dispatching system). Organisationalbehaviour stresses productivity gains from the standpoint of employment prac-tices and organisational processes. Within an organisation, productivity can beincreased in two ways. First a firm can acquire new technology and equipmentto produce goods and services more efficiently (this, of course, is the reasoningbehind the world-wide trend towards the roboticising of manufacturing). Thisapproach increases the capital intensity of the firm and the trade-off may befewer jobs and short-term downsizing. The more capital-intensive production



methods may diminish attention to employee needs, since the productivity gainsare attributed to the new equipment and technology. The alternative route toproductivity enhancement emphasises the connection between satisfaction ofemployees’ needs and productivity. Here, the organisation makes investmentsin future earnings by emphasising sustainable competitive advantage by invest-ments in training and development, leaner production systems that favour theuse of self-directed teams and organisational designs that improve sales oppor-tunities by enhanced service offerings that are delivered by a highly motivatedwork-force. It is important to note that competitive advantage that is derivedfrom an energised and well-trained work-force is much harder to duplicatethan simply investing in capital improvements. Nonetheless, forward-thinkingmanagements typically do both.

You will learn about organisational behaviour tools throughout this course.You will also learn how to create and analyse programmes like the one conceivedby Rene. Your analyses will show how knowledge of organisational behaviourcan be used to address employee needs and organisational productivity at thesame time.

1.2 Values: The Building Blocks of Individual DifferencesValues are found in people at a deeper psychological level than work attitudessuch as job satisfaction, job involvement and organisational commitment becausethey are more general and basic in nature. In our lives and work we use valuesas cognitive measuring devices to evaluate and judge our own behaviour andthe behaviour of others. According to Rokeach, values are enduring beliefs thata specific mode of conduct or end state of existence is personally or sociallypreferable to an opposite or converse mode of conduct or end state of existence.5

In sum, values give us a sense of good or bad, right or wrong.As we grow up and experience the influence of family, social institutions and

culture, we find that our values develop into a coherent sense of self known asour self-concept. Through adolescence we find ourselves in new situations whichshape and form our values and, with time they stabilize into a dependable andresilient value system. Because it is not easily changed and it is the only one thatwe have, we use our self-concept to judge the appropriateness of our behaviourand the behaviour of others. And we use it to judge the meaningfulness of ourgoals in life and the goals of the people around us.

Because values and value systems relate to concepts of right and wrong,businesses have taken an interest in this subject because it ties directly tothe growing emphasis on ethics in business practices. In other words, valuesform the basis for ethical business behaviour. It is not uncommon now to findcompanies which carefully screen potential employees for the compatibility oftheir values and company business practices. Further, some companies offer theiremployees two-month sabbaticals to pursue personal growth in areas which areconnected to company practices and work-force values.

Rokeach distinguishes between instrumental and terminal values. Instrumen-tal values are the means to achieve goals by using acceptable behaviours toachieve an end state. Terminal values are the goals to be achieved or the appro-priateness of desired end states. Examples of instrumental and terminal values



are shown in Table 1.2. Clearly the two values work in harmony to determinethe goals to strive for using the means that are most acceptable to the individualand to society.

More diverse work-forces challenge organisations because such diversity isalways based on cultural differences in values. For instance, the instrumentalvalue of loyalty is more important to Japanese workers than either family loyaltyor political loyalty. In the USA, family and loyalty to friends far outweigh inimportance either loyalty to employers or loyalty to supervisors.6

Table 1.2 Terminal and instrumental values

Terminal values

Achievement Family safety Freedom Inner calm

Social status Equality Pleasure National security

Wisdom Friendship Happiness World peace

Beauty in artand nature

Equity Prosperity

Instrumental values

Ambition Competence Independence Self-control

Cleanliness Forgiving nature Obedience

Courage Imagination Politeness

Cheerfulness Intelligence Responsibility

Values often shape the individual’s views of authority and its rights andobligations. French managers view authority as a right of office or rank. Thus,they often use power based on their position in the organisation. In contrast,managers in The Netherlands and Scandinavia value group discussion of deci-sions and they expect their decisions to be challenged by their subordinates.American managers view organisational rank or authority as being less valuableand important than the ability to solve problems through the application ofexpertise.7

1.2.1 Implications of Values in Global Organisations

Conducting business in global markets often creates situations which directlychallenge the values of managers. In the USA the solicitation of gifts in exchangefor favourable business decisions is highly discouraged. In Asia and Mexico busi-ness traditions encourage the exchange of gifts in business transactions. Whatmany American managers may consider to be payoffs and kickbacks may simplybe refined and accepted ways of doing business in other countries. In companieswith global business aspirations it is not unusual to find managers who are goingoverseas for assignments to be trained in culture-based value differences. Thesemanagerial seminars frequently emphasise the following principles:

1 Be open minded and view other peoples’ values as moral, traditional andpractical.

2 Do not prejudge the business customs of others as immoral or corrupt.Assume that they are legitimate until proven otherwise.



3 Search for legitimate ways to operate within others’ ethical points of view;do not demand that they fit into your value system.

4 Avoid rationalising questionable actions with excuses such as:– This isn’t really illegal or immoral.– This is in the company’s best interests.– No one can find out about this.– My company will back me up on this.

5 Refuse to do business when stakeholder actions violate the law or basicorganisational values.

6 Conduct business as openly and honestly as possible.8

1.3 The Study of Personality and Employees’ Personal Traits

Personality, which makes individuals unique, is a complex, multidimensionalconcept. It is defined as a relatively permanent set of psychological characteris-tics that influence the individual’s behaviour. Our discussion will now turn toseveral individual differences which demonstrate dependable relationships withfeatures of employee needs and organisational productivity. Individual differ-ences are defined as basic aspects of personality from which we can predict (orexplain) what people do at work. For instance, a shy and retiring employee islikely to have a certain effect on his co-workers and superiors. The employee’sbehaviour will create certain attitudes in his superiors and colleagues. In turn,these attitudes may initiate behaviours which influence and ultimately diminishorganisational productivity.

We shall focus on locus of control, extroversion and introversion, Machiavel-lianism and socially acquired needs in our discussion of individual differences.Locus of control is a well-researched concept. Let us consider an example beforewe define the concept.

Kendrick has worked hard to improve his job skills through personal study. Hehopes to use his knowledge of computer programming to solve several datamanagement problems in his department which processes cargo manifests fora major European shipping firm. The company generally encourages personaldevelopment in job-related areas and it has a history of promoting employees whodemonstrate this form of personal enterprise. Kendrick believes he can obtain apromotion if his performance improves through the solution of the programmingproblem.

Deiter works in Kendrick’s office and is extremely skilled in the tasks associatedwith processing ship manifests. He has not pursued outside personal developmentopportunities. He can often be overheard saying that ‘it doesn’t matter how hardyou work, management promotes those who happen to be in the right place at theright time’. As a result of this personal philosophy, Deiter sees his job in narrowterms and takes a dim view of ‘doing all that extra work for a promotion that willnever come’.



1.3.1 What Is the Difference between Kendrick and Deiter?

Psychologists would say that Kendrick has an internal locus of control whileDeiter has an external locus of control. Locus of control is defined as an indi-vidual’s belief that one’s actions influence the outcomes one experiences in life.9

Notice that positive or negative outcomes are not specified in the definition.Locus of control has to do with perceptions of cause and effect relationships.It is neutral relative to type of outcome. It simply refers to the strength ofone’s belief that personal action will or will not result in certain outcomes, bethey positive or negative. Try the exercise in Table 1.3 to see how psychologistsmeasure the locus of control concept.

Table 1.3Instructions: Please circle the statement for each item that is closer to your opinion.

1 a No matter how hard someone tries in school, they can still get poor grades.

b Doing well in school is a matter of studying hard.

2 a Receiving a pay rise is a matter of hard work; being in the right place has nothing todo with it.

b Pay rises are a matter of getting noticed by your superior.

3 a There are some things that people should not attempt to change because they willfail in the attempt.

b If a person is committed enough, he can create political change single-handedly.

4 a Getting ahead in today’s business world is a matter of persistence and hard work.

b Whoever gets ahead in today’s business world must have connections.

5 a When I believe I’m right about something, I feel as if I can convince anyone.

b It is extremely difficult to change people’s attitudes by talking to them.

6 a Managers often play favourites and give some subordinates larger rises.

b Employees generally earn the rises they get.

Scoring: Give yourself one point if you answered the six questions in the following manner: 1 a, 2b, 3 a, 4 b, 5 b, 6 a. The closer your score is to six the more external your locus of control. Scoresless than three indicate an internal locus of control. Scores of three or four indicate that you are notalways consistent about your beliefs about the relationship between your behaviour and the outcomesyou experience.

Table 1.4 shows some of the typical beliefs held by internalisers and externalis-ers (sometimes referred to as ‘internals’ and ‘externals’). The locus of controlconcept is such an important component of personality that if an individualbegins to doubt his beliefs about cause and effect relations in life, he canexperience a variety of consequences associated with lowered self-esteem, e.g.,depression, anxiety, guilt, helplessness.

1.3.2 How Is Locus of Control Related to Work Behaviour?

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



Table 1.4 Characteristics of internalisers and externalisers

Internals tend to believe that Externals tend to believe that

Pay rises are based on hard work, achievementand initiative.

Pay rises are based on having the right job inthe right place in the company.

An excellent performance record is thefunction of hard work and effective projectcompletion.

Teachers have favourites and give them highermarks.

A person addicted to drugs is willing to giveup control of his life.

Anyone, given the right circumstances, canbecome addicted to drugs.

Good decisions are the result of tenaciouslysearching for information.

People’s attitudes cannot be changed easily byappealing to their logic.

knowledge which they believe will lead to outcomes they value. They also takequicker action to correct job confusion than externalisers do.

Locus of control affects how anxious and emotional employees become fol-lowing traumatic events.11 Externalisers are more likely to experience adverseemotional reactions to co-workers, especially supervisors, who put a lot ofperformance-oriented pressure on them. Internalisers are more trusting andthey dismiss job failure more readily. In addition, they prefer leaders who letthem participate, and they are sensitive to organisational attempts to influencetheir thinking and behaviour.

Managerial Implications of the Research

The results noted above indicate that internalisers will work harder when theyare told that rewards are based on superior skill and high performance. Thismanagerial message encourages the development of an internal locus of controlin all employees, including externally orientated employees who, when theyobserve their co-workers being rewarded for acquiring new skills and achievinghigher performance, may become similarly motivated. All programmes aimed atthese effects should be widely communicated throughout the firm. In addition,the value of skill-based compensation can be quite important for developingemployees with an internal locus in their work. Skill-based compensation (pay-for-knowledge) means that a portion of an employee’s pay rise is allocatedfor the documented acquisition of new job-related skills. Such programmes canbuild a more ‘internalising’ work-force consisting of employees who perceivea coherent relationship between performance on the job and the rewards theyreceive.

The research results also underscore the importance of participation for sus-taining employee development, e.g., creating a larger pool of potential man-agers inside the organisation. Managers should be careful to use participation,especially when the development of employee skills is a key feature of a man-agerial decision. Since we know that internalisers prefer to play a part indecisions which affect them, it makes sense for managers to use participation indecision-making when the decision needs employee support for implementationand affects employees in a personal manner. Additionally, participation sweepsaway employee confusion about work responsibilities. Since internalisers expectstrong cause and effect relationships regarding their behaviour and its outcomes,managers can use participation to strengthen those expectations.



Locus of control appears to be related to entrepreneurial behaviour and thetaking of business risks.12, 13 Researchers have produced evidence to suggestthat internalisers are more comfortable with change than externalisers and aretherefore more likely to launch a new business venture if they are dissatisfiedwith their current situation. Behaviourally, internalisers are more likely to actquickly when they judge their current work to be limiting their options orsuppressing their creativity, especially in the acquisition of new skills which maylead to better performance and more personally valued rewards. Manageriallyspeaking, if internals are prevented from acquiring new skills, or if they arenot rewarded for acquiring new skills, they become frustrated. If the conditionspersist, they may leave the organisation. This, of course, leaves fewer competentpeople to do more work. In turn, other competent employees are affected bythese deteriorating circumstances and they too may leave.

The argument developed above demonstrates the significance that internalsattach to rewards which are based on performance. If they believe that goodperformance is rewarded fairly, they will believe that their efforts are more likelyto result in job success. A firm’s pay system should be designed to reinforcethis employee belief. If the pay system is so structured, employees will becomemore internal in their work orientation. This is a highly desirable outcome inthe firm, because managers are then relieved of some of the burden of directemployee control.

1.3.3 Extroversion and Introversion

We often notice that some people are more sociable than others. Those indi-viduals who are outgoing and gregarious are called extroverts. Introverts, onthe other hand, are shyer and less willing to get involved in social activities.14

Extroversion is defined as the need to obtain as much social stimulation as pos-sible from the environment. Those who crave social stimulation would probablyhave active social lives, enjoy crowds and be more attracted to adventurous andexciting holidays.14 Extroversion also implies a sustained, high level of socialstimulation. Thus, the manager who is involved actively in community workand social organisations, fits our definition of extrovert.

Introversion is defined as avoidance of external stimulation in favour of inter-nally oriented, contemplative activity. Introverts are individuals who attempt toreduce the amount of social interaction in their environments. Thus, they avoidmany of the social activities which extroverts find so compelling. In summary,introverts tend to be more sensitive to their personal feelings and what is goingon inside.

All individuals exist on an introversion–extroversion continuum. People experi-ence both types of needs at different times, with varying intensity, dependingon the situations they confront. In general, we all, whether introvert or extro-vert, try to regulate the amount of social stimulation we receive.14 Table 1.5shows some sample items which psychologists use to measure introversion andextroversion. Note the emphasis on external stimulation and social interaction.



1.3.4 How Can Organisations Use Information about Introversion andExtroversion?

Some companies attempt to identify a job applicant’s extroversion level beforehiring. Companies hiring salespeople often use tests with items similar to thosein Table 1.5 to assess extroversion. Many sales managers believe it is related tosuccess in sales.

The implications of an employee’s extroversion or introversion are not asclear as are the consequences of internal versus external locus of control. Thereare, however, some interesting research results. Introverts generally have longertenure and fewer unexcused absences than do extroverts.15 They also performbetter in situations with few external distractions. Too much external stimulationoften causes the introvert’s performance to drop off quickly. When extroverts areconfronted with dull or meaningless work, they are more likely to engage in irrel-evant behaviour which undermines the productivity of co-workers. Managersshould consider these effects as they match individuals with job characteristics.

Table 1.5 Items for measuring introversion and extroversion

1 I’d rather curl up with a good book than go to a party. T or F?

2 I prefer to be around people who are funny and clever. T or F?

3 If I had a choice, I would take a cross-country bicycle trip for my vacation rather than aMediterranean cruise. T or F?

4 When I have to deal with a new situation involving other people, I usually jump right in.T or F?

5 I greatly admire individuals who take bold public stands on socially controversial issues. Tor F?

6 When I’m in unfamiliar social situations, I generally feel self-confident and interested inmeeting new people. T or F?

1.3.5 The Machiavellian Personality

‘The end justifies the means’ is an old expression which translates to, ‘I’ll doanything at work to achieve my objectives’. Employees with this tendency willmanipulate others and try to induce them to think in their terms. An employeewho believes he is better at giving orders than his superior probably has a Machi-avellian personality. ‘High Machs’ are described as being cool interpersonally,amoral, pleased by manipulating others, and highly rational.16 The Mach-V Scaleis a paper and pencil test which identifies Machiavellian tendencies. If you areinterested in assessing yourself try the questions in Table 1.6.

1.3.6 Can High Machs Have a Negative Influence on the Organisation?

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



Table 1.6 How Machiavellian are you?

Instructions: Circle the answer closest to your opinion for each question then calculate youscore as shown below.

Stronglydisagree

Disagree Agree Stronglyagree

1 I enjoy getting around peopleby telling them what they wantto hear

1 2 3 4

2 I prefer to take action onlywhen I have sorted out theethically right decision

1 2 3 4

3 There are no situations that Iencounter in which lying is thebest course of action

1 2 3 4

4 I believe that most people havea deceitful streak that comes outfrom time to time.

1 2 3 4

Calculate yourMachiavellian score as follows:

Item 1 + (5 − Item 2) + (5 − Item 3) + Item 4

do people with low Mach-V scores.16 Further, if they judge the situation to beambiguous with few rules to govern their behaviour, then they will be veryaggressive in asserting their high Mach tendencies. However, if the situationis highly structured with many checks and balances on behaviour, then thehigh Mach will generally avoid manipulating others. Generally speaking, moreMachiavellian manipulations are attempted at the top than at the bottom oforganisations.

Some psychologists argue that the Watergate break-in and ensuing cover-up byNixon administration officials is a good example of the theory described above.Nixon and his administrators felt few rules governed their behaviour, especiallywhen it came to their interests in concealing their guilt behind the guise of‘executive privilege’ and protecting the presidency as a source of executivepower. They contemplated and enacted activities which were clearly illegal.

1.3.7 Socially Acquired Needs

Experts in organisational behaviour have long recognised that environment playsa substantial role in the development of personality. This idea is very prominentin the concept of socially acquired needs. They are defined as needs that arelearned through personal contact with the social environment.17 The three mostimportant needs from the organisational perspective are 1) need for achievement,2) need for affiliation and 3) need for power. McClelland states that the needfor achievement is defined by the following qualities:

1 Taking moderate risks by pursuing goals that are difficult but not impossible.2 Needing immediate feedback on performance and goal progress.3 Finding task activities and accomplishments to be intrinsically rewarding,

regardless of the financial or economic rewards.



4 Defining work in terms of approaching success instead of avoiding failure.5 Being totally task absorbed until the job is done.

The Organisational Importance of Need for Achievement

Studies have shown that students at all academic levels who have high need forachievement perform better than students with similar ability but lower levels ofachievement need. These effects are also observed in studies of employee workbehaviour. If employees with a high need for achievement judge their work tobe dull and boring, they will lower their performance accordingly. Similarly, ifthey do not receive performance feedback, they will lower their effort on thejob. High need for achievement matters most when work settings emphasise 1)the employee’s ability, 2) high quality performance feedback and 3) stimulatingand novel work activities.18

Need for achievement is related to the desire to become an entrepreneur.Individuals with a high need for achievement are likely to start their ownbusinesses, especially when work settings do not emphasise the qualities notedabove. The achievement-oriented employee who is not challenged by his workoften feels as if his employer does not value his efforts and ideas. When suchemployees become ‘idea champions’ for innovations, and upper managementplaces low priority on ‘their’ innovations, they can become disgruntled andleave. If the disgruntled employee is a competent engineer and a good salesman,watch out! You may soon see him as a competitor with your former customersbeating a path to his door!

How Can Managers Use Information about Need for Achievement?

Managers who are interested in applying the motivational concepts which derivefrom knowledge of need for achievement would:

1 Use need for achievement as one basis for screening job applicants.2 Use it as a factor in promotion decisions.3 Design jobs with goals that are at least moderately challenging.4 Design rewards and feedback that are closely tied to performance behaviours

to create an achievement climate in the firm.5 Reward employee creativity and institutionalise the role of ‘idea champions’

in the firm.

Need for Affiliation

The desire to have and maintain a strong social support system, and to give andreceive affection, is defined as the need for affiliation.17 Need for affiliation isdefined by the following qualities:

1 Reacting positively to work experiences which enhance belongingness, socialinvolvement and group morale.

2 Emphasising that all members of a work group be included in events whichmay affect the morale and cohesion of the group.

3 Solving or confronting interpersonal conflicts which threaten esprit de corps.



4 Emphasising the importance of social rewards such as recognition, praiseand public acclaim.

5 Reacting positively to social rewards which are made contingent on excellentperformance.

How Can Managers Capitalise on Need for Affiliation in Employees?

Managers must be prepared to motivate employees with a high need for affil-iation. Ways to help ensure high performance from these individuals includeallowing them to:

1 Be arbitrators of work-group disputes because they will take a personalinterest in returning harmony to the group.

2 Evaluate the social demands of a job and match employees with a highneed for affiliation to such jobs.

3 Be involved in community affairs which parallel work interests.4 Develop and use as many forms of social rewards as possible in the firm.

Be sure the rewards are dependent on high performance.5 Realise that a superior with a high need for affiliation may incorrectly

emphasise social harmony over productivity.

Need for Power

This socially acquired need defines behaviours oriented towards influencingothers and searching for opportunities to gain influence and control.17 In reality,the need for power has two sides.17 Individuals possessing a personalised needfor power are those who try to dominate or rule simply because they feel moreself-confident when they intimidate others. Negative encounters with such anindividual (especially if he is your superior) can make your job or career veryshort. Firms frequently view such individuals as unproductive because they:

1 Reject job responsibilities in favour of personal concerns.2 Create tense work relations among subordinates who become over-anxious

at work.3 Are poorly adjusted to work and frequently look to palliatives such as drugs

or alcohol to cope with accumulating work stress.4 Project their own inadequacies on fellow workers and subordinates, thus

eroding the work climate further.

Happily, there is a positive side to need for power and it is called socialisedneed for power. The individual with this power need tends to achieve hispersonal goals at work through the process of raising the self-esteem of subordi-nates and colleagues. This kind of manager gains higher levels of performancefrom subordinates by demonstrating his confidence in them. The manager findsmany opportunities to send this message to employees: ‘I have confidence inyou because I know you have confidence in yourselves.’ This is a powerfulmotivational message which expresses the belief that each employee is an expertin his job. The manager with a socialised need for power implies by his actionsthat the best kind of organisational control is self-control in each employee.



The Techniques for Managing Employees with Needs for Power

Organisations and their managers can become more systematic in makingdecisions about employees with either type of power orientation. Let us considersome of them.

1 Employees who exhibit a socialised need for power should be selected andpromoted over employees oriented to personalised power.

2 Positions requiring socialised power should be made visible (given a highprofile) in the organisational hierarchy.

3 Managers with socialised power should take charge of groups where per-formance and morale are low.

4 Because they are more likely to work through people than through the task,social power managers should be allowed to delegate freely to subordinateswhose own managerial skills and self-confidence will develop more quickly.

5 Career paths for managers with socialised power needs should not beblocked. If they are unable to obtain the personal rewards they desire fromtheir work, they may resort to satisfying power needs through less desirablepersonalised methods!17

The socialised need for power is the most important socially acquired needfor predicting managerial success. Individuals with this need are most willingto tackle the political aspects of organisational life. The absence of this abilityin the individual with a high need for achievement may prove to be a manage-rial weakness. The manager with a high need for achievement often errs andcompletes a task himself rather than delegating it to a subordinate. The taskfocus of the manager with a strong achievement orientation prevents him frombeing a good manager of people. Interestingly, this weakness always resurfacesin the business started by an entrepreneur who reaches the point where hecan no longer control all details and decisions. Rather than delegate or hireanother layer of managers, he tries to centralise decision-making in himself. Thecomplexity of the decisions (and his lack of expertise in many areas) triggersmore meddling behaviour and he finds his time is more fragmented and lessproductive. Paradoxically, he ends up losing employees who share his strongachievement orientation. Remember, the employee with a high need for achieve-ment would rather do the job himself! Table 1.7 summarises our discussion ofsocially acquired needs.

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

1.4.1 The Meaning of Job Satisfaction

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



Table 1.7 Work preference of persons high in need for achievement, affiliationand power

Need Work preferences Example

High need for achievement Individual responsibility

Challenging goals

Quick performance feedback

Engineer who is encouragedto find internal sponsors forhis new product idea

High need for affiliation Good interpersonalrelationshipsOpportunities to improvecommunication

Member of a group whichis rewarded throughgroup-based compensation

High need for power Control of others

Frequent attention by others

Recognition throughpromotions

Manager who aspires to headspecial task force that mustmanage the firm’s move to anew location

concept. Instead, the construct is composed of facets which are extremely sen-sitive to employees’ perceptions of the work setting, rewards, supervision, jobdemands and so on. In a general sense, each facet is really an attitude. Anattitude is a predisposition acquired through experience, to respond to people,objects or institutions in a positive or negative way. More specifically, the facetsof job satisfaction are attitudes which focus on: 1) satisfaction with the workitself, 2) satisfaction with pay, 3) satisfaction with fellow workers, 4) satisfac-tion with supervision and 5) satisfaction with promotions. Employees find thatthe importance of any particular facet changes as work events unfold. Also,it is possible for an employee to be very satisfied with one facet while beingunfulfilled in another. For instance, an employee may be very satisfied withpromotions yet find co-workers and supervision to be unsatisfactory.

1.4.2 Determinants and Consequences of Job Satisfaction

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

Years in Career

As employees grow older, they experience more satisfaction at work. Thiscontinues until people approach retirement, where a sharp decrease usuallyoccurs. Also, a sharp decline in job satisfaction often occurs for employees whohave been working for between six months and two years. This early-careerdip usually occurs because the employee learns that the job will not meetall personal needs as quickly as expected. The long-term relationship betweenyears in a career and job satisfaction is shown in Figure 1.2. As retirement agelengthens and work-forces age, employees’ relationships with their jobs change.People are generally healthier and live longer. Innovative company programmessuch as job-sharing, home employment, part-time work and serial careers mayhelp individuals prolong their productive work years.



Years in career

1 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36+

Jo

bsa

tisfa

ctio

n

Figure 1.2 The years in career–job satisfaction relationship

Expectations

Everyone develops expectations about future jobs. As individuals search for jobs,their expectations about work are influenced heavily by information from theircolleagues, from recruiters and from knowledge acquired about labour marketconditions. The expectations that are formed during these early encountersremain intact until individuals begin participating in organisations. If pre-workexpectations are met, satisfaction on the job occurs. If they are not met, theindividual experiences declining job satisfaction.

The initial fall in job satisfaction (see Figure 1.2) is a subject of managementconcern.19 If large numbers of employees leave an organisation at the sametime, it can be costly in terms of recruiting, hiring and training. Many firmsattempt to lessen the decline in job satisfaction during the early career stage byusing realistic job previews. These devices characterise the positive and negativeaspects of a job before an individual is hired. If potential employees’ expectationsdo not align with job requirements, they can drop out of the recruiting processbefore great costs are incurred. Insurance companies have found realistic jobpreviews to be effective tools for reducing turnover among newly hired insuranceagents. Similarly, firms which need to hire employees for routine jobs haveexperienced less turnover among new workers who were exposed to realisticjob previews.20 Also growing in popularity among organisations are internships,which are used by university students as a way to test out jobs and careerswithout having to commit to indefinite employment. Likewise, organisationssee the value in internships because they reduce recruiting costs because theyprovide an inexpensive opportunity to take a significant look at a potentiallyhigh-calibre, future employee.

The Organisational Determinants of Job Satisfaction

The nature of control in organisations, the extent of personal responsibility andcontrol and employment policies all greatly influence employees’ levels of expe-rienced job satisfaction. In turn, the quality of the organisational determinants ofjob satisfaction noted below contribute significantly to sustainable competitiveadvantage based on sound employment practices.



Supervision

Considerate supervision supports employees’ self-esteem and self-worth andleads to greater job satisfaction. If supervisors consult with subordinates on jobdecisions, policies and work rules, employees will generally be better informed,and they will experience greater job satisfaction because they will be moreconfident in their understanding of their work. Thus, participative supervisionincreases subordinates’ job satisfaction. Not all decisions need to be participative,however. Those decisions which require subordinate support or which affectemployee welfare should be made participatively. Participation has the effect ofclarifying employees’ expectations about their work. Employees with clear workexpectations are more likely to be self-confident than their confused counterpartswho do not participate in job-related decisions. Supervisors can readily influencetheir subordinates’ optimism about participation and their desire to be involvedin workplace decisions.

Job Challenge

When jobs require creativity, application of personal skills and risk-taking,employees report higher job satisfaction. Employees with a high need forachievement are more satisfied when their jobs require intellectual or physi-cal effort. When employees are challenged, they become more physically andintellectually involved in their work. Job challenge can initiate these two condi-tions.

Job Clarity

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

Incentives

Extrinsic and intrinsic rewards are related to job satisfaction. Extrinsic rewardsare those that the organisation provides based on employee performance andeffort. Examples of extrinsic rewards are pay rises, promotions, supervisor praiseand recognition, job status symbols and job security. Intrinsic rewards are thosethat the employee experiences internally. For example, feelings of competence,pride and craftsmanship are intrinsic rewards for a job well done. They occuras the employee’s work unfolds. Since these rewards affect how the employeesfeel about themselves, they can be very powerful for maintaining motivationand performance. Both types of rewards are related strongly to job satisfaction.The theory which links them is called equity theory. This theory posits thatemployees make comparisons about the rewards they receive relative to theireffort and performance levels. Further, they make these comparisons relativeto the rewards, efforts and performance exhibited by other employees. These



comparisons are referred to as ‘social comparisons’ which result in perceivedequity or inequity. A typical employee social comparison is illustrated below.

My rise compared to Co-worker riseMy efforts and performance Co-worker efforts

and performance

To make such comparisons, an employee usually selects a ‘comparison other’.The comparison other can be another employee, all of the employees in aparticular profession or selected employees in a similar organisation. If theresults of these ‘social judgements’ seem fair, the employee is satisfied with hislevels of extrinsic and intrinsic rewards. If, on the other hand, the employeejudges the comparison other’s reward to be greater than his own, a perceivedinequity occurs. Perceived inequity represents a state of psychological imbalance.The only ways for the individual to restore balance are to: 1) reduce effort andperformance, 2) change the ‘comparison other’ to a more suitable co-worker, 3)increase the levels of effort and performance and hope that rewards obtainedincrease, or 4) eliminate the problem by leaving the job or seeking a transfer.

Equity comparisons are made for all facets of job satisfaction and for bothtypes of rewards. Employees constantly make equity comparisons. Therefore, itis necessary that managers attend to supervision, job challenge, job clarity andincentives so that employees’ expectations about job demands are clear. Throughthe process of participation, it is then possible to create more reasonable equitycomparisons which result in improved levels of job satisfaction.

The Key Consequences of Job Satisfaction

Both mental and physical health increase with job satisfaction. When employeesare satisfied with their jobs, they report fewer ailments, e.g., heart disease,headache, sleep disturbances, sleep disorders. Less anxiety, tension and stressoccur among satisfied workers. Job satisfaction improves employee resistanceto job stress and its physical symptoms (see Module 2). In fact, some reportssuggest that satisfied employees live longer; happier workers do indeed seemto be healthier workers.

Lower employee turnover and unexcused absences are another consequence ofjob satisfaction. Countless research studies have found dependable relationshipsbetween turnover and unexcused absences. However, the relationship betweenjob satisfaction and absenteeism is less dependable. For instance, there are manyreasons why a satisfied employee may be absent from work. Equally relevant arethe reasons why a dissatisfied employee may choose to go to work. For instance,the dissatisfied employee may fear being fired, he may have no options that aremore pleasant than attending work and he might simply choose work ratherthan staying home.

Job previews were described as one technique to reduce absenteeism andemployee attrition because of high job dissatisfaction. When rates of turnoverand absenteeism are high in an organisation, indirect labour costs rise rapidly.High turnover increases recruiting, hiring and training costs (all indirect costs),because the organisation is constantly processing new members. A high absen-teeism rate also drives up indirect costs because the organisation must have more



employees in reserve to cover for those who do not come to work. Without areserve, more work must be distributed among fewer workers; this, in turn, cre-ates more job dissatisfaction through perceived inequity. These effects all under-mine an effective employment relationship and threaten competitive advantage.

1.4.3 Job Satisfaction and Performance

We now have all of the pieces in place to look at one of the most important rela-tionships in organisational behaviour. This is the job satisfaction–performancerelationship. Current thinking on this relationship is illustrated in Figure 1.3.

Intrinsicrewards

Extrinsicrewards

Performance

Perceived equity forvarious rewards

(mediates the relationship)Job satisfaction

Figure 1.3 The performance–job satisfaction relationship

Applying the Reasoning of the Model

Figure 1.3 indicates that satisfactory performance triggers the release of variousintrinsic and extrinsic rewards. Extrinsic rewards are available through theorganisation compensation system, while intrinsic rewards are linked to theway the task is designed, e.g., level of challenge, clarity, variety of skills usedand opportunity to learn new skills. If the compensation system malfunctionsand provides poor performers with the same rewards as high performers, theexcellent employees will experience perceived inequity and their pay satisfactionwill plummet. Likewise, if jobs are poorly designed, unchallenging and boring,intrinsic rewards will be scarce and employees’ satisfaction with the work itselfwill drop, again due to perceived inequity. Remember, both the compensationsystem and the job design system must function properly to ensure perceivedequity.

The model indicates that a direct relationship between performance and jobsatisfaction does not exist. Perceptions of equity tie the two together. Also,individual differences influence job satisfaction. For example, employees witha strong internal locus of control would experience job dissatisfaction throughperceived inequity, if they believed the job offered little challenge and if theirperformance were not fairly compensated due to an ineffective compensationsystem. An example of this would be disgruntled employees who complainthat seniority is rewarded more than performance. Similar arguments can bemade for individuals with various combinations of socially acquired needs. Theimportant point is that it is not only performance and perceived equity whichinfluence the level of satisfaction of employees. Employee characteristics alsointeract with the work situation to influence job satisfaction levels.



1.4.4 How Organisations Can Measure Job Satisfaction

Managers monitor job satisfaction because it is an important indicator of theorganisation’s ability to meet the needs of its employees. Many methods havebeen developed to measure job satisfaction. All of them are indirect because jobsatisfaction can only be inferred: it is both intangible and personal. The methodsinclude: 1) observation of employee behaviour, 2) interviewing employees and3) paper and pencil questionnaires on job satisfaction. The least expensive andmost dependable method is the paper and pencil questionnaire. Table 1.8 showssample items from the Job Descriptive Index (JDI), which is the most widelyused measure of job satisfaction.21

The JDI measures the five facets of job satisfaction which were mentionedearlier. Each facet has a specific meaning for an employee and each can be apowerful inducement to work. The JDI’s use of positive and negative descriptorsprovides balance and allows the manager to avoid problems associated withother measures. The adjectives selected for the JDI enable it to be used in anywork situation and with any employee group.

Another tool which measures job satisfaction is the Minnesota SatisfactionQuestionnaire.22 This questionnaire uses a different method to generate answers.Table 1.9 shows some sample questions from this instrument. Its format facili-tates assessment of partial agreement with the facets of job satisfaction. Althoughthis method takes longer than the JDI, it yields very dependable results.

Table 1.9 Excerpt from the Minnesota satisfaction questionnaire

Notsatisfied

Slightlysatisfied

Satisfied Verysatisfied

Extremelysatisfied

My job security 1 2 3 4 5

The amount of pay for thework I do

1 2 3 4 5

The working conditions(heating, lighting,ventilation, etc.) on this job

1 2 3 4 5

The opportunities foradvancement on this job

1 2 3 4 5

The technical ‘know-how’of my supervisor

1 2 3 4 5

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

Problems with Using Questionnaires

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



Table 1.8 Sample items from the Job Descriptive Index (JDI)

Think of your present work. What is it like most of the time? In the blank beside each word or phrase givenbelow, put:

Y If it describes your work Work on present job

N If it does NOT describe it Routine

? If you cannot decide Satisfying

Good

On your feet

Think of the pay you get now. How well does each of the following words describe your present pay? In theblank beside each word or phrase given below, put:

Y If it describes your pay Present pay

N If it does NOT describe it Adequate for normal expenses

? If you cannot decide Insecure

Less than I deserve

Highly paid

Think of the kind of supervision that you get on your job. How well does each of the following words describethis supervision? In the blank beside each word or phrase given below, put:

Y If it describes the job supervision you get Supervision on present job

N If it does NOT describe it Impolite

? If you cannot decide Praise for good work

Influential

Doesn’t supervise enough

Think of the opportunities for promotion that you have now. How well does each of the following words describethese? In the blank beside each word or phrase given below, put:

Y If it describes your promotion opportunities Promotion opportunities

N If it does NOT describe them Promotion on ability

? If you cannot decide Dead-end job

Unfair promotion policy

Regular promotions

Think of the majority of people that you work with now or the people you meet in connection with your work.How well does each of the following words describe these people? In the blank beside each word or phrase givenbelow, put:

Y If it describes the people you work with People on your present job

N If it does NOT describe them Boring

? If you cannot decide Responsible

Intelligent

Talk too much

The JDI is copyright Bowling Green State University. The complete forms, scoring key, instructions and norms can be obtainedfrom Dr. Patricia Smith, Department of Psychology, Bowling Green State University, Bowling Green, Ohio 43404.

the items in any questionnaire have different meanings, the survey results can bebiased in systematic ways. This is more of a problem for researchers using theseinstruments than it is for managers who wish to determine levels of satisfactionamong employees.



1.5 Developments in the Study of Employee Work Attitudes

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

1.5.1 Organisational Commitment and its Consequences for Employees and theOrganisation

Organisational commitment is defined as the strength of an employee’s identifi-cation with the organisation. It has three components: 1) belief in and acceptanceof the organisation goals and values, 2) willingness to exert considerable efforton behalf of the organisation and 3) desire to maintain membership in theorganisation. Organisational commitment goes well beyond company loyalty.23

It means that employees actively promote the organisation to interested partiesor to those who are affected by the organisation’s actions. In other words, thecommitted employee would defend the organisation’s reputation in the face ofcriticism. It is also indicated by an employee’s willingness to give something ofhimself to the organisation (such as developing a protege by being a mentor).When employees defend their employer and promote the organisation’s goals,they are strengthening their organisational commitment. Frederick Ashley isdescribed in the narrative below. He demonstrates organisational commitment.See if you can find examples of the components of organisational commitmentin Frederick’s story.

Frederick is unusual in the age of job-hopping and multiple employers. Frederick is78 years old; he admits proudly that he’s a company man and always will be one.When he left his job as a salesman for Gerhart, Ltd. in 1987, he retired from theonly employer he had ever known. He left behind a group of employees that hecalled ‘his family’. ‘I’m sad to leave, I really am’, said Frederick as he rummagedthrough the packing crates in his office. ‘Its time for me to move over and givesome of the new guys a chance.’ The former salesman, who had spent the betterpart of his life selling the company’s machinery, recalled his life and work withfondness and nostalgia. Now his voice has a tinge of sadness as he commentsthat he entered the ranks of the retired voluntarily. ‘I’ve grown very fond of mywork, the company, and the people I’ve worked with over the last 60 years. I’vehad many of the same customers for over 30 years. They understand how ourbusiness operates. Many of them were buying tools from us even before I camealong. That’s how I got started, you know. I worked in the shop and then in theoffice for thirty years before I moved to sales.’

‘I just need to take time off. Many times I’d show up at the office with a coldor upset stomach.’ He doesn’t say it in so many words, but he clearly relishesprojecting the image of the company man. This company man would get out ofbed at 4 a.m. to go to work and analyse customer accounts. ‘Sometimes just forthe fun of it I’d get up extra early to be the first one there. I guess that after awhile I got the reputation around the office of being an early bird.’



Frederick lives about five kilometres from the office. He has no plans for hisfuture other than taking life as it comes, working in his garden and visiting hissons.

‘I retired because I believed I didn’t have many more years left; I was gettingto that age. I want to spend more time with my wife. We enjoy dining out andtravelling.’

Frederick admits he is having trouble adjusting to a life of leisure. He’s not tookeen on sleeping late, and he misses the trip to work. ‘I guess I just became tooused to the sounds of the office.’ He confesses that he misses the weekday workschedule and that he’s just a little lonely after six decades in the same company.

‘I thoroughly enjoyed my work and loved the people I worked with. My job wasnever burdensome. I loved what I did, and always felt good about it.’ Fredericknotes that his boss has said if retirement isn’t for him, he can return to work anytime. ‘They said I could pick up where I left off with no problems. It makes mefeel needed.’

Commitment to an organisation is different from job satisfaction becauseit requires a wider perspective (towards the entire organisation), while jobsatisfaction results from employees’ reactions to their jobs. Job satisfaction alsofluctuates over the short term depending on the immediate conditions associatedwith the job (e.g., getting new co-workers or learning of a proposed job transfer).In contrast, organisational commitment develops slowly and consistently overtime; thus an employee may be satisfied with his job but may not be committedto the organisation. This partially explains why employees change employerseven when they may have been satisfied with their previous work. Peoplewho progress in a career with a particular organisation usually acquire moreorganisational commitment. Chronic ‘job hoppers’ are not around long enoughfor this to occur. Migrant managers never experience much of this work attitude.

Our current period of economic insecurity has eroded the employee’s view ofthe employment relationship from the standpoint of organisational commitment.People who used to take their jobs and permanent rises in their standard of livingfor granted have been jolted by the realities of stubbornly high unemploymentand corporate downsizing.24 These causes of employee uncertainty have madethose employees who remain on the job doubtful of their jobs and their abilitiesto ensure a comfortable economic future. Waves of downsizings and mergerscause employees to doubt the value of their expressions of organisational com-mitment. Continued deregulation of various industries exposes companies tocompetition from more efficient rivals. In turn, pressure builds on those com-panies to downsize and to adopt more productive, capital-intensive productiontechnologies. Shareholders demanding higher earnings and rising stock valuescontribute to managements’ willingness to pare labour costs through downsiz-ing. It is unlikely that these causes of employee Angst will subside soon. To besure, they will encourage workers and managers to withhold their organisationalcommitment.

How Does Organisational Commitment Benefit the Organisation?

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



even when they experience periods of job dissatisfaction. Employees with organ-isational commitment may perform better. Committed employees expend morejob effort and they can be more productive than less committed employees.They set more ambitious goals when they participate in goal setting. Finally,committed employees adopt the goals and values of the organisation in per-sonal terms. This means that committed employees are strong advocates forthe products, services and policies of their employers. Clearly, many of thesevaluable outcomes are at risk in organisations that attempt to improve their com-petitiveness by downsizing rather than by improving the flexibility and skills oftheir work-forces by making investments in training and development.

1.5.2 Job Involvement and its Consequences

Job involvement is an important work attitude, and is defined as the degree towhich employees identify with their job, participate actively in it and consider itto be a key determinant of their self-worth.25 Job involvement is determined bycharacteristics of the job and it creates different employee reactions from thosecaused by organisational commitment. Job involvement activates beliefs thatthe job is a central component of one’s life. Job-involved employees are likelyto view work as a major source of life satisfaction.26 Active job involvementrefers to an employee’s desire to be physically and psychologically involved inwork. Job involvement contributes to perceptions of self-worth. If an employeeexperiences increased self-worth through his work, numerous consequences canoccur. For instance, if this were true for you, and if you were approached bysomeone who asked you what you are like, you might respond in work-relatedterms. Indeed, many of us who experience job involvement describe ourselvesin terms of what we do for a living. Job involvement may be less at riskin downsizing than the employee’s organisational commitment. It is possiblefor an employee to stay highly involved with his job even though he may beapprehensive about his future employment prospects. Indeed, because of thedemands of an absorbing job, the employee may find a kind of refuge that helpshim temporarily to ignore his fears about job loss.

How Can Managers Raise Organisational Commitment and Job Involvement?

Remember, these two work attitudes have different origins (i.e., organisationsversus jobs). There are ways for managers to encourage development of both.Let us examine them. Managers should:

1 Demonstrate that they honestly care about their employees’ welfare.Often, managers are too busy to demonstrate much concern for employeewelfare beyond creating safe working conditions. Both commitment andinvolvement depend on a strong, positive personal connection between theemployee and organisational events. If these events address employee wel-fare in conjunction with challenging tasks and participation, both of theseemployee work attitudes are more likely to form.

2 Create opportunities for employees to achieve their personal goals. If anemployee desires to take on more responsibility, perhaps to increase hischances for promotion, the able manager will avoid feeling threatened. The



manager thus focuses on the design of the employee’s job in order to findways to make it more meaningful and challenging.

3 Modify jobs so employees have more opportunities to achieve intrinsicrewards. Many employees feel the need to have more personal control overtheir work. An effective manager provides opportunities for employees toparticipate in decision-making to fulfil these needs.

4 Find ways to reward employees regularly. If managers are unavailablewhen employees encounter task problems, then the two work attitudes areless likely to form. Further, if managers only appear when problems surface,employees come to associate them with punishment and criticism.

5 Set goals with employees and be sure that some of them are personaldevelopment goals which are meaningful to the employees in question.Not only should managers explain the importance of goals, but they shouldactively participate in the development of managerial competence in theirsubordinates.

Summary Points• The field of organisational behaviour is a social science that develops know-

ledge about the behaviour of people at work. Organisational behaviourstudies organisational productivity and employee needs. All aspects oforganisation performance relate to the former; work attitudes such as jobsatisfaction, organisational commitment and job involvement relate to thelatter. The field of organisational behaviour concentrates on the acquisitionof knowledge about organisational productivity and employee needs.

• Management differs from organisational behaviour in that it deals withaccomplishment of organisational goals and involves the technical, concep-tual and human components of organisational functioning. The manager’sjob in the twenty-first century will focus on his coaching, integration andconflict-resolution skills. Old job requirements such as giving orders, deter-mining promotions and making autocratic decisions will fade in importance.

• The rate of change in content of the manager’s job is being increased bywork-force diversity, demands for better products and services, global capi-tal flows and new organisational philosophies like employee empowerment.

• Values are enduring beliefs and they can be instrumental or terminal innature. Instrumental values reflect the means for achieving one’s goals inlife and terminal values are the life goals themselves.

• As organisations expand their global activities, managers will be challengedby culture-based value differences. Increasingly, organisations are providingculture-based values training to smooth the transitions for their managerswho receive global assignments.

• Locus of control refers to one’s beliefs about what cause outcomes in life.Internals believe in the causality of personal behaviour, while externalsbelieve in the causality of environmental forces. Internals thus see them-selves as the cause of outcomes, while externals believe outcomes are createdby forces and events outside themselves.



• Extroversion and introversion refer to the strength of one’s need for exter-nal sensory stimulation. Introverts prefer less external ‘social noise’ thanextroverts. These qualities can influence performance if a job is designed tobe either high or low in social stimulation.

• Machiavellism is the need to influence others to achieve one’s personalends. It predisposes the individual to manipulate others to achieve personalgains in unstructured organisational circumstances.

• The socially acquired needs of achievement, affiliation and power are impor-tant factors in understanding employee behaviour. Achievement motivationis a primary cause of entrepreneurial behaviour. Affiliation needs energisesupportive and collaborative behaviour in work groups. Need for power hastwo forms of expression: personalised and socialised power. The socialisedneed for power is an important managerial quality that is associated withorganisational effectiveness.

• Job satisfaction is composed of the facets of pay, promotion, co-workers,supervisors and the work itself. The level of experienced job satisfaction isdetermined by job challenge, job clarity, supervision and incentives, whichare all organisational factors. Years in career and personal work expectationsare important individual determinants of job satisfaction. Job satisfactionis not directly related to performance. The connection is determined bythe availability of both intrinsic and extrinsic rewards, and by employees’perception of the fairness of their distribution.

• Organisational commitment represents employee agreement with organisa-tional goals, willingness to exert effort on behalf of the organisation anda strong desire to maintain membership. It takes longer to form than jobsatisfaction, but once formed, is more resistant to change.

• Economic insecurity threatens employees’ job security and economic well-being. As a result, those employees who remain on the job after downsizingand corporate restructuring often experience sharp drops in organisationalcommitment.

• Job involvement develops through one’s job and affects the employee’s self-worth and desire to participate in work-related decisions. Employees canhave job involvement without being committed to the organisation. Thus,downsizing, job re-engineering and corporate restructurings may have lessdirect, negative effects on employees’ levels of job involvement.

Review Questions

True/False Questions

1.1 The field of organisational behaviour has developed because managers need tounderstand employee motivation and job satisfaction. T or F?

1.2 The field of organisational behaviour is best described as an applied disciplinethat focuses on the issues of employee needs and organisational productivity. Tor F?



1.3 Organisational behaviour would not deal with factors that cause students to besatisfied or dissatisfied with the courses they take at the university. T or F?

1.4 Managers have less need for organisational behaviour theories because theirwork is action oriented. T or F?

1.5 An engineer with an internal locus of control is much more likely to search forinformation outside his work setting than an engineer with an external locusof control. T or F?

1.6 Extrovert employees seek more stimulation from their social environment thando introverts. T or F?

1.7 A Machiavellian employee will go along with company goals, especially if thework setting is very unstructured and feedback is sporadic. T or F?

1.8 A good rule to follow when supervising employees is: treat all employees thesame way. T or F?

1.9 High achieving managers are good delegators of authority to subordinates. Tor F?

1.10 Individuals with a high need for affiliation would be highly motivated toimprove harmony. T or F?

1.11 An individual’s need for power is more organisationally valuable if it is expressedas personalised power need. T or F?

1.12 Job satisfaction is less sensitive to extrinsic rewards than to intrinsic rewards. Tor F?

1.13 Job satisfaction is important to organisational productivity because it is relatedto absenteeism, grievance rates and turnover. T or F?

1.14 Equity comparisons of rewards received in relation to efforts expended areimportant components of the job satisfaction–job performance relationship. Tor F?

1.15 Organisational commitment consists of three highly volatile facets. T or F?

1.16 Job satisfaction and organisational commitment are related to the same prop-erties of organisations. T or F?

1.17 Job involvement is always present when an employee is satisfied with his job.T or F?

1.18 The least important dimension of job involvement is the belief that the jobcontributes to one’s self-worth. T or F?

1.19 Values training in global organisations can safely emphasise instrumental valuesonly for expatriate managers. T or F?

1.20 Economic uncertainty is more of a threat to organisational commitment thanto job involvement. T or F?



Multiple Choice Questions

1.21 The internal perspective of human behaviour explains an employee’s actions interms of:

A job design.

B personal beliefs and value systems.

C organisational structure.

D organisational authority systems.

E peer relations and group dynamics.

1.22 Organisational behaviour is a field of study which places equal emphasis on:

A micro and macro issues such as employee motivation and organisationaldesign.

B productivity and quality improvement efforts.

C understanding the needs of employees and managerial requirements fortechnical problem-solving.

D external environmental issues and managerial ethics.

E A and C.

1.23 Individual differences are best defined as:

A the fundamental components of the organisational behaviour modificationparadigm.

B primary constructs in the psychodynamic theory of personality development.

C basic aspects of personality which predict employee behaviour in the worksetting.

D A and B only.

E None of the above.

1.24 Individuals with an internal locus of control:

A display high anxiety and tension.

B tend to be restless and agitated on the job.

C prefer participative management systems.

D avoid authority figures.

E believe that performance is based on luck rather than effort.

1.25 According to research on socially acquired needs, successful top managers tendto have a high need for:

A dominance.

B achievement.

C affiliation.

D security.

E risk aversion.



1.26 A manager with a high personalised need for power would prefer:A taking control of others to setting challenging goals for a work group.B gaining opportunities to improve communication to gaining recognition

from his superiors through promotions.C quick performance feedback to loyal and dedicated subordinates.D taking individual responsibility to control of others.E to be involved in community affairs.

1.27 According to organisational behaviour research, the relationship between jobsatisfaction and job performance is:A strong and direct.B indirect and not always consistent.C strong and negative.D positive for younger employees and negative for older employees.E impossible to measure.

1.28 A manager with a socialised need for power who had also been promotedseveral times would look favourably on:A employees who took a strong interest in their jobs and the work goals for

their units.B raising work unit performance goals and making employees’ bonuses con-

tingent on those goals.C employees who willingly expressed their personal loyalty to him and valued

unit goals.D A and B only.E None of the above.

1.29 Twentieth-century research concerning organisational behaviour and work-forcemanagement has focused on all of the following except:A employee job satisfaction.B small group behaviour.C power and influence dynamics.D leader-follower relationships.E production engineering and computer assisted design.

1.30 Which of the following statements is correct with respect to total qualitymanagement?A Quality control is the responsibility of specialists who perform quality checks

as products come off the assembly line.B Quality is a design characteristic that becomes the responsibility of all

employees and managers.C Quality is a management tool to help managers communicate more effec-

tively with their employees.D Total quality management programmes can only be installed in organisa-

tions which are highly bureaucratic and machine-like.E Quality improvements must be made only at the beginning of production

operations if they are to be permanent.



Short Essay Questions

1.1 What kinds of problems would a supervisor confront if all of his subordinateshad an external locus of control? Are there steps a supervisor can take toinfluence employee beliefs about the causes of work outcomes?

1.2 Develop an account of the current thinking about the relationship between jobperformance and job satisfaction. If a supervisor believes that ‘happy employeesare productive employees’, what kinds of problems might he encounter? Besure to emphasise the role of rewards in your answer.

1.3 Which of the socially acquired needs do you consider to be of the highestvalue?

1.4 How has the manager’s job changed in the delayered and downsized organisa-tion of the 1990s?

1.5 Discuss some of the factors that might shape a company’s emphasis on terminaland instrumental values in its mission statement. How do you make a missionstatement relevant in a global company?

Case Study 1.1: Measuring Job Involvement in the WorkSetting

This case study stresses the importance of job involvement, which develops asemployees gain more experience in their jobs. You can learn a great deal aboutthe significance of job involvement in employees’ lives by completing this exer-cise. The exercise is broken into three components: 1) the administration of aquestionnaire to at least five employees in your organisation, 2) conducting per-sonal interviews with the employees who have completed the job involvementquestionnaire and 3) answering some simple questions after you have completed1 and 2. The questionnaire you use is shown in Table 1.10.

The questionnaire is scored in the following manner: add up each respondent’scircled answers for a total job involvement score. Scores can vary from a lowof 12 (minimum job involvement) to 48 (maximum job involvement). Mostindividuals will fall in between and typical scores range between 24 and 36.After you have determined each respondent’s score, calculate an average scorefor your sample of employees.

The personal interviews that you conduct with employees should address thefollowing questions:

1 What is your job title?2 How long have you worked at this job?3 What are the five key responsibilities that you have in your job?4 What are the three aspects of your job that you like best?5 What are two actions that the company could take to make you more

effective in your work?6 If you could change your job in two ways, what would they be?



Table 1.10 Job involvement questionnaireInstructions: Please circle the choice which most closely matches your opinion for each item.

Stronglyagree

Agree Disagree Stronglydisagree

1 Staying late to finish a jobdoesn’t bother me

4 3 2 1

2 You can tell a lot about a personby his work

4 3 2 1

3 I get most of my satisfactionfrom my work

4 3 2 1

4 My days at work really fly by 4 3 2 1

5 I always arrive at work a littleearly to get started

4 3 2 1

6 The most important things thathappen to me are related towork

4 3 2 1

7 Sometimes I lie awake at nightthinking ahead about worktomorrow

4 3 2 1

8 I’m a work perfectionist 4 3 2 1

9 I feel lousy when I fail at somepart of my job

4 3 2 1

10 I must admit that I am a‘workaholic’

4 3 2 1

11 I would keep on working even ifI didn’t need the money

4 3 2 1

12 I get deeply involved in my work 4 3 2 1

Once you have gathered your questionnaire and interview information, answerthe following questions and prepare a brief written report of your findings. Thequestions and the rationale for each one are presented below. There are no ‘right’answers to any of these questions. They are designed to help you consider theunique meaning of job involvement for employees.

1 What are the major responsibilities of the employees interviewed? RATION-ALE: All employees usually understand their job responsibilities. Further,these responsibilities should contribute to their personal growth in someway.

2 Are the employee suggestions of ways to improve their personal effective-ness related to their job responsibilities? RATIONALE: Employees shouldperceive ways to improve their performance through their own actions. Inaddition, they should perceive a linkage between their job responsibilitiesand their effort and behaviour.

3 Do the employees generally want to change their jobs relative to their majorjob responsibilities? RATIONALE: There should be a connection betweenlow job involvement scores and dissatisfaction with major job responsibili-ties.

4 How do you explain the average that you obtained for employees’ scores on



the job involvement questionnaire? RATIONALE: A clear pattern betweenthe paper and pencil test results and interview results should surface.

Case Study 1.2: General Electric Has a Whistle-blower

General Electric Corporation consists of over 186 companies organised into 43strategic groups and six business sectors. With over 250 000 employees, it is oneof the oldest consumer and industrial products manufactures in America. Forover 40 years it has been one of the largest defence contractors. For the US armedservices it builds jet engines, radar systems, missile components and a varietyof replacement parts. It also builds military hardware for purchase by friendlycountries after the Department of Defense and the Commerce Department havecleared the transactions.

All defence contracting firms in the USA have started efforts to preventor eliminate fraudulent and deceptive business practices. These programmeshave been stimulated by the provisions of the 1986 False Claims Act and theinvestigative practices of the US Justice Department and the Defense CriminalInvestigative Service, both components of the US Attorney General. Besidesspelling out fraudulent practices, remedies and penalties, the law specificallyprotects whistle-blowers. A whistle-blower is an employee who reports corporatewrong-doing such as bribes, kickbacks, false accounting practices or cheatingto federal officials. The law noted above specifically protects such individualsfrom retaliation (termination, pay loss, job transfer, demotion, discipline orharassment) by their employers for informing the federal officials or for givingtestimony in government-initiated suits against defence contractors. Further,whistle-blowers can receive up to 25 per cent of the fine or penalty assessedagainst the firm when wrongdoing is proven.

General Electric mounted an ambitious campaign to comply with the FalseClaims Act. In spite of internal controls and employee training, GE has beencharged with fraudulent defence contracting activities several times in recentyears. One such case involved a long-time employee named Chester Walsh. Heblew the whistle on a scheme designed to create payoffs and kickbacks to a GEmanager and an Israeli general. During the 1980s the pair defrauded the USgovernment of about $42 million. Mr Walsh charged that Herbert Steindler, aGE marketing official who handled Israeli accounts, conspired with Israeli AirForce General Rami Dotan to prepare and submit false invoices for payment formilitary equipment and services which were never provided by GE which thenpassed the bills on to the appropriate US defence agency. The ruse lasted forseveral years until Mr Walsh detected it.

Rather than report the illegal activities right away, Mr Walsh learned thedetails of the 1986 law and he gathered irrefutable evidence of the conspiracy.For four years he assembled documents and recorded conversations. By 1991 hehad reported the abuses and he filed suit against his employer under the FalseClaims Act. The US Justice Department and the US Air Force investigated thecharges. Eventually 24 GE employees were dismissed or disciplined, includingMr Steindler. In Israel, General Dotan was convicted of bribery and related



crimes and given a 13-year prison sentence. Mr Walsh received $11.5m of the$69m GE had to pay the federal government to end the case.27

1 Do you think that fraudulent business practices are more common in verylarge organisations? If so, why?

2 Why did Mr Walsh wait for four years to reveal the conspiracy betweenMr Steindler and General Dotan? In your mind did he gain anything bydelaying his accusation?

3 What are your recommendations to GE for preventing fraudulent practicesand encouraging ethical employee conduct?

References

1 Mintzberg, H. (1975) ‘The Manager’s Job: Folklore and Fact’, Harvard Business Review(July–August): 61.

2 Fondas, N. (1992) ‘A Behavioral Job Description for Managers’, Organizational Dynamics(Summer): 47–58.

3 Kraut, A., Pedigo, P. R., McKenna, D. and Dunnette, M. (1989) ‘The Role of the Man-ager: What’s Really Important in Different Management Jobs’, Academy of ManagementExecutive (November): 286–93.

4 Kreitner, R. and Kinicki, A. (1995) Organizational Behavior, 3rd edn. Homewood, IL:Irwin Publishing Co., 8–11.

5 Rokeach, M. (1975) The Nature of Human Values. New York: Free Press, 5.

6 Tung, R. (1991) ‘Handshakes Across the Sea: Cross-Cultural Negotiating for BusinessSuccess’, Organizational Dynamics (Winter): 30–40.

7 Ibid.

8 Hodgson, K. (1992) ‘Adapting Ethical Decisions to a Global Marketplace’, ManagementReview 81: 53–7.

9 Rotter, J. (1966) ‘Generalized Expectancies for Internal vs. External Locus of Controlof Reinforcement’, Psychological Monographs 80: 1–23.

10 Watson, D. and Baumol, E. (1967) ‘Effects of Locus of Control and Expectation ofFuture Control Upon Present Performance’, Journal of Personality and Social Psychology6: 212–15.

11 Organ, D. and Hammer, C. (1982) Organizational Behavior, 2nd edn. Plano, Tex:Business Publications, 46–60.

12 Gartner, W. (1985) ‘A Conceptual Framework for Describing the Phenomenon of NewVenture Creation’, Academy of Management Review 10: 696–706.

13 Brockhaus, P. (1986) ‘The Psychology of the Entrepreneur’. In C. A. Kent, D. L.Sexton and K. H. Vespers, (eds.), Encyclopedia of Entrepreneurship. Englewoods Cliffs,NJ: Prentice Hall, 39–56.

14 Eysenck, H. (1967) The Biological Basis of Personality. Springfield, IL: Charles C. Thomas,Inc., 1–53.



15 Cooper, R. and Payne, R. (1967) ‘Extroversion and Some Aspects of Work Behavior’,Personnel Psychology 20: 45–67.

16 Christie, R. and Geis, F. (1970) Studies in Machiavellianism. New York: Academic Press.

17 McClelland, D. (1961) The Achieving Society. Princeton, NJ: Van Nostrand.

18 McClelland, D. (1962) ‘Business Drive and National Achievement’, Harvard BusinessReview 40: 99–112.

19 Sheridan, J. (1985) ‘A Catastrophe Model of Employee Withdrawal Leading to LowJob Performance, High Absenteeism, and Job Turn-over During the First Year ofEmployment’, Academy of Management Journal 28: 88–109.

20 Wanous, J. (1980) Organizational Entry: Recruitment, Selection, and Socialization of New-comers. Reading, Mass: Addison-Wesley.

21 Smith, P., Kendall, L. and Hulin, C. (1975) The Measurement of Satisfaction in Work andRetirement. Chicago: Rand McNally.

22 Loquist, L. and Davis, R. (1975) Adjustment to Work: A Psychological View of Man’sProblems in a Work-Oriented Society. Chicago: Rand McNally.

23 Porter, L., Steers, R., Mowday, R. and Boulian, R. (1974) ‘Organizational Commitment,Job Satisfaction and Turnover Among Psychiatric Technicians’, Journal of AppliedPsychology 59: 603–9.

24 ‘Learning to Cope’, The Economist, 6 April 1996: 15–16.

25 Steers, R. (1981) Introduction to Organizational Behavior. Glenview, IL: Scott-Foresman.

26 Rabinowitz, S. and Hall, D. (1977) ‘Organizational Research on Job Involvement’,Psychological Bulletin 31: 265–88.

27 Miceli, M. and Near, J. (1995) ‘Relationships among value congruence, perceivedvictimization and retaliation against whistle-blowers’, Journal of Management 20: 773–94.


Module 2

Stress and Well-Being at Work

Contents

2.1 Introduction to Stress and Well-Being at Work 2/22.1.1 Job Stress Goes Global 2/2

2.2 Understanding Job Stress and its Components 2/3

2.3 A Model of Causes and Consequences of Stress 2/42.3.1 Environmental Factors that Can Induce Stress 2/42.3.2 Organisational Factors that Create Stress 2/62.3.3 Personal Lifestyle Factors that Can Aggravate Stress 2/82.3.4 Individual Differences 2/82.3.5 Consequences of Stress 2/10

2.4 Individual Approaches to Managing Stress 2/11

2.5 Organisational Programmes of Wellness and Job StressManagement

2/13

2.5.1 Corporate Wellness Plans Go after the Not-So-Well Employees 2/14

2.6 Downsizing: A New Form of Permanent Job Insecurity? 2/162.6.1 Domestic Competition 2/162.6.2 Merger Mania 2/162.6.3 Government Spending and Labour Market Involvement 2/172.6.4 Small Is Beautiful 2/172.6.5 Restless Shareholders 2/18

2.7 A Semi-Last Word on Downsizing 2/19

Summary Points 2/20


Case Study 2.1: Samuel Logston 2/22

Case Study 2.2: The Pain of Downsizing 2/24

Learning Objectives

By the end of this module you will be able to:

• Describe the causes and consequences of stress on the job.• Explain the nature of the general adaptation syndrome.• Explain the relationship between job stress and employee performance.• Describe the features of the Type A personality that lead to adverse conse-

quences shown in General Adaptation Syndrome.


Module 2 / Stress and Well-Being at Work

• Enumerate the features of a successful company stress-managementprogramme.

• Conceptualise the relationship between job stress, job insecurity and contin-uing efforts to control costs through corporate downsizing.

2.1 Introduction to Stress and Well-Being at WorkA large American insurance company regularly conducts nationwide surveysdesigned to assess the amount of job stress experienced by people at all levelsin all types of organisations. A survey of over 22 000 employees in 1992 foundthat job stress exacts a heavy toll. Seventy per cent of employees said thattheir jobs are ‘extremely stressful’.1 Further, the respondents reported that theywere three times as likely as employees reporting low work stress to experienceproblems in their lives or work due directly to the stress that they experience onthe job. Their employers reported that those stressed-out employees: 1) makemore physical and mental health insurance claims, 2) are less productive and 3)exhibit more turnover, absenteeism and substance abuse.

Twenty-eight per cent of the respondents said that they were ‘burned out’ bywork overload and the tension-producing aspects of their jobs. They reportedother stress inducers that intensified the chronic effects of work overload.Respondents identified other organisational stressors:

1 Unfair and demanding bosses or managers (25 per cent).2 Unsupportive and abrasive co-workers (18 per cent).3 Job responsibilities that exceed their authority and time resources (57 per

cent).

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

2.1.1 Job Stress Goes Global

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



While these global results are depressing (do you feel stressed out by thesedreary research findings?), there are many examples of work systems and organ-isational practices that have a highly propitious effect on employees, their workattitudes and their productivity. Before we plunge into those programmes, it isnecessary to describe the current thinking about job stress, its causes and itsconsequences.

2.2 Understanding Job Stress and its ComponentsStressors refer to objects, events and situations in our physical and social envi-ronments that make a demand on our minds or bodies. A stress response is amental and physical reaction to a stressor. Our perceptual mechanism causes usto interpret the stressor in a positive or negative fashion. If we respond to arequest from a superior at work (stressor) as an exciting challenge that can leadto more job responsibility then we are experiencing eustress – a positive mentalor physical reaction to stress. But if we experience the request as a threat to ourjob prospects, then we are experiencing distress – a negative mental or physicalreaction to stress. Distress is the dysfunctional result of stress and it may meanthat the employee is unsuccessful in adapting to or removing the stressor fromhis work environment. When we experience eustress it is a reflection of oursuccessful adaptation to stress in the work setting or it represents a degree ofstress that does not exceed our personal capacity to cope with stress.

Hans Selye, a noted medical researcher, coined the expression General Adap-tation Syndrome for the process whereby human beings adjust to stressors intheir environments.3 Figure 2.1 presents the model.

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

Resistance The body tries to re-establish a normal state using more resourcesto adapt to the stressor. The executive prepares for the speechby practising with a public speaking consultant.

Exhaustion After chronic exposure to a stressor, the body begins to weardown. Stress-related illness may result. The executiveexperiences severe insomnia for two nights before he givesthe speech.

Figure 2.1 General Adaptation Syndrome

All employees have experienced General Adaptation Syndrome in their workand in their lives. The near-miss automobile accident, a project that is suddenlyin a crisis, the sudden death of a loved one are examples of experiences that cantrigger major physiological changes, attempts to cope with the experiences andpossible stress-related reactions to these inevitable life events. Stress is a perfectly



natural human response to situations that are overwhelming in either positiveor negative ways. Equally apparent in General Adaptation Syndrome is the ideathat humans do have considerable personal and physical capabilities to copewith stress and to overcome its effects. For instance, the superior performanceof Olympic athletes in intensely competitive situations shows how they usestress positively to raise their performance above the levels of world records intheir events or sports. The more conventional aspects of stress are the constraintsand demands it imposes on us to prevent us from doing what we wish to do.Stress is an obstacle in our lives and in our work.

Our environments have infinitely more capacity to create stressors for usthan we have reserves to cope with them. Individuals who perform emergencyrescue and medical work, direct and co-ordinate the flights of aircraft andperform police work all experience near-constant alarm reactions in their work.It is therefore not surprising that workers in these occupations often experiencethe symptoms of the exhaustion stage more quickly than their counterparts inless taxing occupations. Leaders of such work teams and military rescue unitsknow the value of rehearsal and emergency simulation. Constant practice andreadiness remove the temporary performance obstacles presented by the alarmreaction stage. Preparing people to be rational and effective under emergencyconditions means that the alarm reaction stage must be suppressed throughcountless trials and practice runs. While this is entirely possible and desirable insuch professions, nonetheless, people in these careers usually leave them at anearly age. For instance, the average retirement age for commercial divers whoperform under-water construction tasks is a ripe old 32!

As employees, we may understand the nature of the stressors that we con-front and they do not generate high uncertainty for us. For instance, if youhave received many excellent performance reviews and you have successfullycompleted several key projects during the current performance appraisal period,you are probably very certain that you will receive an outstanding annual workassessment. The constraints and demands of the job may generate, for theemployee with little project experience and limited job experience, considerableapprehension about an upcoming annual work assessment. This example showshow two people with the same job can have totally different perceptions ofstressors and opposite reactions to them.

2.3 A Model of Causes and Consequences of Stress

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

2.3.1 Environmental Factors that Can Induce Stress

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



Causes of Stress Consequences of Stress

Environmental factorsEconomic uncertaintyPolitical uncertaintyTechnological uncertainty

IndividualdifferencesPerception

Job experienceLocus of control

Type A behaviour

Physiological symptomsHeadachesHigh blood pressureHeart disease

Organisational factorsTask demandsRole demandsInterpersonal demandsOrganisational structureOrganisational leadershipOrganisation's life-cycle stage

Experiencedstress

Psychological symptomsSleep disturbancesDepression, anxietyDeclines in job satisfaction

Behavioural symptomsProductivity levelAttendance patternQuitting the jobAccidentsSubstance abuse

Individual factorsFamily problemsFinancial problems

Figure 2.2 The stress model

demand or falling prices, they often compensate by downsizing, reducingpay levels and shortening work-weeks. Under these dour conditions businessbankruptcies rise and employees are thrown on the dole. In turn, personalbankruptcies rise and labour groups press politicians for legislation to protecttrade and jobs.

In Europe, government involvement in labour markets generally follows thepractice of state-supported training to help workers cope with changes in the jobmarket. As The Economist notes in an editorial, ‘With more training, [European]governments can encourage not only lots of new jobs, but lots of good jobs.It is a prescription temptingly in tune with the times: knowledge workers . . .flexibility . . . human capital’.5 The problem is that governments do not doit very efficiently because, after all, government training is a form of labourmarket regulation. Further, the costs of state-sponsored training programmesmust be borne by the private sector in the form of higher taxes on incomeand profit. For instance, in the United States, for an employer to create a jobthat pays $50 000 per year, he must shell out $88 000. The extra $38 000 coversunemployment insurance costs, payroll taxes and other levies. By comparison, acompany based in Denmark must cough up $100 000 to create that same job! Itis not surprising therefore that Denmark has a much higher unemployment ratein a much less competitive economy than the USA. A similar argument could bedeveloped for all of the countries in the EU. Those countries are good at creatingjob training programmes but they are terrible at lowering their unemploymentrates!

The primary antidote to economic uncertainty for workers is, of course, jobcreation. The private sector in Europe has been woefully inadequate in this areabecause the true costs of creating another job in Germany, Sweden, Denmark,France etc., is so high that many productive firms in these nations have simply



found greater returns in building plants in foreign markets. The added costsnoted above reflects the governments’ ‘involvement in labour markets’. As longas European governments remain involved in national labour markets, Europewill continue to experience ‘jobless growth’ and the United States will stay ontop in the world competitiveness race.6 Those who will suffer the most will beunemployable young people in Europe. For them, economic uncertainty willremain a fact of life.

Political uncertainty is probably more of a source of job stress in countrieswith unstable or repressive political systems. Comparatively speaking, workersin the UK, Europe, Canada and the United States experience far less job stressinduced by political uncertainty than their counterparts in Iraq, Iran and theAfrican nations.

Technological uncertainty induces job stress through technological break-throughs and its attendant knowledge obsolescence. Organisations find com-petitive advantage in improvements that are technology based and some of theiremployees will find that their job knowledge and skills become obsolete as aresult. This form of uncertainty may motivate some threatened employees toretrain to obtain skills that will enable them to meet more technologically sophis-ticated job requirements while other threatened employees accept the inevitablepink slip and move to less technically sophisticated jobs for lower pay in otherindustries. Job displacement is never easy for the employee affected by tech-nological uncertainty. However, organisations become more efficient and theirproductivity improvements generally raise living standards for their employees.In the aggregate, the general economy becomes more competitive and betterjobs are created.

2.3.2 Organisational Factors that Create Stress

Task demands are potential stressors related to your job. They include theextent to which you experience autonomy, variety and feedback about yourperformance on the job. The physical surroundings for your job also may besources of stress. These are such things as noise levels, vibration, the speedof work flow, temperature and humidity levels and the frequency of shiftwork changes. In general, greater autonomy dampens the level of job stressexperienced by employees, as does variety in work and skills required.

Role demands refers to conflicts that arise between the employee’s personalvalues and supervisory and organisational values. Conflicts in expectationsamong peers, supervisors and the employee can also induce stress. In downsizedorganisations employees often experience role overload: the expectation that anemployee will accomplish more work in less time and with fewer resources.

Role ambiguity is a source of job stress because it represents the employee’spoor job understanding and the uncertainty of not knowing where to starton a newly assigned job. Here’s a recent example of how organisational roledemands can undermine employees’ terminal and personal values and leadthem to become whistle-blowers (see Module 1 for a case that details whistle-blowing).7



Once security engineer Glenda Miller questioned the reliability of an employeeidentification system to be brought on-line at a TVA-run power plant in Alabama,she knew she was in for trouble when the plant’s operator sent her to companypsychologists. The sessions with the psychologist were a series of hostile interviewsin which she was questioned about her church attendance, whether or not shemissed her husband when he travelled and whether or not she had failed to payparking tickets. Six months after she questioned the system’s reliability she wasfired for being unfit for duty. Now she has brought a ‘wrongful termination’ suitagainst TVA, which at this writing, refuses to comment on the case, citing concernsfor Ms Miller’s privacy. The practices used on Ms Miller seem to be more commonin the nuclear energy generation business.

Employees get normal performance reviews and promotions until they questionoperating procedures or safety. Needing a method to discredit them, managementturns to psychological counselling. Lately, the US Nuclear Regulatory Commissionhas weighed in by challenging several power companies that operate nuclearfacilities to prove that their operations are safe based on concerns raised byemployees. Psychological testing of nuclear-plant workers is now routine becauseof dangers presented by employees who may use drugs and possess behaviouralproblems. Plant operators are supposed to monitor employees closely and offerassistance to employees who are showing signs of stress. NRC officials say thatthey are aware of utility companies that are abusing the rules to harass whistle-blowers but that it is difficult to prove that psychological exams are not necessary.NRC officials are rightly concerned, because they feel the operators harass whistle-blowers because they have raised safety concerns that would cost millions ofdollars to correct. Now the federal agency has ordered a review of its programsfor protecting whistle-blowers from retaliation. Advocates for whistle-blowers hopethe review signals the beginning of a tougher stand by the agency.

Interpersonal demands refers to the pressures created by groups and theemployee’s co-workers. Lack of co-operation, collaboration, trust and supportamong members of a work group will create job stress for many members of thegroup. Dysfunctional group dynamics will be particularly stress inducing foremployees who are affiliation oriented and place great value on effective grouprelations.

Organisational structure is the extent to which the organisation is highlyformalised with extensive work rules and policies that constrain the work choicesof employees. Centralisation is also an aspect of organisational structure thatcan act to limit employee discretion in decision-making. Extensive rules, highcentralisation and low levels of employee participation in decisions that affectemployees are all examples of structure characteristics that may induce stress.

Organisational leadership is the dominant culture created by the leadershipstyle of top executives. Some CEOs create a culture that emphasises a short-runviewpoint, higher output with fewer resources, expendable human capital andtight financial controls. Over long periods, this culture and leadership style willlead to employeeburnout and poor work-force morale. (See Table 2.2 to measureyour potential for job burnout.)

Organisational life-cycle stage refers to the stages of establishment, growth,maturity and decline. Each stage produces unique stressors for employees. Forinstance, company survival is uncertain in both the establishment and declinephases. Both phases may be characterised by lay-offs and structural change.



The growth and maturity phases might cause the organisation to become toostructured and formalised.

2.3.3 Personal Lifestyle Factors that Can Aggravate Stress

Family problems may surface in the employee’s work. Divorce, ageing parents,children’s misbehaviour and dysfunctional personal relationships can all under-mine the employee’s performance on the job. These stressors cannot be left atthe office door; they often seep into the employee’s relations with his workgroup, the company’s customer and his boss.

Financial problems create job stress for employees when they live beyondtheir means. Using one credit card to pay off the debt on another card is oftenan act of financial desperation that can distract the employee to the point wherehe is a low performer. The employee who takes out a home equity loan to payoff credit card debt is simply swapping high-interest debt for slightly lower-interest debt. As consumer debt mounts, personal financial advisory servicesproliferate along with personal bankruptcies. These personal problems find allsorts of ways to intrude into the workplace and lower employee performance.

The causes of job stress that are summarised above create a cumulative stresseffect as they build up in the employee. Alone, each stressor might be easilymanaged by the affected employee. It is a different story as one unresolvedstressor piles on top of another. In this common condition, co-workers arealways surprised when a ‘small thing’ incapacitates an employee in the office oron the work team. People may comment that so-and-so ‘just snapped’ but thereal story lies in the accumulating nature of multiple, unresolved stressors whichpush the employee into the exhaustion phase of General Adaptation Syndrome.

2.3.4 Individual Differences

The middle portion of the stress model in Figure 2.2 shows the role of individualcharacteristics. Together, individual characteristics provide the mechanism thatallows the person to interpret stressors in a positive or a negative fashion(eustress or distress). These factors also moderate the relationship betweenpotential stressors and experienced stress. Research has found perception, jobexperience, locus of control and Type A behaviour to influence this relationship.

Perception is a moderator because it shows that we react less to the realityof the situation than to how we interpret and perceive the situation. Realitymatters less than our perception of it as a cause of stress. Apprehension aboutan upcoming job event is usually much worse than the event itself. Further,what one employee views as an energising job challenge may be experienced byanother employee as a threat to his job security.

Job experience is a powerful stress reducer once it is acquired. But, for thenew employee or the recently transferred employee in a new job, the absenceof job experience is a powerful stressor that can be the basis for role ambiguityand fears of inadequate or obsolete knowledge. Accumulated job experiencemeans the acquisition of job-coping skills by employees. Employees who arewell-practised and confident because of their job seniority, are much less likely



than their untested colleagues to have with the same intensity and frequencythe jolting physical and emotional discomfort of the alarm stage in GeneralAdaptation Syndrome.

Locus of control is a pattern of beliefs about the connection between behaviourand its consequences (see Module 1). Internalisers believe that they are in controlof their lives because they are responsible for the things that happen to them inlife. Externalisers believe that often fate intrudes to create outcomes in life thatare not related to their behaviour. Research evidence concludes that internalisersperceive their jobs to be less stressful than do externalisers.8

Type A behaviour is defined as ‘an action-emotion complex that can beobserved in any person who is aggressively involved in chronic, incessantstruggle to achieve more in less and less time, and if required to do so, againstthe opposing efforts of other things and other persons’.9 Type A employeesgenerally share the following behavioural and emotional qualities.

1 Work long, hard hours under the conditions of constant deadline pressuresand chronic role overload.

2 Often take work home and are unable to relax at weekends or on vacations.3 Compete constantly with themselves by setting high standards for perform-

ance and productivity to the point of being driven and obsessed.4 Become frustrated by the work situation, are impatient, easily irritated with

the work efforts of others and misunderstood by co-workers and superiors.

Table 2.1 Classical profiles of type A and type B behavioural patterns

Type A behavioural pattern Type B behavioural pattern

Measures success by quantity of results Is mild-mannered

Is always active and moving Relaxes without guilt

Walks rapidly Is not concerned about time

Talks rapidly Is patient

Eats rapidly Does not brag

Does two or more things at once Plays for fun, not to win

Cannot cope well with leisure time Has no pressing deadlines

Is obsessed with numbers and measures of performance Is never rushed

Is socially aggressive

Is highly competitive

Experiences constant time pressure

Recent research on Type A and Type B behaviour profiles (see Table 2.1)has found that impatience with the pace of work is less of a contributor tostress symptoms experienced by employees than the extent to which a person isangry, hostile and insecure regarding his abilities on the job.10 Leading medicalresearchers agree that the Type A and Type B profiles have outlived theirusefulness because being hard-working, interrupting people and being in ahurry are not necessarily bad for your heart.11 The emerging portrait is thatadaptive Type As reduce experienced stress by being hard-driving, but with nosense of hostility or aggression towards others. Aggression, hostility and anger



can contribute to experienced stress. These tendencies are associated with therevised Type A behavioural pattern that is now strongly correlated with formsof heart disease.

2.3.5 Consequences of Stress

Physiological symptoms are the changes in metabolism that accompany stres-sors. While the links between stress and physical symptoms such as increasedheart rate, blood pressure and breathing rates are poorly understood, nonethe-less, these metabolic activities do change dramatically in people under stress.With chronic exposure to intense stressors, wear and tear on the body becomesmore noticeable and problematic. Back trouble, migraine headaches, insomnia,heart disease, hypertension, diabetes and even cancer are linked to extendedexposure to chronic stressors.

Psychological symptoms are major consequences of stress and they mayappear before chronic physical problems or disease. The mental health ofemployees is threatened by high levels of stress, and often poor mental healthin employees, rather than physical symptoms, can very quickly cause theirperformance to deteriorate. Anger, anxiety, depression, nervousness, irritability,aggressiveness, passiveness and boredom accompany high stress. In turn, theseproblems result in low employee performance, declines in self-esteem, resent-ment of supervision, inability to concentrate, trouble in making decisions and jobdissatisfaction.12 A frequently mentioned psychological symptom of job stress isburnout. Job burnout is a prolonged withdrawal from work, which causes thesufferer to devalue work and to see it as a source of dissatisfaction. Take thesimple test in Table 2.2 to see if you are a candidate for job burnout.

Table 2.2 Are you aflame from job burnout?

These questions help you assess your feelings about your job. They tap matters concerning yourcareer, the match between your job and your skill set, and current job stressors that you maybe experiencing. Think about your job during the last six months and rate how often eachquestion’s symptom is true for you. Scale: 1, only rarely; 2, sometimes; 3, often; 4, frequently; 5,always.

1 I have difficulties concentrating on the job.

2 I find myself considering the benefits of quitting.

3 I’m more withdrawn at home.

4 When I wake, I dread going to work.

5 I’ve been missing a lot of work lately.

6 My job is expanding into my leisure hours.

7 I’ve become more irritable with some of my co-workers.

8 I don’t feel refreshed after the weekend.

9 I’m often bored at work even though I’ve got lots of work to do.

10 Lately I’ve been using alcohol and drugs to unwind from the pressures of work.

Scoring: 10–20: You are doing OK. 21–30: Think about the value of preventive action and somelife changes. 31–40: You are showing signs of burnout and you must take immediate action toachieve improved work-life balance. Over 40: You have burned out. Watch out for other signsof diseases of adaptation in the General Adaptation Syndrome.



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

Low

Low

High

High

Stress Level

Job

Perf

orm

ance

Figure 2.3 The stress–job performance relationship

2.4 Individual Approaches to Managing Stress

Employees are now much more aware of their personal responsibilities forcoping with job stress and for maintaining healthy lifestyles. Most employeesdo not have to be convinced of the value of taking responsibility for their ownwell-being. Below is a review of some techniques that employees can use tomanage prolonged stress.

1 Exercise. People of all ages are walking, riding bicycles, attending aerobicclasses, practising yoga, jogging, swimming, playing tennis and swatting



squash balls. While there is no conclusive research that shows that pro-longed physical exertion will stave off strokes and heart attacks, no onedoubts the sense of well-being imparted by regular, vigorous exercise. Mostrunners and fitness addicts will quickly tell you that it is very hard tofocus on job stress when you are trying to complete a vigorous workout.No matter what form the exercise takes, it will require more blood flowto muscles and lungs. This physiological requirement causes our exercisingemployee to be more distracted from work problems and stressors.

2 Relaxation. Herbert Benson was one of the first researchers to discoverthe relaxation response. When he studied Western and Eastern peoples, hefound that the Judaeo-Christian people have created the response throughprayer, and the Eastern people create it by meditation. Achieving the relax-ation response does not require a theological or religious orientation. How-ever, if you regularly pray or meditate, you probably encourage the relax-ation response. The relaxation response reverses the stress response in thehuman mind-body system. When it is practised, the individual sits peace-fully in a comfortable chair in a quiet location. All tight clothing is loosenedbefore the person becomes completely still. Beginning with the extremities,the person wills his muscles to completely relax while he focuses on breath-ing through his nose in a slow and deliberate manner. Without using analarm, the individual allows 20 to 30 minutes to pass while he is in thisquiet state. Once the relaxation period is completed, the individual openshis eyes fully and sits peacefully for a minute or two before getting up.The practised individual will engage the relaxation response once or twiceper day.14 Practitioners of meditation and relaxation exercises claim that itreduces their heart rates, blood pressure and other physiological indicatorsof stress.

3 Diet. We are what we eat. Diet plays a significant, indirect role in stressmanagement. Foods with high sugar content stimulate or prolong the stressresponse and high-cholesterol foods adversely affect blood chemistry. Goodeating habits contribute to our overall health, making us less vulnerableto distress. In his strict diet that de-emphasises medication and surgeryfor individuals with coronary artery disease, Dean Ornish puts patients onhis ‘reversal diet’ to open up their coronary arteries.15 He claims to havehad success in greatly reducing the blood cholesterol levels of individualswho have rigorously followed his approach to nutrition-based good health.Further, he claims that long-term followers of his approach to nutrition havegreatly lessened or completely eliminated their need for heart medication.

4 Opening up. We all experience traumatic events in life. A healthy responseto these moments or periods of personal crisis is to confide in others. Itmay not be easy to discuss difficult personal traumas with others, but self-disclosure can induce lower stress and a more positive outlook on life. Somelimited research exists that shows that individuals who wrote once a weekabout traumatic events had healthier outlooks and lower absenteeism thanthose subjects who only wrote about non-traumatic events.16 Confessing toothers is thus not the only pathway to lower stress: Honest entries on aregular basis in a diary may accomplish the same thing.



5 Professional help. Sometimes employees have problems coping on theirown and they seek professional help or clinical counselling. People whowant this kind of help can choose among psychological counselling, careercounselling, financial and family counselling, physical therapy, medicaltreatment, surgical intervention and stress debriefing. Organisations oftenmake these services available to employees on a confidential basis throughan Employee Assistance Programme (EAP). EAPs help promote early detec-tion of stress reactions to avert permanent physical and psychological dam-age to employees.

2.5 Organisational Programmes of Wellness and Job StressManagement

At the Merck Corporation when eight top-level managers asked employees in afocus group how they would respond if company managers handled work-lifeissues with flexibility and respect, they were surprised and delighted.17 Theemployees told them they would react with ‘increased loyalty, a willingnessto work hard and productivity improvement.’ At first, creating competitiveadvantage from managerial flexibility in helping employees handle personalconflicts seemed nice, but too hard to measure and justify. Since Merck was asponsor of the Wharton-Merck Roundtable, the company felt it had to makeheadway in this area. The Roundtable is a discussion group made up of 20managers from Merck and professors from the University of Pennsylvania’sWharton School of Business. Together these professionals are trying to developthe skills needed by managers and employees to achieve life balance and to helpothers do the same.

Merck managers and the Wharton professors believe that it is possible totrain a ‘new enlightened manager’ who is not a creature of the increasinglyunfavoured command and control organisational design. Here are the skillsidentified by the Roundtable participants, followed by an example and comment.

Reward performance and productivity, not ‘face-time’ spent working. AMerck employee who travelled 30 per cent of her time including weekendsresented her boss who required her to be in the office by 8 a.m. on Mondays.While she kept up her performance, she told herself, ‘OK I’ll do the best I can,but you’re not getting any more from me.’ Relieved when this boss left, theemployee was much more productive and motivated by his replacement whohad a very different management style. She told the employee, ‘I trust you toget your job done.’ The employee responded by thinking, ‘I was completelyloyal to her and much more enthusiastic about my work.’

Live by your values and encourage others to live by theirs. A top femalemanager and her female subordinate took very different approaches to handlingwork and motherhood. After maternity leave, the subordinate was tormented byher job-induced separation from her child while her boss joked, ‘[I’m] more of anice queen.’ She cares for her two children without any guilt or sense of distractionat work. Despite the boss’s different views, she helped her subordinate easeher concerns by designing a job-sharing programme that has delighted her



subordinate, raised her loyalty to Merck and prevented the occurrence of a hostof performance problems.

Build respect based on trust and respect. A financial analyst did not expecttime off when her toddler needed a tonsillectomy. To her surprise, her bosslooked at her and said, ‘Your daughter comes first.’ The gesture fostered intenseloyalty in the employee. As she was preparing for a long-awaited vacationher boss’s assistant called for help in preparing a pressing management report.Without hesitation she drove to work and helped get the report done.

It is clear that there are ways to generate organisational commitment ina period of downsizing and structural change in organisations. The point ineach of the examples is that employee loyalty and exceptional performancespring from one-to-one work relationships that reflect a supervisor’s concern forstressors that can act on a subordinate. The fact that enlightened companies andthoughtful academics are confronting these issues is encouraging.

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

Many companies that are interested in having fit and healthy employees havespent large sums of money on exercise programmes and fitness centres. Throughthese efforts, managements hoped to lure sedentary employees away from theirdesks and into exercise programmes to make them more fit and to lower health-care costs along the way. Many companies have found that their elaboratewellness programmes, weight loss clinics and on-site gyms have not deliveredthe anticipated savings connected to lower absenteeism due to sickness andlower health-care costs.18

Rather than simply building an on-site gym and hoping that employees willuse it, companies are now revising their programmes to use their ‘wellnessdollars’ more effectively. For instance, some companies use questionnaires andtests for high blood pressure and cholesterol and body-fat measurements toidentify high-risk employees. Then, using a variety of direct and indirect incen-tives, like discounts on health insurance premiums, the firms hope to lure thecouch potatoes into more active and healthy lifestyles.

There is general agreement that it is very difficult to calculate the benefitsof wellness programmes, on-site gyms and lifestyle management programmes.And many employers feel that they have done about all they can on thesupply side to cut health-care expenses through managed care and joint ventureswith hospitals and physician groups. Thus, companies are looking for ways toreduce their employees’ use of health-care resources. For instance, ChampionInternational Corporation’s ambitious wellness programme once provided freeweight-loss classes and state-of-the-art fitness centres at its US headquarters andat four other company sites. At any given facility, fewer than 10 per cent of theemployees used the wellness resource centres. The company recently stoppedpaying for weight-loss programmes, but it has kept open the fitness centres.The company now offers on-site physical therapy programmes and it waivesinsurance deductibles for cholesterol screenings, pap smears and other tests.

Johnson & Johnson Company tries to identify employees with costly habits.Employees can earn $500 discounts on their health insurance premiums if they



agree to have their blood pressure, cholesterol and body-fat checked and answer150 questions about aspects of their lifestyle. Examples of the questions include:1) Do you drive within the speed limit? 2) How often do you eat fried foods? 3)Do you exercise regularly, and if not, why not? Those workers who are foundto be at high risk receive a letter that urges them to join a diet and exerciseprogramme. If they fail to do it, they forfeit the $500 discount. While theprogramme is new, J&J says that participation has risen and over 96 per cent ofthe company’s 35 000 US employees completed the questionnaire, as comparedwith 40 per cent before the incentive was offered.

Quaker Oats Company gives employees a $140 credit that can go towardsbenefits if they make a ‘healthy lifestyle pledge.’ The more promises employeesmake, the more they earn. For instance, pledging to exercise three times a weekearns them $20 as does the pledge to wear a seat belt when driving. Pledgingto not smoke and to drink in moderation nets them $50 for each pledge. Theprogramme runs on the honour system and Quaker Oats officials feel thatemployees do not abuse the system.

The J&J and Quaker Oats programmes are strictly voluntary and both com-panies state that they maintain strict confidentiality on workers’ health profiles.J&J stores its employees’ health data on a separate computer that is not hookedup to the company’s mainframe system. In spite of these safeguards, some legalexperts are concerned that companies will use the data to eliminate employ-ees who have been evaluated as poor health risks. Companies counter-arguethat they are trying to combat specific health problems in their work-forces.For instance, Tenneco, Inc., a large conglomerate, gives doctors in its preferredprovider health-care system its employee data so that the doctors can identifyhealth problems in particular plants. Recently, Tenneco found that its workers onoil platforms in Louisiana were all too fat because they were gorging themselveson the rich local cuisine. Based on this finding, Tenneco built an on-site exercisefacility and retrained the cooks to prepare low-fat meals. At this writing, noone knows how the workers feel about all of this corporate interest in theirwaistlines!

L. L. Bean, the big US mail-order catalogue company found that blue-collarworkers were uncomfortable exercising alongside white collar employees in anon-site workout centre. To increase the participation in exercise programmesamong blue-collar workers in a new facility, the company built a separate work-out centre for blue-collar workers. Our last example is from Applied MaterialsCompany which broadened the definition of ‘exercise’ to increase employeeparticipation. Under the company’s old scheme, prizes such as tee shirts, socksand hats were given to employees who exercised aerobically for periods of 45minutes during a six-month period. The company was disappointed with therate of employee participation. To raise the rate, the company changed the pro-gramme to award points for activity periods that lasted for 30 minutes per day.The activity periods could be climbing stairs, gardening and housework. Underthe new scheme participation jumped to 2000 employees from 500 employeesunder the old scheme.



2.6 Downsizing: A New Form of Permanent Job Insecurity?The effects of downsizing on employees and their fading belief in guaranteedjobs is fuelling a lively debate in America.19 The discussion has centred onthe political aspects of free trade as an alleged cause of job lay-offs. PatrickBuchanan, a Republican candidate seeking that party’s presidential nomination,framed the debate this way, ‘We’ve got to get those good-paying jobs back intothe United States, stop exporting them.’ To hear Pat tell it, free trade is theenemy of working class Americans.

John Challenger, executive vice president of Challenger, Gray & Christmas, anoutplacement firm in Chicago, Illinois, believes that downsizing occurs for manymore reasons than shifts of production to overseas locations. Economist BrianHorrigan in Boston says lay-off decisions are ‘almost never directly related toforeign competition.’ Many are decisions executives ‘could have, should have,would have done anyway.’

The big corporate lay-offs shown in the table in the Nynex case at the endof this module occurred for many more organisational reasons than free trade.Influential economists and government officials have noted several reasons fordownsizing which are shown below. Free trade does not seem to make the list.

2.6.1 Domestic Competition

Deregulation in airlines, banking and telecommunications has opened up hugeopportunities to small and large competitors. In the late 1980s, AT&T made tele-phones in Louisiana. By 1992 the plant was closed and its 350 workers were senthome. Those phones are now made in Singapore. The big lay-offs at AT&T repre-sent the company’s efforts to be prepared for the rough and tumble competitionin the telecommunications wars. In late February 1996, AT&T announced thatits long-distance customers would have free access for one year for five hours ofuse per month to the Internet. America On-Line, Prodigy and Microsoft have allfired back with equally attractive offers. Meanwhile, AT&T’s promised servicehas not materialised and customers complain of software glitches and ineffectiveon-line technical service. It appears that even mighty AT&T can be tarred forpromising more than it can deliver.

2.6.2 Merger Mania

The combining of Chase Manhattan and Chemical Banking Corporation to formthe largest commercial bank-holding company in America made large numbersof jobs redundant in the new company. At least 12 000 jobs will be lost in thenew company because there is simply too much overcapacity in the US bankingsystem. A spokesman for the new company said, ‘it’s not like the foreign banksoperating in the US are taking business away.’ The next US industry in whicha similar overhaul can be expected is insurance. With intense competition fromhuge mutual funds that are flush with cash, the insurance industry is rapidlywaking up to an explosion in product and service choices from domestic andforeign competitors. Giants like Fidelity, with $420bn in assets, are taking a hugechunk of business away from insurance firms that once thought they had a firmgrip on financial services and pension-related business lines.



2.6.3 Government Spending and Labour Market Involvement

Since the height of the US military build-up during the Reagan years, therehave been substantial cuts in defence spending. The recently formed Lockheed-Martin Corporation (1995 merger) has pared 15 000 jobs to raise productivity andreduce overhead. Competition from Airbus Industrie certainly prompted BoeingCo. to dismiss 13 600 employees. World-wide excess capacity in the aircraftmanufacturing industry forced Boeing to do this rather than start a price warthat it might not be able to win.

Consolidation continues to sweep through America’s aerospace and defencecontracting companies as Boeing recently announced its friendly merger withMcDonald-Douglas Corporation. The merger gives Boeing a world market shareof 64 per cent in commercial jet airliner production.

Related to cuts in the size of government spending is the position takenby experts who believe that one of the responsibilities of government is to‘ensure employability’ by subsidising the training of laid-off employees to helpthem sustain ‘serial employment.’ Serial employment implicitly recognises thatcompanies and industries will inevitably go through cycles of lay-offs but thatthere is no reason that those who are laid off should not be employable inanother, growing industry.

2.6.4 Small Is Beautiful

Large companies that dominate their industries – like IBM, WalMart and Gen-eral Motors have seen smaller companies and start-up operations grab chunksof market share with more efficient, technologically superior methods. Some ofthese large firms are trying to mimic some of the frugal ways and adaptive-ness of small companies. For instance, DuPont, 3M, Bell Atlantic, Sprint andMotorola have had programmes to nurture ‘intrapreneurship’ – or the ‘creationof innovation from within the organisation.’ In the large companies that havesuccessfully ‘wrapped smallness around intrapraneurship’ are some commonbeliefs held by employees:

• share credit (without being told or forced to),• know it is easier to ask for forgiveness than for permission,• come to work each day willing to be fired,• follow your intuition about people and build the best team,• ask for advice before asking for resources,• build a coalition for ideas, early publicity (leaks) triggers the corporate

immune system,• only bet on those races in which you are running,• stay the course and be realistic about how to achieve your goals and• honour your sponsors.20

Not all large companies respond to aggressive, small competitors by tryingto be more like them. GM, in response to powerful competition from Japanesecar-makers with plants located in both Japan and the USA has reduced capacity



and tried new manufacturing methods and management strategies. Increasingly,GM is fighting back, not with intrapreunership, but with outsourcing of all non-core business activities. It will take a while for this change to make a differenceat GM which still makes over 70 per cent of its components and parts in-houseand a union that will fiercely resist job losses through outsourcing.

2.6.5 Restless Shareholders

Proponents of shareholder rights argue that the only responsibility of top man-agers is the maximisation of shareholder wealth. Therefore, downsizing, re-engineering and the outsourcing of all non-core business activities are stronglyencouraged by those who support this view. This is the short-term argumentthat supports any action that increases net income. Increasingly, the managers ofpension funds, mutual funds and individual investors are leaning on corporateexecutives to raise returns to capital. Only six years ago, Kmart was a largerretailer than WalMart. In that period Kmart’s sales have risen only $6bn annu-ally while WalMart’s rose nearly $60bn. Kmart’s downsizing was due to ‘its ownefforts to turn around the operation, which is an internal issue,’ a spokespersonsaid. The other reason for downsizing at the retailer is an intense rivalry amonglarge US retailers.

At the time of writing, AT&T is having considerable difficulty matching itsdownsizing announcements to its current operations.21 To the chagrin of uppermanagement, new hirings slightly outpaced cutbacks during 1996. On 1 January1996, senior executives vowed to eliminate 40 000 jobs over the next three yearswith 70 per cent of those coming by the end of that year. However, growthin AT&T’s local phone services, data outsourcing and Internet access haveforced AT&T to increase staffing. Analysts are chiding AT&T by saying that thecompany will not be profit-competitive with its major rivals without achievingthe proposed cutbacks. Currently, revenues per AT&T employee are growing athalf the rate of most of its major rivals.

The drubbing the company has taken in the press has not clarified its down-sizing plans. Only 1000 people have been laid off since January 1996 and 6000managers left the payroll in January after accepting voluntary redundancies.These reductions have been offset by the hiring of 4400 new workers since Jan-uary, and that includes 1300 new managers. Another 1000 managers in ‘at-riskjobs’ have been reassigned to other jobs and 1800 managers who were to be laidoff have had their jobs extended indefinitely. Another 1400 managers who tookredundancy in January 1996 have still not left and most are still on the payroll.If you can discern the executive plan in this paragraph, then you are far moreperceptive than this writer!

About the only result of AT&T’s downsizing confusion has been a plungein employee morale to its lowest point ever. AT&T’s regular attrition rate is8–10 per cent per year, meaning that the company loses about 30 000 peoplea year through voluntary separations and retirements. This of course promptsmany employees to wonder why management could not have used attritionto achieve the cuts and relied on transfers instead of hiring new outsiders. Asmany employees note, ‘It’s tense here. Lots of workers are confused by thisdownsizing.’



2.7 A Semi-Last Word on Downsizing

Holman W. Jenkins Jr., the Editor of the Wall Street Journal’s editorial pagemakes some observations about downsizing and the value of human capital.22

First, he differentiates job security and employment security. He says that jobsecurity, which is usually contingent on highly firm-specific knowledge, is onthe wane and it is clearly threatened by downsizing. Recent widespread lay-offs indicate that employees with highly firm-specific work experience andjob knowledge do have something to fear as downsizing rolls through theirindustries and firms. Employment security is a different creature and it ispossessed by individuals who have wide experience and knowledge in manyphases of industry production and service activities. In Mr Jenkins’ view jobsecurity is hard to come by but employment security is not. He says thatthose workers who have employment security have acquired a variety of skills,worked hard to achieve career goals and sought responsibility in all jobs theyhave held. They are rewarded for their work-focused self-reliance in terms ofmobility, versatility and value that is sought by employers. Mr Jenkins argueswith some effectiveness that such individuals will always find meaningful workbecause they know how to add value to the products and services producedby the organisations in which they work. He also suggests that the demise ofjob security is not necessarily a bad thing because it will prod creative andself-reliant people to put more trust in their innate abilities than in the strategicplanning skills of executive teams bent on trying to raise profits by lay-offs.

Mr Jenkins’ comments may provide little comfort to people who have receivedpink slips and been told that their work unit has been ‘downsized.’ Cost cuttingand downsizing will be permanent fixtures in industries that confront deregu-lation, restless shareholders, low-cost foreign competitors and ever-shorteningproduct and service life-cycles. In a similar fashion, employees are finding thatthey must shoulder greater responsibility in their own pension planning asdefined benefits plans are scrapped and replaced by defined contributions plans.In this environment, employers are telling their workers that ‘We’ll make acontribution for you to a pension plan, but you’ll be responsible for makingwise investment decisions so that these assets will grow and provide you witha secure retirement.’ Finally, health insurance benefits are no longer a presumedbenefit of employment. In the USA, over 15 million workers are contract ortemporary workers who do not receive health-care insurance. When you addin their family members, nearly 39 million Americans are uninsured againstillness. Those employees who are lucky enough to have health-care insurancefind that they must shoulder a bigger chunk of its costs in the form of a rising‘co-payment.’ It is not surprising that wage increases have stagnated even asproductivity and profits have risen for corporations.

The simple conclusion from the discussion above is that ‘employees cost more’and companies are extremely cautious about hiring more people, especially ifthey can avoid it by using contract employees, outsourcing of functions andimprovements in technology. These trends underscore the argument advancedby Mr Jenkins. He is right when he says that the employees who prosper andsurvive in industries buffeted by the forces noted above are those who haveacquired skills that make them self-reliant, flexible and instant contributors to



any organisation that they work for. In strategy terms, these individuals havedeveloped a personal source of competitive advantage that employers cannoteasily find among current employees and applicants from external labour pools.Indeed, they are self-contained knowledge workers who possess intellectualcapital that can be quickly used to support and advance a firm’s competitiveadvantage. And, in this respect, they are highly sought after (and compensated)by companies that recognise their value.

Employees who resist acquiring flexible, highly portable intellectual capital runthe risk of being swept away by downsizing, outsourcing and re-engineering.From a stress perspective, they are forced to determine ways to become moreversatile and flexible after they experience a major economic and emotionaljolt such as downsizing. Becoming more versatile and developing one’s ownknowledge-based competitive advantage can be very tough to accomplish whendebts pile up and families experience stress induced by the breadwinner’s lostjob.

The employee who focuses less on job security and more on developing hisown source(s) of competitive advantage can more easily weather the inevitableeffects of cost containment trends that sweep through their industries. Call thesehuman capabilities what you want: need for achievement, self-efficacy, entrepre-neurial urges, whatever. They are powerful antidotes to job stress induced byineffective management teams who feel they can downsize their companies outof rising costs and falling competitiveness.

Summary Points• Alarm is the initiation of the fight or flight physiological and psychological

response to stress and it mobilises the body and mind to defend themselvesagainst physical threat.

• Behavioural stress symptoms are employees’ actions that denote low per-formance in attentiveness and lack of carefulness in work. The existenceof these symptoms in employees may suggest that they are nearing theexhaustion phase in General Adaptation Syndrome.

• Cumulative stress effect occurs as stressors accumulate in a multiplicativefashion and as employees’ resources and capacities to cope with stressremain the same or deteriorate in the face of growing or unlimited distres-sors on the job.

• Distress is a negative physical and psychological reaction to a stressor.• Environmental stress factors originate from economic, political or technolog-

ical uncertainty and induce alarm reaction or press employees with limitedstress-coping resources into exhaustion in General Adaptation Syndrome.

• Eustress is a positive physical and psychological reaction to a stressor.• Exhaustion is the final stage of General Adaptation Syndrome, and is the

wear and tear on the body and mind created by chronic stress overload.• General Adaptation Syndrome is a model that shows how all living things

react to stressors.• Individual stress factors represent personal life circumstances and relation-

ships which induce General Adaptation Syndrome.



• Job burnout is prolonged psychological withdrawal from work in employeeswho have come to devalue their work.

• Karoshi is a fatalistic Japanese expression that means to die of a heart attackor stroke on the job.

• Organisational stress factors are characteristics of the organisation thatinduce General Adaptation Syndrome.

• Physiological stress symptoms are changes in a person’s metabolism andbodily processes that can occur as headaches, high blood pressure and heartdisease.

• Psychological stress symptoms are chronic negative emotional reactions tostress such as anxiety, irritability and depression. When numerous and con-sistent, they probably indicate that an employee has entered the exhaustionphase of General Adaptation Syndrome.

• Resistance is that phase of General Adaptation Syndrome where a personuses his body and mind to cope with higher stress loads.

• Stressors are demands on our minds or bodies that are made by objects,events or people in our environments.

• Stress response can be either a physiological or a psychological reaction toa stressor or both.

• Type A behaviour is the action-emotion pattern characterised by competi-tiveness, impatience and hostility.

Review Questions


2.1 Job burnout is principally caused by work overload. T or F?

2.2 As far as the physiology of stress goes, the body cannot tell the differencebetween eustress and distress during the alarm reaction phase of the GeneralAdaptation Syndrome. T or F?

2.3 An employee with ‘high employability’ would have probably shown considerableadaptiveness and resourcefulness in his previous positions. T or F?

2.4 Whistle-blowing behaviour may be a response to job stress induced by conflictbetween organisational work demands and personal values. T or F?

2.5 The Type A person who is most prone medically to the effects of job stress ishostile towards others and unsure of his own abilities. T or F?


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



2.2 Why might managers experience high levels of job stress and burnout if theircompanies are trying to lower their costs by downsizing?

2.3 Comment on some of the features of organisational stress-management pro-grammes and suggest those features that may be most useful from the employ-ees’ perspective.

Case Study 2.1: Samuel LogstonSamuel Logston left home at 5 a.m. and headed for the train station for his30-mile ride to the centre of the city. As usual, Sam hoped that the train wouldbe on time so that he could catch a series of buses that would take him to histemporary job at a construction company in the congested industrial district. Hewas not looking forward to the journey, but he really had few choices since hehad not worked full-time for 18 months. He is a master plumber with over 15years of experience, but he was laid off from his job with a small, industrialplumbing subcontractor. His boss had apologised for the pink slip by sayingthat industrial and commercial construction was so slow that over 60 per centof the city’s plumbers were unemployed. That was little consolation to Sam.

Sam believed that the commercial and industrial construction business wouldnever recover to full employment, so he had begun the ambitious job of learningcomputer repair skills so that he could land a job in the city’s bustling serviceindustries. Although he vowed to study hard in all of his computer courses,he had found it very difficult to concentrate because he had assumed all of thechildcare and household duties since his wife worked as a full-time teacher. Thiswas a serious commitment because their two children were not yet in school.Caring for the two little ones left Sam with scant time to concentrate on thecomplexities of computer repair.

Sam’s wife, Nora, taught social studies in a tough, inner-city school knownfor its gangs and drug problems. While she was a senior teacher at the top paylevel, pay increases were few. When they were both working full time, they hadto get up early, prepare the children for daycare and travel by public transportto their jobs after one or the other had dropped the children at the daycarecentre. When one of the children was sick, either Sam or Nora had to leavework to take them home to see to their needs. Sometimes this created problemsfor each of them at work because it was difficult for their employers to arrangeto find a qualified substitute at short notice.

Recently Sam always picked up the children from daycare, prepared theevening meal and completed all the house cleaning. At the weekends, he addedshopping and bill paying to his list of chores. Nora concentrated on her job andfrequently at the weekends she would mark her students’ exams and preparelesson plans for the coming week. By the time the children were in bed at8 p.m., both Sam and Nora had put in 15-hour days and they were simply tootired to talk. If Nora had her school work done, she frequently slept in frontof the television. Only Sam’s snoring would awaken her around 11. She wouldnudge Sam and they would stumble to bed.

Increasingly, Nora complained about her job and the extra work she wasexpected to do. Teachers had to handle discipline problems and they had to



be available to meet the parents of students who were disruptive at school. Itwas not unusual for the parents to become abusive and hostile toward Noraand the school principal in these meetings. While she still enjoyed teaching,she dreaded her job activities that took her out of the classroom. She foundbeing a hall monitor to be particularly stressful. She felt uncomfortable withthe tougher teenage boys and she knew that they sensed her uneasiness. Somebolder boys would make threatening remarks to her. Just last week she had tofail a student who retaliated by saying that his father would be paying her avisit in her classroom. Sam had noticed that lately Nora seemed more depressedand he was concerned because she frequently talked about giving up her job.One of her colleagues had called recently and told Sam that she was worriedabout Nora.

In spite of Nora’s discomfort at work, neither she nor Sam had counted on thefinancial effects of his under-employment on their living standards. During the18 months he had worked an average of two days a week. After six months ofunemployment he had given up going to the plumbers’ union hall to bid for jobs.Companies simply were not hiring. Since Nora’s salary would not adequatelycover their living expenses and the costs of his computer repair courses, he hadbegun to do small plumbing and carpentry jobs for people in the neighbourhood.If the children were sick, he would try to make arrangements with Mrs Phillips,the next door neighbour, to take care of the children when he had a repair jobto finish.

By now Sam’s temporary job had lasted for a month. It consisted of routineplumbing work on a major office remodelling project. At 6.30 p.m. when hereturned home, he found Nora crying in the living room. The children werecrying too and apparently they were hungry. As he looked closely at his wife,Sam saw that she had a bruised cheek. Nora then explained how the irate fatherof her failed student barged into her classroom as she was preparing to leave forhome at 4.30 p.m. He said that she had to change his son’s mark because failingthe course might mean that he would be held back for a year. Nora had saidthat she couldn’t change his mark and he would have to take up the matter withthe school’s principal. The boy’s father had blocked her exit from the classroom.A security guard had heard the father’s threatening remarks and he called thepolice. While the boy’s father had not hurt Nora in any way, nonetheless, shewas so unnerved by the experience that she had tripped and fallen on her wayout of the building. In the fall she had bruised her cheek. She told the policethat she did not wish to pursue the matter in any way. However, she had toattend a meeting with both of his parents, the school principal and a securityguard tomorrow at 9 a.m. Nora told Sam that she did not want to go to themeeting and that she could not stand the idea of being in the same room withthe boy’s parents, particularly his father.

As Sam saw the pain on his wife’s face and the nervousness in her voice heunderstood why she wanted to leave.

1 What are the stressors that are at work on Sam and Nora?

2 Given their current circumstances, is it possible for Sam and Nora to over-come their difficulties? What recommendations would you make to them?



Case Study 2.2: The Pain of Downsizing∗

The bombshell fell last summer in the guise of a videotape. It was a slick,corporate ‘news’ programme for employees, the kind that typically deliverssome feel-good message.

Not this one. It featured a nervous Nynex Corporate executive who insistedthat the profitable company need to slash its operating budget by up to 40per cent to remain competitive. The upshot: another downsizing that wouldeliminate 15 000 to 25 000 people from the payroll. That meant more than one infive employees would lose their jobs. The survivors of an earlier cutback criedfoul, while management soberly tried to justify the employee meltdown.

This is the tale of what has been happening at Nynex in the wake of thatshattering announcement. It is the story of a flabby company in the midst of agargantuan effort to remake itself, reduce costs, improve customer service, andprepare for an onslaught of more aggressive competition in the years ahead. Butit is also a wrenching human drama. The players: a dynamic, steely executiveleading the effort; an outside consultant whose firm is billing the company $1mper month to help with the downsizing; a thoughtful survivor; and a resentfulvictim. In unusually revealing, introspective interviews, they offer an inside lookat what it’s really like to live through the painful process that has become acentral fact of corporate live in the 1990s.

ANGRY AND BITTER. Like many corporations, Nynex has been shrinking foryears. Since 1990, the company has rid itself of 19 200 employees out of a total of95 400, including 13 000 managers. In pure percentage terms, this latest cutbackis one of the largest ever reported by a major corporation. The company madeits plans official on January 24, 1994 by taking a $1.6 billion charge to earningsto cut 16 880 employees, or 22% of the work-force, over the next three years.Two months later, Nynex acknowledged the cutbacks would cost an additional$1.3 billion in charges for severance terms more acceptable to union leaders.

‘Even though the company hopes to avoid forced layoffs by enticing employeesto accept buyout offers, many months ago I would have said that morale waslow and it couldn’t go any lower,’ says one executive. ‘But I’d have to say it’seven lower today.’ Adds a former manager: ‘The top executives are willing tosacrifice people to make their bottom line on a quarterly basis. In the long term,they are selling the corporation out.’

The drama now playing out at Nynex is being enacted at many other cor-porations. Despite the economic recovery, massive downsizings continue atone brand-name behemoth after another. Rarely a week passes without theannouncement of yet more cutbacks, in what has become the most unsettlingand disruptive events in Corporate America. In a quest for efficiency, companieshave been charging billions of dollars off their earnings to lay off hundreds ofthousands of workers. The current euphemism is ‘reengineering’ – a bloodlessterm for corporate bloodletting on an unprecedented scale. In the year’s firstquarter, employers announced an average of 3106 pink slips per day.

* John A. Bryne, (1994) ‘The Pain of Downsizing’, Business Week, 9 May, 60–3 and 66–8.



The sight of so many bodies on the corporate scrap heap is sparking a com-plex debate – about profits and loyalty, and about the benefits and unforeseenconsequences of layoffs. Critics, including some prominent executives, believemassive downsizing has become a fad, a street when investors begin bayingfor cost cuts. Others maintain that large-scale staff reductions even at profitablecompanies such as Procter & Gamble Co. and Xerox Corp., are necessary tomaintain competitiveness in a fast-changing global marketplace.

HARD CHOICES. Few observers expect an end to the spate of downsizingannouncements. ‘In many large companies, we still see tremendous fat,’ saysNoel M. Tichy, a management professor at the University of Michigan. ‘Yet therestill remains this naive view that as the economy continues to take off, thesejobs will come back. That’s nonsense.’

Tichy and others believe that recent gains in productivity – which rose ata 4% rate in the last half of 1993 – are largely the result of these employeemeltdowns. What the statistics of efficiency don’t measure, of course, is thecosts in emotional trauma to laid-off workers and their families, to the executiveswho often carry out the orders, or to the less secure survivors in dramaticallychanged organisations.

Today’s corporation is no longer a secure or stable place. It’s an uncertain,turbulent environment where managers often find their compassion and human-ity in conflict with the pressures of competition and ambition. Fear is almostpalpable in the corridors of the reengineered workplace, where loyalty takes abackseat to survival and personal advancement.

The events that unfolded at Nynex are unique and colored by the company’sown culture, traditions, personalities, and politics. But they are also universal:they exemplify the challenges and the pain that face both healthy and troubledorganisations everywhere.

Downsizings

In the quest for efficiency and survival, many of America’s corporate behemothshave been shedding employees at unprecedented rates. Table 2.3 shows 25 ofthe largest announced staff reductions during 1994 and 1995.

The Recession Is Over But Downsizing Isn’t

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



Table 2.3

Company Staff cutbacks Company Staff cutbacks

IBM 85 000 Proctor & Gamble 13 000

AT&T 83 500 Phar Mor 13 000

General Motors 74 000 Bank of America 12 000

US Postal Service 55 000 Aetna 11 800

Sears 50 000 GE Aircraft Engines 10 250

Boeing 30 000 McDonnell Douglas 10 200

Nynex 22 000 Bellsouth 10 200

Hughes Aircraft 21 000 Ford Motor 10 000

GTE 17 000 Xerox 10 000

Martin–Marietta 15 000 Pacific Telesis 10 000

Du Pont 14 800 Honeywell 9 000

Eastman Kodak 14 000 US West 9 000

Phillip Morris 14 000

The Cost-Cutter: He’s Gutsy, Brilliant, and Carries an Axe

Behind every major downsizing there is a person who leads the effort, and inso doing becomes both leader and scapegoat. At Nynex, it is Robert Thrasher.He is a tough-minded, 51-year-old executive vice president with a history ofbreaking the rules.

At 5 feet, 3 inches, Bob Thrasher is a compact, muscular bundle of franticenergy – ‘a bionic gerbil,’ he jokes. Thrasher is always pacing, always talkingat high-decibel level. And he is committed to the company. Divorced from hisphysician wife, he typically arrives at his office by 6.45 a.m. and leaves at 7p.m. He can’t remember a Sunday in the past 20 years when he hasn’t workedat home or in the office.

Thrasher would surely prefer to be known as the ‘agent of change.’ Instead,the executive who nervously announced the impending layoffs on that in-housevideo has been branded the ‘corporate assassin’ – the person responsible for theplan to eliminate 16 800 jobs. His critics – and there are many of them – wouldsay that he has ice water in his veins and a pocket calculator for a heart.

Since Nynex announced its downsizing, he has had to disconnect the answer-ing machine at his Stamford (Conn.) home because every evening it was filledwith obscene messages and threats from anonymous employees. Colleagues dubhim ‘Thrasher the Slasher.’ In that same employee video an interviewer wrylynoted that he was running ‘unopposed as the top management SOB.’

A former Air Force captain in a tactical fighter group, Thrasher insists thatthe tough choices he’s now making are inevitable. ‘I know this is the right thingto do,’ he says. ‘Today, we have a virtual monopoly, but the states are in theprocess of opening up their markets. We have to improve service and reducecosts to stay competitive.

That realization, says Thrasher, came in mid-1992, during long-range planningdiscussions when he was chief operating officer of Nynex’ New York Telephoneunit. Top management concluded that if it continued to run the business the



same way, the company’s costs per access line would keep increasing even asrevenues steadily declined.

Thrasher was relieved of his COO job to head the effort to reinvent Nynex.Why him? Many companies, from IBM to Westinghouse Electric Corp., havesought outsiders to lead their attempts at transforming themselves. Thrasher, bycontrast, is the consummate insider. He joined the company as a constructionforeman in 1965, fresh out of Massachusettes Institute of Technology, where heearned a graduate degree in structural engineering. The job was in his blood:His late father was a foreman for the Niagara Mohawk Power Corp. And whatwould he have thought of what his son is doing now? ‘My dad would havethought I’m breaking a social contract we have with our employees,’ Thrashersays – but then dismisses the notion. ‘That’s the monopoly mind-set.’

No one would ever accuse Thrasher of being a Bell-head, the sort of cautiousbureaucrat who found shelter in the highly regulated embrace of the motherof all utilities. If anything, several associates describe him as ‘crazy’ because ofhis gutsy candor and his irreverence for authority. As general manager of thecompany’s Long Island unit in the mid-80s, he transformed what had been oneof the most troubled operations with horrendous service into one of the best. Hedid not worry about bruising feelings. ‘In the first six months,’ boasts Thrasher,‘I reassigned, furloughed, and forced-retired half of the senior management teamthere.’

It was that sort of hardheadedness that made him a natural for the company-wide reengineering effort. ‘There was no other choice than Bob Thrasher’ saysIvan G. Seidenberg, president of Nynex. ‘He has enormous energy, commitment,and passion for the company. He’s relentless.’

WEEKEND HUDDLE. Thrasher wanted to examine the company not by divi-sion, or department, or function. Instead he planned to analyse the company byits four core processes, which cut across the $13.4 billion corporation: customeroperations, customer support; customer contact – i.e., sales and marketing – andcustomer provisioning, that is, the planning, design, and building of Nynex’network. He created four teams, with a handpicked captain for each. Afterspending three days at GTE Corp. to get an inside look at its reengineeringeffort, he hired GTE’s consultants, Boston Consulting Group (BCG), to help withthe process at Nynex.

By late march 1993, at a weekend meeting at the Stouffer Westchester Hotel inWhite Plains New York, he put his teams together with the consultant and toldhis incredulous audience what he wanted: a 35% to 40% reduction in operatingexpenses. The teams with 80 Nynex insiders and some 20 BCG consultantsin total, dispersed and rushed through the bureaucracy observing all its keyoperations. They visited 152 ‘best practice’ companies from Avis Inc. to VirginiaPower & Light, looking for useful ideas.

Back home, the inefficiencies they discovered shocked all of them – most ofall Thrasher. Among many things, he learned that Nynex bought 83 brands ofpersonal computers a year; that dozens of New York Telephone Co. employeesspend their time repainting newly purchased trucks a different shade of whiteat a cost of $500 per truck; that Nynex spent $4.5 million to find and bill only$900 000 in previously unbillable telephone calls. There was plenty more. ‘Think



of how, ask myself how I could have presided for two and one-half years overan operation that has been that screwed up.’

His teams first came up with a list of 85 ‘quick wins’ – easy fixes to make.By printing on both sides of customers’ bills, for example, the company willsave $7 million a year on postage alone. By standardising on only two personalcomputers, Nynex could save $25 million in annual capital outlays. And then,in November, came the more substantive recommendations that would lead tothe massive layoffs.

All told, the teams compiled more than 300 specific changes, from consoli-dating work centers to simplifying procedures for approving customer service.Change doesn’t come free, however. Thrasher initially estimated the moveswould cost $700 million in capital. By 1997 the changes will cut $1.5 billion to$1.7 billion from the company’s $6 billion in operating expenses.

HUGE RETURN. On three consecutive days last December – ‘the most excruci-ating days of my life’ – he made presentations to the directors of three boardsat Nynex and its operating subsidiaries, New York Telephone and New EnglandTelephone. He did something that would make any executive cringe: he askedthe directors to swallow a record $1.6 billion charge against earnings and tomake wholesale cuts from the payroll.

The slide that clinched the decision contained the prediction that all ofThrasher’s fixes, if implented, would generate an internal rate of return of1025% and a payback on investment in two years. Thrasher told directors that ifhis teams could achieve only 25% of their goals, they would see a 226% returnand a three-year payback. But those estimates didn’t reflect the sharp increasein the actual cost of cutbacks, which had grown from $700 million in January to$2 billion two months later as a result of union negotiations.

Although he got approval to move forward – some 950 people are workingto carry out the changes – Thrasher still meets resistance. ‘Some of our seniormanagement still don’t get it,’ he says. ‘What we’ve got to do is find them andget them out of the business.’

That’s tough talk. ‘This is tough, ugly work,’ he says. ‘The stress is palpable,I’m vilified throughout the company. People look upon me as the principalto the downsizing. That’s a tough thing to carry around. Hell, I’d like not todownsize a single employee. But that would not be a prudent decision to make.’

The Consultant: A Dentist Who Only Does Root Canals

For Phillip Catchings, the Nynex assignment has been the most challengingand difficult of his consulting career. As a partner at Boston Consulting Group,Catchings is the day-to-day leader of the consulting project that is costing Nynex$1 million a month. If BCG stays at Nynex until the job is done, the total billcould reach $40 million.

Like Thrasher, he’s hardly a popular figure at Nynex these days. For onething, employees have seen their share of high-priced consultants come and go.‘Nynex is a champion at spending millions of dollars on consultants and doingnothing with the results’ grouses one manager.



Besides, every time Catchings begins a consulting assignment – he has doneabout 45 so far – he is typically met with cynicism. ‘There is some naturalresentment when we come in,’ he says. People ask, ‘What makes you guys sosmart?’ and ‘Why doesn’t management trust us to do this ourselves?’

His job, he says, is to allay such fears – but he can’t do so by pretending thathis remedies will be painless. ‘A dentist who claims a root canal is not going tohurt will lose his credibility,’ he says. ‘I’m here to do the best possible for theorganization.’

Above all, of course, Catchings’ presence provokes shudders because he isa memento mori in pinstripes. His arrival at Nynex or anywhere else usuallymeans layoffs ahead. In half of his past 10 assignments, he has been partof a retrenchment effort. Yet his background hardly seemed to have preparedhim for his role as the hardheaded, cold-hearted consultant. After graduatingfrom Dartmouth in 1973, with a degree in psychology, Catchings ran a fosterhome for delinquent teenagers. He grew a beard and long hair, bicycled acrossthe country, and studied pottery in Washington state. The wanderlust out ofhis system, he spent five years in human resources with AT&T, then headed toHarvard Business School. He graduated with his MBA in 1982 and went straightto BCG.

Like most consultants, he’s afflicted with jargon. Catchings, 42, speaks of‘crafting process platforms’ and ‘de-averaging costs,’ of ‘optimum solutions’ and‘phase-one diagnostics.’ He concedes that his family is often disappointed withhis inability to tell an anecdote about his work. ‘I must have a confidentialityfilter on my brain,’ he says.

Along with his partner, Jeffery A. Bowden, Catchings first consulted for Nynexand Chairman William C. Ferguson in 1989. That established a relationship thatled to the current assignment. Catchings, whose expertise is mainly in ‘changemanagement,’ has spent 80% of his 55-hour workweeks at Nynex since late 1992.Bowden, a telecom expert, was already spearheading a similar effort at GTE thatwill claim 17 000 jobs.

SCRIPTWRITING. The consulting pair huddled with Thrasher and other topexecutives once a week for four months, mapping out the project. By earlyMarch, Thrasher had picked his captains for the teams; Catchings and Bowdenassembled two-dozen BCG consultants. Their role: write the script for thereengineering exercise and guide the effort.

A ‘compendium’ of several hundred pages detailed the project’s five majorphases, from ‘direct process observation’ in the first four months to ‘broad scaleimplementation,’ which is now under way. Catchings and Bowden helped toselect the companies that teams visited for inspiration and ideas. After each trip,teams engaged in so-called clay-modeling sessions from the visits were moldedinto recommendations.

Now Catchings must get on with the painful task of building the new structureand helping to make the staff reductions that will entail. How does he reconcilehimself to the job of helping others wield an axe to people, their careers, andfamilies? ‘I try not to focus on that aspect of it,’ he says. ‘I’m also part of taking afrustrated, comparatively unsuccessful 70 000 employees and transforming their



environment so they can be more productive. I think I’m involved in saving lotsof jobs, not destroying them.’

The Survivor: Staying Power Has Rewards – and a Price Tag

Nancy P. Karen, 46, is sure her job won’t be destroyed. In her 24 years with thecompany, she has been an energetic workaholic in the critical area of informationsystems. As director of the company’s personal computer network, Karen isfacing new and tougher demands as a result of Thrasher’s efforts.

She joined Nynex in 1969 during the company’s big bulge in hiring, oftencalled ‘the service glut.’ To meet rapid growth, the company hired tens ofthousands of people in the late 1960s and early 1970s. Karen, a Vassar Collegegraduate with a degree in math, was one of the 103 000 employees at NYTelephone (NYT) in 1971. Today, NYT has about 40 000 people. Working in aregulated monopoly, she felt a sense of comfort and security that now seemsa distant memory. ‘Downsizing was totally unheard of,’ she says. ‘Just abouteverybody here started with the company at a young age and retired off thepayroll.’

Thrasher’s plan – and Nynex’ earlier efforts to slash the payroll – have changedall that. Of the 79 people who report directly to Karen, 59 have already seencolleagues forced off the payroll in previous rounds of cutbacks. Her departmentis likely to suffer a 30% reduction in staffing. ‘When they started talking aboutanother round of downsizing, people were a little more anxious because theyfeel they’re already stretched thin. Now we’ll have to learn to work smarter andcompletely change the way we do things.’

Working smarter also means working harder – much harder. She once directlysupervised 26 people, instead of 79, and she used to work more normal hoursas well. No longer. Karen now puts in 50–60 hours a week, from 8 a.m. to7 p.m. every weekday, at Nynex White Plains (NY) office. Wherever she goesthese days, she carries a beeper and a cellular phone and checks her voicemailevery hour. ‘It’s a different mentality,’ she says. ‘My weekends and holidays arenot reserved.’ On a recent biking vacation through California’s wine country,she called the office at least once a day from ‘every little town.’ Since Karen issingle, ‘nobody complains about my work hours,’ she says.

Nynex did not push Karen into her new and grueling pace completely unpre-pared. The company dispatched her to a local hotel in 1993 for a workshop onculture change put together by Senn, Delaney Leadership, a Long Beach (Cal-ifornia) consulting firm. She was skeptical at first. ‘To me, it was yet anotherprogram,’ she says. Surprisingly, Karen left a believer. The sessions – dubbedWinning Ways – is an effort to inculcate the values and skills that Nynexbelieves it needs to make Thrasher’s reengineering changes take hold. It is aquick-and-dirty roundup of today’s managerial commandments, stressing team-work, accountability, open communications, respect for diversity, and coachingover managing.

Although impressed by how the sessions encouraged employees to speakmore freely to each other, Karen saw her share of nonconverts at the initialtwo-and-one-half-day meeting. ‘Some people come back to work unchanged,’



she says. ‘But there’s a big middle section that seems willing to change, andthen there’s a small percentage at the top that’s very enthusiastic about it. . .’

Despite the increased workload and her concern over employee morale, Karenconsiders herself lucky. ‘This is a wonderful challenge,’ she says. ‘I’m lookingat a task of building a new organization in the next six months to a year. I havethe chance to test myself as I’ve never been tested before.’

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

Not everyone shares Karen’s optimistic view of life at Nynex. Uncertainty andfear loom over many. Only two weeks ago, Nynex began sending out details ofthe buyout packages to some workers in New England. Employees know thatif enough people refuse the package, the company will be forced to push themout.

Many are understandably bitter. They feel as if they are victims of someabstract management exercise beyond their control or even their capacity tounderstand. One of them, an urbane manager with more than 20 years ofexperience, expects to pounce on an early-retirement package, to walk out, andstart a new phase of life. ‘This company’s values have changed,’ the managersays. ‘There are now right people and wrong people here, and I don’t believein that.’

Fearful of retribution, this employee doesn’t want to be identified. But Pat, aswe’ll call this middle manager in a staff position, is remarkably candid about theturmoil inside the company. Pat has made presentations before Bob Thrasherand thinks he’s a ‘brilliant, if ruthless executive. As an officer of the company,he’s very focused and clearly sees the possibilities.’ But this Nynex veteran failsto see Thrasher and other top managers sharing the pain. ‘The officers all havegolden parachutes. They’re in charge of their own fates. We’re not involved.We’re just affected.’

Looking at the fate of the managers and employees who lost their jobs inNynex’ earlier cutbacks, Pat can see the profound changes that may lie ahead.Many are still without work. More than 150 of them have joined a class action(wrongful termination suit) against the company, alleging that they were selectedfor dismissal because of age discrimination.

Although the company formally announced its latest round of cutbacks threemonths ago, not one employee has yet lost a job. Details of buyout offers,including accelerated pensions, are being sent to employees in selected businessunits. Thrasher says the buyout offer ‘removes the anxiety and angst in thework-force.’

Not to this middle manager, who believes offering incentives to quit isn’tthat much different from firing employees outright with severance pay. ‘Even ifpeople won’t be fired this time, they’re still frightened of the future. It affectstheir self-esteem and their pocketbook. And most people aren’t going fromsomething to something. They have no place to go.’

Sure Pat fears for a job that may be lost. But mostly, Pat claims to fear thatthe company to which this middle manager’s life has been devoted will neverrecover from the bloodletting. Pat recalls taking hours to walk to work in the



aftermath of a major snowstorm – a degree of commitment employees won’t belikely to feel in the future. This manager wonders if the repairmen who nowrush to set up emergency communication lines at the scene of incidents suchas the bombing of the World Trade Center will move less urgently because ofNynex’ perceived lack of loyalty to its employees. Corporate values that notlong ago focused on caring for employees have been rewritten so that nowemployees come last, Pat says, after shareholders and customers.

The Draconian downsizing, Pat believes, is really a knee-jerk response to acomplex set of problems that might be addressed more subtly. ‘Other companies,like Hewlett-Packard, have refocused their strategy, cleaned up their product andservice lines, and for the most part retrained their folks without massive layoffs,and they’re doing exceptionally well.’

Such humane options, however, may be for executives and companies thatdo not have to cut as deeply or as thoroughly as Nynex. As everyone involvedwould concede, the pain of this massive downsizing is not likely to go awayany time soon.

An Update on Nynex

By April 1996, Nynex executives believed that the road to profitability andmarket share would be easiest to travel by way of merger. To create this $50bntitan, a merger was planned with the Bell Atlantic Corporation.23 Second onlyto AT&T, the new company would have $2.93bn in profits, 136 000 employeesworld-wide and more than 36 million home customers. If the two companiescan win the necessary approvals from regulators, they still must overcome thesignificant challenge of merging two managements that are used to competing,not co-operating.

1 What are the organisational stressors for managers at Nynex?

2 What may be some of the long-run dangers to companies in service indus-tries that seek to gain competitive advantage through extensive downsizing?

References

1 Northwestern Life Insurance Company, (1992) Employee Burnout: America’s NewestEpidemic. Minneapolis, MN: NWNL.

2 Miller, K. (1992) ‘Now, Japan is Admitting to It: Work Kills Executives’, Business Week(August 3): 17.

3 Selye, H. (1956) The Stress of Life. New York: McGraw-Hill.

4 Cooper, C. (1985) ‘The Stress of Work’, Aviation, Space, and Environmental Medicine(July): 628.

5 Editorial, (1996) ‘Learning to Cope’, The Economist, 16 April 1996: 15–16.

6 International Institute for Management Development, (1996) World CompetitivenessYearbook, Lausanne.



7 Kerber, R. (1996) ‘Was Therapy Used to Punish Nuclear Workers?’, Wall Street Journal(March 20): B1, B3.

8 Murphy, R. (1986). ‘A Review of Organizational Stress Management Research’, Journalof Organizational Behavior Management (Fall–Winter): 215–27.

9 Howard, J., Cunningham, D. and Rechnitzer, P. (1976) ‘Health Patterns Associatedwith Type A Behavior: A Managerial Population’, Journal of Human Stress (March):24–31.

10 Brief, A., Schuler, R. and Van Sell, M. (1981) Managing Job Stress. Boston: Little,Brown, 94.

11 ‘Heart Disease, Anger Linked Research Shows’, (1989) Lincoln Journal, 17 January: 4.

12 Beehr, T. (1986) ‘The Current Debate About the Meaning of Job Stress’, Journal ofOrganizational Behavior Management (Fall–Winter): 8–15.

13 Sullivan, S. and Bhagat, R. (1992) ‘Organizational Stress, Job Satisfaction and JobPerformance, Where Do We Go From Here’, Journal of Management (June): 361–4.

14 Benson, H. (1974) ‘Your Innate Asset for Combating Stress’, Harvard Business Review52: 49–60.

15 Ornish, D. (1990) Dr. Dean Ornish’s Program for Reversing Cardiovascular Disease. NewYork: Morrow.

16 Francis, M. and Pennebaker, J. (1992) ‘Putting Stress into Words: The Impact ofWriting on Physiological, Absentee, and Self-reported Emotional Well-being Measures’,American Journal of Health Promotion 6: 280–7.

17 Shellenbarger, S. (1996) ‘Enter the New Hero: A Boss Who Knows You Have a Life’,Wall Street Journal (23 April): B1.

18 Jeffery, N. M. (1996) ‘Wellness Plans Try to Target the Not-So-Well’, Wall Street Journal,(20 June): B1, B5.

19 Duff, C. (1996) ‘Is Buchanan’s Take on Layoffs Too Pat?’, Wall Street Journal (5 March):A2.

20 Cauley, L. and Lipin, S. (1996) ‘Bell Atlantic, Nynex Reach Accord for $23b Merger ofEquals’, Wall Street Journal (22 April): A3, A5.

21 Schellhardt, T. (1996) ‘David in Goliath’, Wall Street Journal (23 May): R14.

22 Jenkins, H., Jr. (1996) ‘Here’s to Human Capital’, Wall Street Journal (2 April): A 15.

23 Keller, J. (1996) ‘AT&T Faces Slow Going in its Effort to Slash Jobs’, Wall Street Journal(17 May): A3, A5.


Module 3

Contemporary Theories ofMotivation

Contents

3.1 Introduction 3/23.1.1 What Stimulates Human Behaviour? 3/23.1.2 Is there a Distinction between Motivation and Performance? 3/33.1.3 Are there Different Types of Motivation Theory? 3/4

3.2 Content Theories of Motivation 3/43.2.1 A Question of Needs: Maslow’s Hierarchy 3/43.2.2 Applying the Need Hierarchy 3/63.2.3 Herzberg’s Two-Factor Theory of Motivation 3/73.2.4 Comparing Maslow’s and Herzberg’s Models 3/10

3.3 Process Theories of Motivation 3/113.3.1 Equity Theory: Social Comparisons in the Work Setting 3/113.3.2 New Research Light on Equity Theory Applications 3/123.3.3 Understanding the Basics of Expectancy Theory 3/133.3.4 Applying Expectancy Theory 3/163.3.5 Extending Expectancy Theory to the Individual and the Organisation 3/16

3.4 Cultural Differences in Motivation 3/203.4.1 Principles of Behaviour Modification 3/203.4.2 Making Sense of Schedules of Reinforcement 3/233.4.3 Behaviour Modification in Perspective 3/253.4.4 Understanding the Role of Punishment in Management Practices 3/273.4.5 Setting up a Behaviour Modification Programme 3/31

Summary Points 3/32


Case Study 3.1: Promoting Employee Productivity 3/37

Case Study 3.2: Motivating Employees at Cypress Semiconductor 3/38

Learning Objectives


• Identify the elements that make up employee motivation.• Clearly distinguish motivation from performance.• Explain the various levels of human needs.


Module 3 / Contemporary Theories of Motivation

• Differentiate hygiene factors from motivators.• Describe the differences between content theories of motivation and process

theories of motivation.• Explain the connection between personality and employees’ patterns of

social comparison of work outcomes.• Explain the major components of expectancy theory and how they relate to

organisational processes.• Develop organisational examples of how behaviour modification works.• Suggest some important differences in motivational patterns across various

cultures.• Detail the meaning of a contingency of reinforcement and how managers

can apply the concept.• Articulate the differences between various schedules of reinforcement.• Explain why managers should practise the rule of ‘stretching the ratio’ in

providing rewards to employees.• Detail the steps in setting up a behaviour modification programme in a

company.• Identify the pros and cons of using punishment in the workplace.

3.1 IntroductionThe study of motivation is extremely complex. It is necessary for managers toconsider the importance of motivation because it stimulates employee behaviourto achieve organisational goals. Motivation sustains our behaviour and keepsit systematic and focused. It directs our responses towards the goals we value.Without knowledge of motivation, managers will make critical mistakes in guid-ing the behaviour of subordinates towards outcomes desired by the organisation.

3.1.1 What Stimulates Human Behaviour?

Human behaviour rests on the basic concepts of needs and motives. A needis an experienced state of deficiency that pushes one’s behaviour. Examples ofneeds are hunger, thirst and belongingness. A motive pulls one’s behaviour in apredictable direction. Table 3.1 illustrates these concepts. For example, you mayneed a pay rise to cover the cost of your summer holiday. You begin to workharder at your job with the knowledge that pay rise decisions will be madefour months before your scheduled summer departure. You come to work ontime, avoid taking sick leave and work more closely with your colleagues. Youengage in all of these behaviours with the hope that they will trigger a rise.Your behaviour is thus pulled in the direction of your increased performancemotive.

Work motivation is referred to as the direction, level of effort and extent ofpersistence evident in the behaviour of an employee. The direction of behav-iour refers to which behaviour an employee chooses to perform a task in theorganisation. The direction of motivation is evident when an engineer chooses toconsult with his project leader concerning rising design costs for a new product



Table 3.1 Understanding needs, behaviours and motives

Need Behaviour Motive

Pay rise to pay for summerholiday

Increased work output

No absenteeism

No lateness

Improved co-operation withco-workers

Higher work quality

Better customer service

High performance on the jobto obtain merit pay rise

option. The level of effort component of motivation is how hard the employeewill work to perform the behaviour chosen. For instance, if the engineer pre-pares a written analysis and empirical evidence of rising costs in the designproject, he is working much harder than if he simply mentions his concernsto his project manager over an informal lunch. The level of persistence refersto the employee’s tenacity in the face of obstacles to performance and goalaccomplishment. When the project manager disagrees with the engineer’s costanalysis, does he give up or does he refine his analysis with better assumptionsabout expenditures?

3.1.2 Is there a Distinction between Motivation and Performance?

On the surface, it may appear that motivation and performance are the samething. However, while managers and employees may often confuse them, theyare distinct aspects of behaviour. Performance always involves the evaluationof a person’s behaviour on the job. Motivation, on the other hand, is onlyone of several factors that influence performance. For instance, an engineer’sperformance is reflected in the quality of his designs, the number of patentshe obtains and the customers’ satisfaction with the new product innovationthat reflects his work. While we would expect a highly motivated engineer toproduce excellent products that satisfy the needs of customers, it would also betrue that his performance could be affected by many other factors besides hismotivation level. Additional factors affecting his performance would include: 1)ability, 2) personality characteristics, 3) difficulty of the design task, 4) extentof job resources available, 5) working conditions and 6) work attitudes such asorganisational commitment and job involvement.

Based on our argument above, it should also be clear that low motivationdoes not necessarily cause low performance. An employee may have skills andabilities in such abundance that his high performance is assured in spite ofhis motivation level. Managers who always assume that poor performance isa result of low motivation risk taking the wrong steps to correct performanceproblems in the workplace. For instance, they may overlook the pivotal roleof training and development, better equipment and technology or excessivecentralisation of decision-making as primary causes of performance problems.



3.1.3 Are there Different Types of Motivation Theory?

Motivation theories are of two types – content theories and process theories –which are considered separately in this module. A content theory of motivationspecifies those factors in individuals which stimulate, direct, sustain and stopbehaviour. Therefore, a content theory of motivation answers the question: ‘Whatspecific needs cause motivation?’ A process theory of motivation explains howbehaviour is stimulated, directed, sustained, or stopped. Therefore, this type ofmotivation theory explains how motivation occurs. Both types of theory offerinformation which can be applied to the problems of motivating employees. Thefirst content theory of motivation to be examined is Maslow’s hierarchy.

3.2 Content Theories of Motivation

3.2.1 A Question of Needs: Maslow’s Hierarchy

Abraham Maslow believed that motivation could be explained by organisinghuman needs into five levels.1 He formulated his motivation theory to addresshuman behaviour in all settings. His theory was quickly applied to the narrowerrange of human behaviour in organisational settings. Along with definitionsand organisational examples, the five levels of Maslow’s hierarchy are shown inTable 3.2.

Table 3.2 Maslow’s hierarchy of needs

Need level Description of the level Organisational example

Highest-level needs

Self-actualisation The need to reach one’s fullestpotential

An engineer uses all of hisdesign skills to create a newsubcomponent

Esteem The need to feel good aboutoneself and one’s abilities; andto be respected by others and toreceive their approval

Company promotes deservingmanagers and recognisesemployees with awards

Belongingness The need to experience socialinteraction, friendship and love

Having and sustaining goodrelations with co-workers,supervisors, being a member of acohesive work team and being apart of social functions at work

Safety Need for security, stability and asafe work environment

Having good job benefits, safeworking area and job security

Physiological Food, water, shelter and clothingto ensure survival

Guaranteed minimum pay levelthat is sufficient to provide basicnecessities

Lowest-level needs



Physiological needs are the lowest level of needs in the hierarchy; they includefood (hunger), water (thirst), shelter (warmth) and sex (reproduction). In today’sworld these needs rarely dominate us. Real hunger (starvation) in developednations is rare. Mostly our first-level needs are satisfied. Only an occasionalexperience of a couple of days without sleep, a day on a diet without food or afrantic 30 seconds under water reminds us that these basic needs are still withus. As Maslow notes, physiological needs are basic to our biological survivaland are therefore dominant over psychological needs. Therefore, physiologicalneeds are often referred to as lower-order needs.

Maslow states that physiological needs must be satisfied first. For example,your concern about a business meeting will abruptly disappear if you arrivehome to see your house in flames. Your motivational base will shift dramaticallyto saving your family, home computer and your Heriot-Watt Distance LearningMBA courses.

Safety needs are also called lower-order needs and they are activated next.They relate to protection against danger, threat or deprivation. Once their phys-iological needs are met, people want guarantees that their safety needs will besatisfied too. Economic and physical security are generally embodied in theseneeds. Safety needs are tied strongly to physiological needs because meetingsafety needs ensures continuity and predictability for fulfilment of the basicneeds.

How Do Safety Needs Affect Employee Actions?

Looking at examples of employee behaviour helps us answer this question.One market researcher provides for his continued employment by joining aprofessional group meeting once a month to discuss new trends in marketresearch for new products. This individual becomes prominent in the associationand other professionals come to seek his advice on market research for newproducts. A second employee fulfils the same job security need by attending acourse in marketing research at the local university. Because the company’s goalis the development of new marketing procedures, both employees try to helpachieve the goal through different behaviours.

Belongingness needs represent the third level of Maslow’s hierarchy. Thiscomplex set of needs covers the desire to give and receive affection, acts offriendship, altruism, the desire for group acceptance and giving and receivingemotional support. The belongingness need level marks the beginning of higher-level needs which were considered by Maslow to be personally infinite, i.e., youcan never satisfy them completely. Higher-order needs are learned, we are notborn with them and they function at psychological levels (see Table 3.2). Peopledevelop them through sustained contact with their social environments.

Esteem needs represent the fourth hierarchy level. It has an external compo-nent identified as social status, which is defined as recognition, prestige andappreciation from others. The internal component of the esteem need consists ofchallenge, autonomy and self-reliance. Employees usually experience the inter-nal component as personal feelings of control over work. When work does notadequately meet this need, employees describe their work as ‘monotonous’ or‘mind-numbing’. Work which activates these reactions can lead to job dissat-



isfaction and low performance. As employees become more competent on thejob, they often experience enhanced self-efficacy. Self-efficacy is defined as per-sonal confidence to achieve a very high level of performance. Often called the‘can do’ trait, it is strongly reinforced in employees who have high self-esteem.Recognition on the job and approval from peers, managers and executives canall contribute to self-efficacy and social status.

Self-actualisation is the final level of the hierarchy. This need is defined asthe desire to fulfil oneself by making maximum use of talents and experience:in other words, living up to one’s potential. People sometimes describe it astheir desire to fulfil their potential through the activities they pursue. As notedfor esteem needs, self-efficacy is also strengthened by success in self-actualisingon the job. Self-actualisation can occur in many other life settings than work.Similarly, many jobs do not provide employees with much opportunity to self-actualise on a regular basis. As a result, employees quickly learn to satisfy thisneed outside the job. Managers should take note of this tendency and addressthemselves to improving the design of work to provide more opportunities foremployee self-actualisation.

Maslow’s hierarchy assumes that physiological needs must be satisfied beforehigher-order needs can be satisfied. There are several other points which arecrucial to a complete understanding of Maslow’s hierarchy, as follows:

1 A satisfied need ceases to motivate behaviour at that need level. Forinstance, when an employee decides that he has sufficient insurance cov-erage for himself and his family, part of his security or safety need ismet.

2 Unsatisfied employee needs lead to undesirable outcomes at work. Unsat-isfied needs create perceived inequity for employees. When this condi-tion persists, employees experience job dissatisfaction and they respond byreducing their performance, coming to work late, not coming to work at allor leaving.

3 People are assumed to have a need to grow and develop their full potential,and consequently, they strive to move up the hierarchy and satisfy higher-order needs. All human beings self-actualise in some way. However, onlysome employees self-actualise on the job.

4 Needs are not usually satisfied completely. Individuals can satisfy moreof their lower-order needs than their higher-order needs. In organisations,lower-order needs are satisfied largely by monetary rewards. In contrast,higher-order needs are satisfied by social interactions (to meet social andego needs) and by the design of meaningful jobs (to meet self-actualisationneeds).

3.2.2 Applying the Need Hierarchy

The need hierarchy tends to parallel employee career development. Early careerstages are characterised by security concerns and learning organisational values.After five years or so, concern shifts to the establishment of a professionalidentity in the firm and in the employee’s chosen profession (external component



of ego need) and autonomy (internal component of ego need). Self-actualisationneeds soon materialise as employees strive to attain their full potential at work.

Senior employees may seek to make organisational contributions which willendure after they leave. Senior employees often become mentors or sponsors foryounger employees who show exceptional capacities for noteworthy careers inthe organisation. Being a mentor can be a particularly rewarding self-actualisingpathway. Other employees choose to start their own business so they can obtainmore autonomy. Becoming an entrepreneur can be a powerfully sustaining formof self-actualisation because it strongly and consistently reinforces the humandesire for self-determination. Experiencing more self-determination also hasimportant effects for esteem need. For instance, great success in one’s careerleads to greater satisfaction of the internal component of the esteem need andenhanced intrinsic motivation.

The theory makes it clear that unmet needs are more motivating than needswhich have been satisfied. The implication is that motivation and need satis-faction are anticipatory in nature. Much of employee job satisfaction is basedon the belief that future job situations have great potential for meeting higher-order needs. Managers must seek to guide and direct employee behaviour thatmeets organisational needs and individual needs simultaneously. The qualityof an organisation’s motivational programme is determined by the clarity ofpathways between employee performance and rewards which satisfy lower andhigher-order needs. This idea will be developed later in the module.

Criticisms of Maslow’s Hierarchy

Data from research on two different companies suggest that the hierarchy ofneeds can be reduced to two levels. The research suggested that a physiologicallevel existed separately from a second hierarchy which included all the otherneeds. Researchers have also found that as managers advance in an organisation,their needs for security and safety decrease, with a corresponding increase intheir social, esteem and self-actualisation needs.1 Research studies also indicatethat while lower-order needs become less important as they are satisfied, thereis no decline in the importance of higher-order needs as they are satisfied.1 Inother words, employees will continue to strive for status and autonomy in theirwork even after experiencing considerable success in these need areas.

In summary, strong evidence supports the view that unless physiological needsare satisfied, the higher-order needs cannot come into play. As employees movethrough their careers, their need patterns shift to consideration for higher-orderneeds. In early career stages, employees focus on job security and on developingan accepted position in the organisation, i.e., social needs directed to belonging.By near mid-career, their attention begins to shift to recognition, autonomy andself-development.

3.2.3 Herzberg’s Two-Factor Theory of Motivation

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



the reasons these professionals gave for positive or negative job satisfaction andmotivation differed systematically. Herzberg’s conclusions are summarised inFigure 3.1.

MAXIMUM

JobSatisfactionRange

JobDIS-SatisfactionRange

NEUTRAL

I QUIT!

PEER RELATIONS

PAY

SUPERVISION

WORKENVIRONMENT

JOB SECURITY

CO. POLICIES

JOB SITUATION

WORK ITSELF

PROMOTION

CHALLENGES

ACHIEVEMENT

PROF. GROWTH

RESPONSIBILITY

RECOGNITION

MOTIVATORSHYGIENES

STATUS

Hygienes only get youhalfway there!

Figure 3.1 Herzberg’s two-factor theory of motivation

Figure 3.1 shows that employee work attitudes range from maximum jobsatisfaction to maximum job dissatisfaction, which can lead to higher employeeturnover. The level of experienced job satisfaction depends on the availability ofhygienes and motivators shown on the right of the diagram. From the diagramit is apparent that hygienes are not sufficient to move the employee completelyinto the zone of job satisfaction and motivation. The various motivators mustalso be included to ensure a fully motivating and satisfying job situation. Inother words, hygienes are necessary but not sufficient conditions for sustaininghigh job satisfaction and motivation. The diagram also shows that the absence ofhygiene factors leads to job dissatisfaction, but when present, hygiene factors donot necessarily provide job satisfaction. In contrast, the presence of motivatorsdoes lead to job satisfaction if the hygienes are already in place.

Why Are the Factors called Hygienes and Motivators?

The explanation for the terminology used lies in how employees experience theirjob environment and how they react to the specific features of their work. Thehygienes are defined as components of job context. Because of this quality, somemotivation experts refer to them as contextual factors because they emphasise



the elements of the environment surrounding the job and the employee. Whenthey are not present, the employee’s job is impoverished and this condition canlead to turnover, absenteeism, low performance, job withdrawal, job burnout,alienation and sabotage. Employees experience job frustration and stress if theirjobs have few hygienes. In some cases, they may actually experience physi-cal illness because of extremely adverse work environments. As managementsimprove hygienes, employees often experience short-term positive feelings, butthe general improvement in hygiene factors does not lead to sustained job satis-faction and performance. According to Herzberg, employees soon take hygieneimprovements for granted.3 However, if the hygienes are removed due to organ-isational restructuring or corporate take-over, job satisfaction plunges. For thisreason, hygienes are often referred to as maintenance factors. Consider thefollowing example.

For years, employees of the Acme Referral Service shared a bonus plan which dis-tributed five per cent of profits as semi-annual bonuses. The firm had declared thesebonuses for the previous nine years. In some years, the bonuses had representedas much as 45 to 55 per cent of employees’ salaries. Because of poor sales oneyear, no bonuses were declared for the next year. However, senior executives didreceive bonuses, although these were smaller than usual. Management neglectedto explain to sales and office personnel its decision to eliminate their bonuses dueto the poor financial performance of the company. Consequently several skilledsalespeople left the firm in the next six months.

Bonus loss was perceived by office and sales personnel as a unilateral decisionto reduce their pay hygiene relative to senior executives (whose pay hygienewas increased). This threatened lower-order need satisfaction for the affectedemployees. The loss of the bonuses led to increased employee turnover. Noticehow quickly the highly skilled employees experienced inequity and reduced theirperformance because of dissatisfaction on the job. The management lesson inthis example is that reductions in hygienes must be fully explained to employeesand managers must share in the loss of hygiene. (In Japan, executives are thefirst to experience pay cuts.) Moreover, hygienes should be restored as soon aspossible.

The factors that raise job satisfaction and performance in the long run arecalled motivators (see Figure 3.1). Motivators are related to the employee–jobinteraction, and are job-centred characteristics. Often they are called intrinsicjob factors or content factors. When they are present and hygienes are accept-able, employees are more likely to achieve satisfaction of higher-order needs.Absence of the motivators can lead to apathy and alienation because the jobsare experienced as unchallenging and boring. This means that employee egoand self-actualisation needs are not met by their work. Consider the followingexample:

Ian is a highly successful manager of a data processing department in a largeinsurance organisation. During his tenure, the department has grown from 25 to90 employees. He has always been responsible for training new employees andworking with other executives to set up new systems to manage information flows.Last week Ian was told that a committee would now be responsible for devising newwork systems which he would install with the help of the accounting department.



Furthermore, accounting and human resources would now be responsible fortraining new employees for Ian’s department.

Several motivators were removed from Ian’s job. His autonomy and respon-sibility were reduced sharply by the committee’s control of all new informationsystems. His ability to meet challenges and obtain recognition through hisemployee training work was eliminated. Although all hygienes remain intact,one would expect Ian to experience reduced job satisfaction and his perform-ance, as well as that of his department, would drop. Ian may seek employmentelsewhere to re-establish his experienced equity regarding the availability of jobmotivators.

The example above indicates that motivators are rewards which occur whenemployees perform their job successfully. The abundant availability of moti-vators encourages employees to seek various ways to achieve job satisfaction.Some employees will respond very favourably to abundant motivators in theirjobs by demonstrating more intrinsic motivation.4, 5 The fact that motivatorsare sources of intrinsic motivation implies that hygienes, or context factors,are the sources of extrinsic motivation. Building on that principle, it is truethat extrinsic motivation originates in the control systems of the organisation(e.g., the reward, supervision and performance appraisal systems). Therefore,the control and availability of extrinsic motivators is less subject to employeecontrol whereas the sources of intrinsic motivation are in the content of theemployee’s job.

Benefits of Herzberg’s Work

Herzberg’s work has influenced thinking in organisational behaviour and man-agement. Its most enduring benefit is the attention it focuses on the effectsof company systems and job design on employees’ job satisfaction. Here, jobdesign refers to how work is arranged and how much employees control theirwork. Before Herzberg’s theory, employee job satisfaction was thought of onlyin extrinsic terms (satisfaction was only a function of pay). He pointed out thatthe origins of job satisfaction and job dissatisfaction were different. We nowknow that concentration on hygiene factors will not ensure that organisationshave creative, involved, productive and motivated employees.6

3.2.4 Comparing Maslow’s and Herzberg’s Models

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



questions about the factors which lead to job dissatisfaction and job satisfaction.Further, it answers them in everyday work-oriented terms. Thus, its simplicityappeals to managers.

Despite the important contributions made by Herzberg, the two-factor theoryhas been criticised for several reasons. The most important criticism centres onthe method for testing the theory which requires employees to consider theirwork experiences retrospectively.6 Such ‘historical’ comparisons are subject todistortion as employees consider those factors which led them to experience jobsatisfaction or dissatisfaction. Other researchers believe the theory oversimplifiesthe nature of job satisfaction.4 Critics of Herzberg’s work suggest that moreemphasis be placed on the motivational and performance consequences of themodel.5

3.3 Process Theories of Motivation

Now we turn our attention to those process theories of motivation that helpus understand how the process of motivation occurs. In this section we willreturn to equity theory and discuss its important contributions to managers’understanding of employee motivation in organisations. Then we shall addressexpectancy theory: an even more prominent process theory of motivation.

3.3.1 Equity Theory: Social Comparisons in the Work Setting

As we noted in Module 1, equity theory makes a contribution to understandinghow employees react to incentives and outcomes in the work setting. In thecontext of the performance–job satisfaction relationship, equity theory showshow employees react to the available rewards from work in terms of theirexperienced levels of job satisfaction. In its own right, equity theory is a promi-nent process theory of motivation.7 Its developer, Stacy Adams, explains thatemployees gauge the fairness of their work outcomes in comparison to the workoutcomes received by others in similar jobs. To review briefly, to the extentthat employees feel that their rewards are inadequate, they experience or per-ceive inequity. Felt or perceived inequity is a motivating state which encouragesthe employee to eliminate it by pursuing various actions. Experienced inequityarouses the employees to remove the discomfort to restore a sense of balance orfelt equity to the situation at hand. Inequities at work exist whenever employeesfeel that their rewards for their efforts are less than the rewards or inducementsreceived by others for their efforts or contributions. This cognitive process ofcomparison is shown below.

Employee’s rewards compared to Others’ rewardsEmployee’s inputs (efforts) Others’ inputs (efforts)

A felt negative inequity occurs when the employee believes that he hasreceived relatively fewer rewards than others in proportion to the level of effortthat he expended on the job. Felt positive inequity occurs when an employeefeels that he has received relatively more rewards than someone else for ameasured level of effort or input. Both of these mental states are motivating and



the employee in question seeks to return the felt inequity to a state of balanceor equity. To restore a state of equity, an employee might:

1 Change work inputs and reduce performance efforts (to eliminate negativeinequity).

2 Change the outcomes received (ask for more responsibility to reduce positiveinequity).

3 Exit the circumstances (leave a job or request a transfer).4 Change the people who are used for comparison.5 Mentally distort or alter the comparison (rationalise that the inequity is only

temporary and will be resolved in the future).6 Take a decision to alter the inputs or outcomes of the comparison other (get

his or her co-worker to work less hard).

Numerous organisational and laboratory studies generally confirm that peoplewho feel overpaid (felt positive inequity) are often motivated to increase both thequality and quantity of their work. Those who feel underpaid and overworkedoften compensate by decreasing both the quality and quantity of their work.Further, most research indicates that felt negative inequity is a stronger motivat-ing state than felt positive inequity. Thus employees are less likely to correct an‘overpaid’ imbalance than they are to correct an ‘underpaid’ imbalance.

3.3.2 New Research Light on Equity Theory Applications

An important revision of the original equity theory concept proposes that thereare three types of individuals with different preferences for equity.8 Benevolentsare employees who are comfortable with an equity ratio which is less than thatof their comparison other(s). Such employees are altruistic and they willinglyvolunteer to cover for colleagues and they will expend extra effort to achieve unitgoals. Equity sensitives are those employees who prefer equity which is based onthe original formulation. Entitled are those employees who are comfortable withan equity ratio which exceeds that of their comparison others. Some researchersview these individuals as ‘slackers’ who will gladly accept additional rewardswithout feeling any desire to exert more effort on behalf of the organisation ortheir work group.

When a manager employs principles of equity theory he soon sees that hisallocation of rewards is quickly filtered by employees through the equity com-parison noted above. An employee’s felt inequity is dependent on his inter-pretation of the reward and work situation. Thus, it is a managerial mistaketo believe that all employees will perceive their new work assignments in thesame way. How a manager feels personally about the allocation of outcomesto employees is much less important than how his employees perceive or feelabout the outcomes that they receive. The manager must be on the lookout forimbalances and must channel employee behaviour in a constructive fashion torestore balance without sacrificing important unit goals. When employees feelpositive equity they also respond to their jobs and their employers with more jobsatisfaction, commitment and job involvement. If the rewards are experienced asfelt negative inequity, then these important outcomes are lost or diminished for



the employees in question. Following the guidelines of equity theory, a managershould keep these principles in mind.

1 When very important or valued rewards are allocated, then employees whoare equity sensitive are most likely to make equity comparisons which arebased on the traditional rewards available in the work setting.

2 In making reward allocation decisions, anticipate that certain employeeswill feel both positive and negative inequity (entitleds and benevolents).

3 In advance, tell employees about salary ranges, pay increases and promotionopportunities.

4 Avoid practices which encourage secrecy about pay policies and procedures.While it may not be advisable to encourage employees to compare theirlevels of pay with others, do make sure that they fully understand payranges, pay brackets and the relationship between excellent performanceand valued rewards (instrumentality).

3.3.3 Understanding the Basics of Expectancy Theory

In this section we discuss expectancy theory, which is a process theory ofmotivation. It will assist us in understanding why motivated behaviour occursat work and how that behaviour can be channelled and directed. Let us beginwith an example.

Tristan was selected to assist Paul in a project which had interested him forsome time. The project involved the study of pricing and economic factors whichinfluenced commodities brokers who bought agricultural products in internationalmarkets. The study was part of an overall strategic plan designed to help thecompany decide if it should enter this related line of business. Paul realised thatTristan was the logical person to assist in the project because he had experienceas a broker and his university degree was in international finance. Tristan alsorealised that he was the logical choice as assistant on the project, yet he was nothighly motivated to work on the problem, even though he worked well with Paul.Tristan attributed his lack of interest to his belief that completing the project wouldhave little impact on his career with the company. For the past five years he hasnot worked in the international markets for agricultural commodities. Instead, hehas focused his attention on reducing the overhead cost structure of the firm. Henow feels that this is the area in which he would like to advance his career. So, heperceives the commodities study as interesting, but unrelated to his chosen careerpath.

Paul recognised that Tristan was not highly motivated to work on the project. Onseveral occasions, he had tried to raise Tristan’s level of motivation and enthusiasmfor the project. He was not successful until he sent Tristan to the head of theinternal auditing division, Andre Worthington. Andre had been a broker at onetime and he pointed out to Tristan that the project was important because it couldmean that the company would create a new division that handled commoditiestrades for several large commodities houses on the Continent. The new divisionwould need a controller. If Tristan successfully completed the project with Paul, hecould easily be a serious candidate for the job. Paul followed up on Andre’s pointwith Tristan. Soon Tristan was highly motivated by the project and he found hisinterest in the commodities markets on the rise.



Tristan had a motivational problem. His project abilities were high, but hewas uninterested until Andre pointed out the connection between the successfulcompletion of the project and the creation of a new division which wouldrequire a new controller’s position. Once Tristan saw the connection betweenthe project and a goal he valued personally, his effort level on the projectincreased dramatically. The management point made by the example is thatmotivated employees view their work activities as helping them to achievepersonally important goals. The motivational process which explains Tristan’sstory is expectancy theory.

The expectancy theory of motivation was developed by E. C. Tolman in1930.9 He realised that behaviour is always purposeful and goal directed. Hestated that behaviour must be understood in terms of the probabilities thata certain behaviour will lead to outcomes valued by the individual. Vroomapplied Tolman’s ideas to employee behaviour.10 Expectancy theory is now aleading explanation for employee behaviours such as 1) turnover, 2) absenteeism,3) joining a new organisation, 4) career choice, 5) performance and 6) leadershipeffectiveness. Researchers continue to add new ‘explained behaviours’ to the listeach year. For the sake of simplicity, let us first describe the theory, then describeits components, give examples of each component, and finally apply the ideasto Tristan’s story.

Components of Expectancy Theory

Valence is defined as the personal attractiveness of different outcomes. If anoutcome such as a promotion has a positive valence, then the employee isstrongly pulled to those behaviours which make that outcome more likely.Negative valence is attached to undesirable outcomes. Thus, being censuredpublicly by the boss is negatively valent for most employees. The conceptof valence is highly idiosyncratic and value-laden. Our teachers, parents, co-workers and superiors all influence our assigned valences for the outcomes wereceive in life.

Outcomes in Expectancy Theory

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

Probabilities in Expectancy Theory

Instrumentality is the personal belief that first-level outcomes lead to second-level outcomes. If instrumentality is positive, then the employee believes asecond-level outcome will occur given some level of performance. For example,if a worker believes that he will not be promoted if he continues to be the



lowest producer in his unit, then he will increase his performance to gain thevalued promotion. Negative instrumentality refers to the employee belief that asecond-level outcome will not occur after a given first-level outcome.

Managers should be concerned deeply with instrumentality. When they addressemployee performance issues, they want employees to see a clear pathway fromperformance excellence to second-level outcomes that are positively valent. Ifrewards are distributed equitably for excellent performance, then employeesexperience rising instrumentalities and increased job satisfaction. In other words,the pathways from excellent performance to valued rewards become clearer andemployees are more motivated. Any organisational responses or systems thatcloud instrumentalities must be removed. Unintended turbulence in instrumen-talities signals lowered levels of employee effort and performance.11

Expectancy is the subjective belief that a given level of effort will lead to a first-level outcome on the job. Expectancies are judgements about the relationshipsbetween given levels of effort and various first-level outcomes. When you watcha horse-race and your choice is leading, you raise your expectancy that yourhorse will win. The same reasoning applies to employees when they decide toexpend energy on the job. If expectancy is zero, then they believe that there isno connection between effort and first-level outcomes. For example, a studentwith a degree in zoology will not try very hard to get a job as a lawyer eventhough he may be interested in the behaviour of lawyers. If expectancy is high,then the employee believes that it is likely that a given level of effort will yieldvalued first-level outcomes.

Figure 3.2 shows all of the concepts discussed so far. In the figure, theemployee exerts effort to achieve a first-level outcome such as high performanceon the job. He does this for two reasons. First is the fact that high performancemay be positively valent in its own right because he enjoys the feeling of self-fulfilment for a job well done. This is intrinsic motivation. A second reasonthat the employee in the figure exerts effort is his belief that success at the firstlevel (performance) will yield a valued second-level outcome (instrumentality isstrongly positive).

WORK

ENVIRONMENT

FIRST-LEVEL

OUTCOME

SECOND-LEVEL OUTCOMES

Excellent reportdelivered on timeand it saves thecompany £50 000

Effort

Expectancy Ability Instrumentality Valences

Promotion

Pay rise

New high-status title

Purchase a new town house

Become member ofprestigious club

Figure 3.2 The expectancy theory of employee motivation



By way of contrast, no effort will be forthcoming if the employee believesthat no connection exists between effort and performance (e.g., ‘No matter howhard I try, I’ll never get to be a chartered accountant’). Notice in the figurethat prompt feedback about performance and rewards (second-level outcomes)is necessary to sustain high effort levels. The ability of the employee is animportant component of the model. Ability must be sufficient to attain a givenlevel of performance. Thus, the employee must have ability to perform thetask. If ability is low, no amount of effort will cause successful performance.Therefore, performance is the product of motivation times ability.

The last component in the model which should be explained is the blocklabelled work environment. The elements in this component include bothhygienes and motivators. For instance, the nature of supervision would beincluded in this component. The reward and performance appraisal systemswould also be included in the work environment. Finally, the way work isorganised is an element of work environment.

3.3.4 Applying Expectancy Theory

The story of Tristan and Paul conforms to expectancy theory. Tristan becameextremely interested in the commodities project. High performance on the projectbecame a first-level outcome which he believed was associated strongly withbecoming a candidate for the controller position in the new division. Thus, thesecond-level outcome of being a candidate for the controller position had highpositive valence for Tristan. The instrumentality between making a success ofthe project and being a candidate was also positive. This means that if thedivision were to be established then he would be a strong candidate for the job.

Once Tristan perceived the instrumentality between working with Paul onthe project and an improved opportunity to advance his career, his level ofeffort (motivation) improved. His expectancy (belief that effort will lead toperformance) was high and outcome valences were high and positive. Assumingthat Tristan has the ability (we must trust Paul’s judgement on this), then theproject should be completed by the desired date.

Referring to the model in Figure 3.2, Andre becomes an important compo-nent of Tristan’s work environment. Andre pointed out the connection betweenthe project and Tristan’s potential candidacy for the controller position in thedivision, if it were to be established. Tristan was previously unaware of thisconnection, so his instrumentalities for the project were low. Through Andre,Paul cleared a pathway for Tristan from effort to performance, and from per-formance to rewards. He raised Tristan’s instrumentalities for a highly valentsecond-level outcome (a promotion consistent with his chosen career path). Thisexample emphasises the critical role of leadership as a component of the workenvironment.

3.3.5 Extending Expectancy Theory to the Individual and the Organisation

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



they work. There are several other factors that have to be understood to manageeffectively the motivational process described by expectancy theory. Figure 3.3shows how these factors cluster into individual factors and organisational factors.

The individual’s need for achievement is a personal trait which systemati-cally influences level of effort, instrumentality and expectancy. The achievingemployee believes his performance can and should be high, and he is willingto expend much effort on the job if it represents a challenge to his skills andabilities. If the achieving individual believes the organisation rewards perform-ance instead of effort, then his instrumentalities will be high and positive. Ifthe achieving employee believes the organisation does not equitably reward per-formance, then he will probably leave. Remember, every frustrated employeewith a high need for achievement is a potential entrepreneur!

INDIVIDUALFACTORS

EFFORT

ORGANISATIONALFACTORS

NEED FOR ACHIEVEMENT

LOCUS OF CONTROL

SELF-ESTEEM

PERFORMANCE

ROLE AMBIGUITY

ROLE CONFLICT

PERFORMANCE APPRAISAL

SYSTEM

REWARD SYSTEM

JOB DESIGN SYSTEM

VALUED EMPLOYEEOUTCOMES

SELF-EFFICACY

Figure 3.3 Individual and organisational factors in motivation

Locus of control has systematic effects on the motivational process. It repre-sents the employee’s beliefs about whether his behaviour influences the outcomeshe experiences in work. If an employee has a strong external locus of control,he may see no instrumentality between performance and second-level outcomes(instrumentality is zero). On the other hand, the individual with an internallocus of control believes that a strong connection exists between his behaviourand valued outcomes. Under conditions which enable this employee to controlhis work, he will be more motivated than his externalising co-worker.

Locus of control shows the importance of providing employees with opportu-nities to control significant features of their jobs. Organisations tend to developcomplex reward systems which distribute extrinsic rewards exclusively. Employ-ees often believe that rewards are not distributed equitably (i.e., the system does



not recognise performance as the sole basis for assigning rewards) in their com-panies. These complex systems also place layers of external control betweenemployees and their jobs. Thus, employees come to believe that managementdoes not trust them to exert self-control on the job. These complex reward sys-tems may have been designed to raise motivation levels, but their real effect isto reduce motivation levels for internally oriented employees.

Self-esteem (ego needs in Maslow’s hierarchy) also influence the expectancytheory model. If employees have a positive self-image, then they are likely tobelieve that their ability will lead to successful performance. Thus, they havehigh expectancy that effort will lead to performance. Employees with negativeself-images will believe that their abilities are inadequate, and they will expendless effort on the job. This is a dangerous self-fulfilling prophecy because theemployees fail at the task and this justifies their negative self-images.

Organisational Factors and Motivation

Numerous organisational factors influence employee motivation. Let us considerthose that have been the focus of systematic research.

Role ambiguity is an important motivational influencer. It is defined as a lackof clarity or lack of understanding of job or work demands. When supervisorsexplain a job or give employees feedback about their performance, then roleambiguity is removed and they are able to see the connection between effort,performance and second-level outcomes. If supervisors do not take the time toexplain their work expectations or if they do not give performance feedbackto subordinates, they will lower their expectancies and instrumentalities aboutperformance and its connection to rewards.

Role conflict leads to inconsistent work expectations. The essence of roleconflict is having two sets of work expectations which are in disagreement. Forinstance, a manager of a production unit may be held responsible for increasingoutput while maintaining a given level of product quality. At the new level ofoutput it may be very difficult to preserve the quality requirements dictated byhigher management. Supervisors are often sources of role conflict. Employeesoften report to more than one supervisor. If they cannot agree on what thesubordinate is to do, role conflict emerges. In essence, the employee is in the‘damned if I do, damned if I don’t’ position.

When role conflict and role ambiguity are both high, the accuracy of employeeperceptions about expectancy and instrumentality deteriorates. Employees experi-ence wide fluctuations in instrumentalities under these conditions. One day theymay feel confident about the relationships between work standards and valuedsecond-level outcomes such as promotions and pay rises. The next day supervi-sors alter work demands and employee instrumentalities erode. These volatileconditions lead to employee frustration and job dissatisfaction.

The organisational performance appraisal system plays an important role inexpectancy theory. It provides employees with tangible information on theirperformance progress and goal attainment. Excellent systems provide periodicfeedback formally and informally during the year. The primary goals of per-formance appraisal are: 1) informing employees about where they stand rel-ative to performance, 2) developing information to make personnel decisions,



e.g., promotion, pay rises and termination and 3) identifying employees withtraining and development needs. Communication between employees and theirsupervisors must take place to accomplish these three goals. If supervisorstake their responsibilities in assessing the performance of their subordinatesseriously, then their employees will have more dependable expectancies andinstrumentalities regarding work standards, productivity goals and performancefeedback. If supervisors then make informed recommendations for pay rises,promotions, training programmes and terminations, then subordinates will per-ceive the system as being equitable and understandable. They will recognisethat a dependable relationship between performance and reward exists. Thiswill lead to higher levels of effort, performance and job satisfaction.

The reward system plays a key role in the expectancy model that managersmust apply. Employees may not be confused about performance expectationsand company goals because supervisors keep them informed about requirementsfor successful job performance. However, if poor performers consistently getlarger rewards than excellent performers, then the expectancies and instrumen-talities of the excellent performers disintegrate. This triggers lower motivation,performance and job satisfaction for high performers. The high performers judgethe reward system to be unfair and may start searching for new employmentopportunities. The valence of alternative jobs has increased for them! The biggestloser in this situation is the organisation because it is thinning the ranks of itscompetent performers while maintaining the ranks of the duds!

The job design system also influences key facets of expectancy theory. Mostemployees prefer more control rather than less control over their work. Employ-ees try to satisfy their control and autonomy needs by getting promotions.Promotions are not, however, available to all employees, so the organisationmust make existing jobs more challenging and fulfilling. One way to do this isto reward employees for acquiring new skills. The more skills they learn, themore control they acquire over their work assignments. Managers can also del-egate authority for more meaningful tasks to subordinates. This too creates theconditions for personal growth in subordinates. When an organisation strivesto make work more meaningful through altered job designs, employees experi-ence stronger connections between their performance and second-level outcomes(rewards).

The process and content motivation theories which we have discussed up tothis point have emphasised the role of the individual in relation to his workenvironment. These models emphasise that people are motivated by thoughts,feelings, sentiment and mental processes. They are cognitive theories that specifythe individual as the originator and processor of motivated behaviour. The workenvironment aspects of motivation have taken a back seat to the description ofthe psychological processes which compose the work motivation puzzle. Afterwe look at cultural elements of motivation, we shall examine organisationalbehaviour modification. This is a process theory which describes the role of theenvironment in shaping the behaviour of employees.



3.4 Cultural Differences in MotivationMany theories of motivation have been developed by American academics wholive in America and perform their research there. Recent research has examinedthe generalisability of these motivation theories and has found that culturaldifferences seem to exist. These differences apply to 1) socially acquired needtheory, 2) Maslow’s hierarchy, 3) Herzberg’s two-factor theory and 4) expect-ancy theory.12 For example, Americans rate self-actualisation as very importantwhile the Greeks and Japanese regard security as the most important need.Individuals in other cultures also fail to value need for achievement as much asAmericans do. In Sweden and Norway, belongingness needs are highly valued.The hierarchy of needs, as studied by Americans, has largely been replicatedby researchers studying people from Peru, India, Mexico, the Middle East andCanada.

Research conducted in New Zealand indicates that supervision and relation-ships with peers are classified as motivators while American workers generallyconsider these to be hygiene factors.13 In cultures which value co-operation andcollaboration, principles of expectancy theory break down because the theory isindividually based rather than team based. Thus, when rewards are dependenton team efforts and performance, the salience of expectancy and instrumentalityis diminished. For example, US managers and employees have a consistentlyhigh expectancy that their efforts will lead to higher performance. In sharp con-trast, Muslim managers believe their performance and success are determinedby God.14

Behaviour modification is an environmental theory of motivation. This meansthat behaviour modification de-emphasises the role of the individual in the moti-vation process and emphasises instead the role of the environment. Conceptssuch as Maslow’s hierarchy and Herzberg’s two-factor theory are not empha-sised. Whereas Maslow’s hierarchy posits that a person is motivated by the needfor ego gratification, behaviour modification predicts that employee behaviouroccurs because of the learned connection between behaviour and rewards. Inbehaviour modification, ego needs have little to do with motivation. Instead, itemphasises the relationship between behaviour and its consequences.

Behaviour modification has had a major impact on our understanding ofhow human beings learn. You will soon learn that it has broad organisationalapplications. Let us now establish the basics of behaviour modification (B Mod)so that you can begin applying it to problems in your own organisations.

3.4.1 Principles of Behaviour Modification

Organisational B Mod is rooted in the work of B. F. Skinner. Professor Skinnerand others argue that behaviour is a function of its consequences. Please recallthat cognitive motivation theories posit that behaviour is a function of internalneeds and motives. B Mod states that external or environmental consequencesdetermine behaviour. Table 3.3 lists the key concepts used in B Mod.

The main principles of B Mod are the four methods of reinforcement definedin Table 3.3 and shown in Figure 3.4. Table 3.3 helps you distinguish betweenthese methods. Both positive and negative reinforcements strengthen behaviour.



Table 3.3 Key concepts in B mod

Key concept Definition

Operant conditioning Reinforcement which modifies behaviour through itsconsequences

Law of effect Tendency to repeat behaviours which cause favourableconsequences, and not to repeat behaviours which causeunfavourable consequences

Positive reinforcers Favourable or pleasant consequences

Negative reinforcers Unfavourable or unpleasant consequences

Neutral reinforcers Consequences which are not favourable or unfavourable

Positive reinforcement Strengthening a behaviour by occurrence of a pleasantconsequence

Negative reinforcement Strengthening a behaviour by removing an unpleasantconsequence

Punishment Weakening a behaviour by occurrence of an unpleasantconsequence

Extinction Weakening a behaviour with occurrence of a neutralconsequence or removal of a positive consequence

Behavioural shaping Successively closer and closer approximations of desiredbehaviour

Schedule of reinforcement Frequency with which reinforcement accompanies behaviour

Stretching the ratio Altering the rate of reinforcement

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

PLEASANT CONSEQUENCE

UNPLEASANT CONSEQUENCE

CONSEQUENCE

PRESENTED

CONSEQUENCE

REMOVED

POSITIVE

REINFORCEMENTEXTINCTION

PUNISHMENTNEGATIVE

REINFORCEMENT

Figure 3.4 Contingencies of reinforcement

In the case of positive reinforcement, a pleasant outcome is obtained; in the caseof negative reinforcement, an unpleasant consequence is avoided. In both cases,the frequency of a given behaviour is strengthened. For negative reinforcement,the behaviour that is strengthened is the one that helps the person avoid anunpleasant consequence. Therefore, when you are negatively reinforced youhave successfully avoided an unpleasant consequence.

In extinction a pleasant consequence is removed or a neutral consequenceoccurs. This has the effect of weakening a behaviour. Consider what happensto you in a meeting when you try repeatedly to make a point and you areunable to get the attention of the meeting chairman. After a while you will



cease participating because a neutral occurrence takes place (you are ignoredby the chairman). Punishment occurs when an unpleasant consequence is pre-sented. Punishment and extinction both weaken behaviour. Figure 3.4 showsthat behaviour can be linked to its consequences in four ways. Each of theserelationships is called a contingency of reinforcement. Let’s develop an exampleof each of the contingencies.

Positive Reinforcement

A behaviour is strengthened by the occurrence of pleasant consequences. Amanager gives a subordinate a difficult assignment. The employee exerts greateffort and completes it on time in excellent form. The manager reviews the workand has him present the analysis to higher management. His analysis results ina savings of $4000 for the firm. He is given 25 per cent of the savings in theform of a bonus.

Negative Reinforcement

A behaviour is strengthened by removal of an unpleasant consequence. This iscalled avoidance learning. Employees come to work on time to avoid super-visory reprimands. Negative reinforcement is abundant in most organisationalemployment policies. As a preventative measure, various forbidden behavioursare specified in an employee handbook. Along with those behaviours, a varietyof organisational sanctions are also specified. Together the forbidden behav-iours and their sanctions represent a contingency of negative reinforcement andthey strongly inhibit the employee. The employee matches his behaviour to thedemands of the employment relationship and the sanctions never occur and‘presto’, the negatively reinforced employee who toes the line is the result.

Extinction

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

Punishment

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

Behavioural Shaping and Employees

Behavioural shaping is an important extension of contingencies of reinforcement.Animal behaviourists have successfully taught animals to perform tricks that arenot part of the creatures’ normal behavioural repertoire. This is done by basingrewards on closer and closer approximations to the desired behaviour. Furtherreinforcement occurs only as the behaviour conforms more closely to the desiredpattern.



Managers can help employees learn new skills by using careful performancefeedback and applying liberally praise and recognition as the employees’ behav-iour approaches the desired pattern. For example, a manager may need to reducewastage rates by 15 per cent without incurring any additional labour costs.The decrease in wastage may be achieved through improved cross-training. Asemployees learn each other’s jobs, the manager would use praise and recognitionto reinforce the new waste-reducing behaviours. As waste began to diminish,he would insist on further improvements before he would administer rewards.Eventually he would achieve the new wastage rate. The essence of behaviouralshaping is ‘catching employees doing things approximately right’. With positivereinforcement combined with behavioural shaping, employees can acquire newand valuable behaviours.

3.4.2 Making Sense of Schedules of Reinforcement

So far we have implied that consequences occur predictably after each relevantbehaviour. This condition is called continuous reinforcement and representsonly one of an infinite number of possible reinforcement schedules. Partialreinforcement schedules refer to the number of behaviours occurring beforereinforcement or the amount of elapsed time between reinforcers. The variousreinforcement schedules and an organisational example of each are shown inTable 3.4.

How Partial Reinforcement Schedules Influence Employee Behaviour

Each of the schedules noted in Table 3.4 has a unique effect on behaviourresponse rate. Behaviour learned under partial reinforcement schedules is moreresistant to change or extinction. Two distinctions are apparent in Table 3.4.When rewards occur after a given elapsed time, the reinforcement is called aninterval schedule (fixed or variable). When consequences occur after a certainnumber of behaviours, the reinforcement is called a ratio schedule (again, fixedor variable). As the table shows, four types of partial reinforcement schedulesare used in organisations.

Characteristics of Partial Reinforcement Schedules

The fixed ratio schedule links consequences to a given number of behaviours.This schedule produces a very high behavioural response rate. For example,firms often use individual piece-rate pay systems to generate high output. Thesesystems require a certain number of units to be produced before the employeecan obtain an incentive reward. Under these systems, employees will workextremely hard to trigger the incentive condition. The schedule can also be usedin sales work where it is referred to as a commission system.

The variable ratio schedule presents consequences based on an average num-ber of responses. A variable ratio schedule implies that an uncertain (but aroundsome average) number of responses must occur before the consequence is given.For instance, an employee might be rewarded after successfully handling 10 cus-tomer inquiries, while at another time the reward may occur after the employeesuccessfully handled only six. The variable ratio schedule would average out to



eight behaviours to generate a reward. This schedule produces extremely resis-tant behaviours once they are well learned. The response rate for the behavioursreinforced with this schedule remains constant and high.

Table 3.4 Schedules of reinforcement

Schedule Description Example

Continuous Consequence follows eachresponse

Co-worker comments eachtime an employee comes towork late.

Partial Consequence does not followevery response

Types of partial reinforcementschedules:

Fixed Ratio (FR) A fixed number ofbehaviours must occur beforereinforcement occurs

After testing 25 units, atechnician is eligible fora bonus of one on eachadditional unit tested

Variable Ratio (VR) A variable number ofbehaviours (around someaverage number) must occurbefore reinforcement

A service technician mightget rewarded after handlingfive accounts then he mightbe rewarded again afterhandling seven accounts

Fixed Interval (FI) After a given amount of timehas elapsed, reinforcementoccurs.

Co-workers get together fora tea break at 10 a.m. and2 p.m.

Variable Interval (VI) After a variable amount oftime (varying around anaverage time) has elapsed,reinforcement occurs.

In one instance, a superiordisciplines an employeeafter two days; in the nextinstance, he lets four dayselapse before he disciplinesthe employee.

Fixed interval schedules require that a constant amount of time pass before theconsequence occurs. This schedule produces response rates that are punctuatedby bursts of high and low activity. Consider an example. Imagine your workbehaviour if your manager came into your work area each day at 9 a.m. and3 p.m. Your activity level would rise and fall around those time periods.

The variable interval schedule means that a consequence is given for the firstbehaviour after a variable amount of time has passed. The interval betweenconsequences always averages out to a pre-established time. An example of thisschedule is the length of customer waiting time at a bank teller’s window. Whilethe time for a given customer can vary, there is an average waiting time.

Now that we have developed several examples of partial reinforcement sched-ules, let’s see how good you are at identifying them. Please follow the instruc-tions below for Identifying Reinforcement Schedules.

Instructions: Please read each description and then indicate the type of rein-forcement schedule in operation.



1 Two hours of time off if clerks are error-free in their work of matchingregister funds to the paper record of sales for five working days.

2 Giving a £20 bonus to hourly workers if electricity bills are reduced by 5per cent.

3 Dividing all profits above 6 per cent among employees.4 Giving employees the use of a company car for four hours if they are not

absent from work over a one-month period.5 The time clock on the wall where employees punch in and out of work.6 Pay day every Friday.7 If employees do not miss a day of work for one year, they become eligible

for a draw in which they can win from £25 to £50.

Answers: 1 FI, 2 FR, 3 FR, 4 FI, 5 FI, 6 FI, 7 FI

Stretching the Ratio and Interval of Reinforcement

Stretching the ratio or interval of reinforcement refers to shifting a reinforcementschedule from one rate to another. Let us consider an example of how this ideacould be applied in the workplace.

Adrian is the manager of a shipping department. He recently discovered whichshipping errors were due to an ineffective feedback system which did not indicatewhen employees were incorrectly processing orders. He corrected the feedbackproblem and set a goal of 95 per cent accuracy in order processing. He then trainedhis supervisors to reinforce goal attainment with praise and recognition arrangedon a fixed interval schedule. Once the employees were consistently exceeding thegoal, the supervisors were instructed to shift reinforcement to a three-day averageusing a variable interval schedule. After three months, employees were averaginga 99.7 per cent accuracy rate. At this time the supervisors stretched the variableinterval schedule average to five days. No change in accuracy was detected.

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

Definitely not. The procedure is used to keep employees from taking rewards forgranted. This can be a problem when reinforcers such as praise and recognitionare used on a continuous basis as supplements to pay. At first, the rewardsare appreciated by employees. But, if they continue to occur too often, theycan lose their meaningfulness. Their potency can be maintained by stretchingthe ratio or interval of reinforcement. As a rule, financial rewards should notbe administered through stretching reinforcement schedules. This would onlylessen employee motivation through increasing distrust of management.

3.4.3 Behaviour Modification in Perspective

The major benefit of B Mod is that it focuses on observable employee behaviourwhich can be measured and used to improve motivation and performance.Because it focuses on observable behaviour, advocates argue that it is moreobjective than other approaches to motivation. Critics argue that B Mod methodsare undemocratic and that they undermine individual choice in the workplace.15

The critics label these problems as the manipulative aspects of B Mod (see



Table 3.5). Supporters of B Mod argue that it is naive to believe that organisationscan be made to be free of manipulation, persuasion and influence. They statethat these are natural aspects of organisational life. For the proponents of BMod, the primary issue is whether or not employees are active participants inthe design and administration of B Mod programmes.

Table 3.5 Pros and cons of B mod

Supporters believe Opponents believe

It focuses on observable employee behaviourinstead of intangible individual differencesNo manipulation occurs when employeesparticipate in the behaviour modification

It improves employee instrumentalities

Employees receive higher quality feedbackabout their performance

It undermines employee respect and dignity

It makes organisations more manipulative andexploitativeIt makes employees dull and dehumanisedextensions of the machines or systems theyoperateIt oversimplifies work behaviour and erodesemployee creativity

B Mod systems can be designed to assist workers in obtaining higher per-formance levels and more significant rewards. A key feature of any B Modprogramme is giving employees more control over the process of generatingfeedback about their performance. Employees are trusted to gather, record andreport on their performance levels to management. The performance feedbackprocess is more meaningful when employees are trusted to generate their ownperformance information, which is then checked regularly by employees work-ing with their supervisors. This is the team approach to improving performance.The consistent interaction of employees and supervisors on the issue of per-formance can re-acquaint employees with intrinsic work outcomes (higher-orderneed satisfaction).

Research indicates that employees are more motivated when they believe thatrewards are performance contingent.16 Conversely employees react negativelywhen rewards are not performance contingent. When workers are not rewardedfor excellent performance, their motivation and job satisfaction decline, andother positive work attitudes are eroded.

Criticisms of B Mod

On the surface, B Mod violates some of our most cherished assumptions abouthuman nature.17 Critics argue that B Mod undermines individuality in theworkplace and they believe that B Mod research results cannot be extended tohuman beings. One critic says you cannot apply ‘ratomorphism’ to humans.16

Proponents often concede that rats, pigeons and chickens are not the same ashuman beings. They do counter with the point that the learning mechanisms inhumans and animals are quite similar for certain levels of behaviour.

Other critics state that human organisations are much more complex settingsfor behaviour than the simplified learning circumstances in a rat laboratory.Because of these complexities and differences, human behaviour in organisationsis much harder to control and predict than the simple, repetitive behaviours oftenfound in the laboratory.16 Such critics would scoff at attempts to control employee



behaviour by using B Mod principles. They say that such programmes ignorethe complexity and spontaneity of human beings at work. They charge that theapplication of B Mod principles reduces valued differences among employeesand makes them interchangeable. Finally, critics believe that B Mod programmesoversimplify work and create rigid patterns in work behaviour which reducethe creative urges of employees.

Applications of B Mod in industry have been criticised because they seem towork best when applied to highly routine tasks which are learned in a shortperiod of time. As tasks become more complex and require more creativity, BMod has less application. B Mod is also less useful if the work under studyis machine paced rather than employee determined. This criticism is accuratebecause for B Mod to work, employees must be able to select from a number ofvoluntary behaviours for doing the task. Machine-paced work dictates a specificbehaviour in most cases.

When B Mod programmes are designed with the sustained involvement ofemployees, criticisms of manipulation and subliminal control rapidly deteriorate.Participation in setting goals, altering schedules of reinforcement and designingperformance feedback systems inject informed consent into a B Mod motivationsystem. Employees and managers can easily agree on observable behaviourswhich lead to performance success. When they work as a team to solve per-formance problems with B Mod principles, improved trust develops. Also, suchsystems are more equitable because rewards are made contingent on observablebehaviours which lead to performance success. B Mod programmes which areacceptable to employees influence substantially expectancy, instrumentality andvalences for both first-level and second-level outcomes. Thus, the motivationalgains achieved through B Mod programmes are soundly based in expectancytheory.

3.4.4 Understanding the Role of Punishment in Management Practices

So far we have emphasised the central role of positive reinforcement in B Mod.Organisations must also be concerned with eliminating undesirable employeebehaviours. This section raises important behavioural and social issues asso-ciated with the use of punishment in organisations. At the onset, it is mostimportant to note that the need to use punishment may be present in organisa-tions. That point is really not subject to debate. However, the frequency of useof punishment and the way it is carried out are highly debatable. Therefore, aserious discussion of the use of discipline is highly appropriate.

Punishment is an unpleasant consequence following a behaviour (see Table 3.3).Managers do not like to talk about punishment because it implies that 1) theyhave hired the wrong employees, 2) the work environment they help create isless than ideal and 3) they and their organisations treat their employees badly. Inspite of these concerns, punishment is an everyday occurrence in organisations.

Why Punishment Receives so Little Attention in Management Circles

The connotations of punishment make people uncomfortable. The dictionarydefinition of punishment is: ‘to impose a penalty on a criminal or wrongdoer



for an offence’. What manager wants to view his employees as criminals orhimself as their judge, jury and executioner? The definition does not createa positive view of human nature. From a practical standpoint, punishment ismuch more complex than positive reinforcement, and predicting its effects ismuch more difficult than it is for positive reinforcement. Consider the followingexample:

Sheila is a troublesome employee. Her performance has been highly erratic and herattendance has deteriorated to unacceptable levels. She has a history of accusingsupervisors of sexual harassment. Inquiries have found all of her claims to begroundless. Nonetheless, she has created much concern among managers. In mostinstances, managers try to have Sheila quickly transferred from their departments.Sheila currently works in Phillip’s department where she oversees the firm’s soft-ware inventory. He has no knowledge of her habit of accusing supervisors of sexualharassment.

Phillip approached Sheila to confront her about her erratic performance andattendance. He began to reprimand her for those problems. In a loud voice, Sheilaaccused Phillip of making ‘insulting sexual remarks’. Several employees overheardtheir heated conversation. Phillip lost his composure and retreated to his office.Sheila triumphantly surveyed the work area and decided to take the afternoon off.

What Has Happened in this Episode?

At first glance, you may conclude that Sheila was punished for her poor perform-ance and attendance. Wrong! Phillip was punished and Sheila was negativelyreinforced! The strength of Phillip’s reprimanding behaviour has been weakenedbecause he was publicly punished by Sheila. The strength of Sheila’s accusatorybehaviour was strengthened because she was able to avoid an unpleasant con-sequence (Phillip’s reprimand). This analysis illustrates one of the difficulties ofusing punishment at work. Managers cannot always be sure that punishmenthas taken place.

To understand punishment, we must focus on behaviour and its consequences.Remember, punishment always weakens behaviour. Because unpleasant conse-quences are subjective and emotion laden, what one person perceives as pun-ishment may turn out to be positive or negative reinforcement from another’spoint of view. Now, let us consider the use of punishment in the workplace.

Why Is Punishment so Common?

As you may have experienced, control in organisations is often achieved throughliberal use of punishment. Indeed, many cyclical work features of organisationscan be viewed as unpleasant consequences waiting to happen. Budgets, produc-tion quotas, deadlines, performance goals and performance reviews, all occurregularly in the course of work. Successful performance removes the veiledthreat in these requirements. Often employees define successful job performancein terms of escaping punishing consequences! Opponents cite the followingobjections to the use of punishment in organisations:18

1 For it to be effective, managers must closely monitor employee behaviour.2 Punishment never eliminates undesirable behaviour. It only suppresses it

temporarily. When the punisher is removed, the undesirable behaviourreturns.



3 Employees become anxious, fearful, less creative, hostile, and may rejectdelegated responsibility.

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

Table 3.6 Alternatives to the use of punishment

Alternative Description

Extinction Since much undesirable employee behaviour isintended to gain co-worker attention and toshow off, supervisors and co-workers shouldignore it. In this way they remove the positiveconsequence of attention and eventually theemployee ceases the unruly behaviour

Re-engineer the work environment soundesirable behaviour cannot occur

If employees waste time in the break area,install a window so the supervisor can easilyobserve employee activity in the area

Reward behaviour which is physicallyincompatible with undesirable behaviour

Rather than discipline employees for untidywork areas, reward them for cleaning theirworkplaces

Be patient and allow time for undesirablebehaviour to disappear

When a manager states ‘It’s OK to make a fewmistakes because we learn from them’ we areobserving this amiable philosophy

The Positive Side of Punishment in Organisations

Much of our behaviour is learned under the conditions created by naturallyoccurring punishers. Mother Nature punishes us quickly if we stay too long inthe sun or if we try to swim after a big meal. Thus, our natural environmentteaches us new behaviour which we learn without permanent emotional damage.This logic extends to organisations which also have many naturally occurringpunishers, examples which include: machinery of all kinds, customers, dead-lines, production quotas and performance reviews. Employees can readily learnnew behaviours from unpleasant encounters with these naturally occurring pun-ishers.

A second reason for the use of punishment in organisations is the fact thatoften there is no logical alternative. Many employees pursue activities for theirown pleasure. Employee drug and alcohol abuse are examples. The amiablesuggestions made in Table 3.6 will be ineffective in eliminating these behaviours.Figure 3.5 sums up the central aspects of effective administration of punishmentor discipline by a manager. The reactions and behaviours that a manager wouldhope to see in a subordinate who has been disciplined are shown on the rightin the figure. Further explanation of the effective use of punishment follows.

How Can Punishment Be Used Effectively?

Punishment can be an effective managerial tool for eliminating undesirablebehaviour if these rules are applied.18



Supervisor observes

undesirable behaviour

rapid

intense

equitable

focused

private

informative

not followed

by rewards

understands incorrect

behaviour

learns correct behaviour

is less defensive

does not feel threatened

does not focus on mistreatment

PUNISHMENTIS:

SUBORDINATE

Figure 3.5 Effective use of punishment

1 Undesirable behaviours must be prevented from becoming bad employeehabits. Take corrective action before employees become accustomed toworking incorrectly. You will gain nothing by waiting and hoping thatemployees will correct their own behaviour. Losing patience after observingnumerous infractions is just as bad since your punishment will be out ofproportion to the infraction in most cases.

2 Punishment must be intense and immediate. There should be no mistakeabout the undesirable behaviour. The punisher should be of sufficient inten-sity to weaken the behaviour. Incremental disciplinary programmes are notas effective as intense and immediate punishment because employees canbuild up resistance to the punishers.

3 Punishment must be equitable across people and infractions. Match thepunishment to the infraction. Also, senior employees should not be exemptfrom discipline. Hard-to-replace employees should not be exempt fromreprimands. In short, punishment must not discriminate.

4 Punishment must have information value. After the reprimand has beenadministered, the employee should 1) receive an explanation as to why thebehaviour is undesirable, 2) be told how to correct the behaviour and 3) betold the consequence of further infractions.

5 After corrective action has been taken, the employee’s value to the organ-isation must be reaffirmed. Leave the self-esteem of the employee intact.An employee should remember the behaviour he must correct instead ofhow he was mistreated. This lessens the degree of emotional reaction to thepunishment.

6 Punishment should not be followed by non-contingent rewards. Thismeans that a supervisor should not invite an employee to lunch to alleviatehis guilt about reprimanding the employee for being slow in completing aproject.



3.4.5 Setting up a Behaviour Modification Programme

Hundreds of firms have used B Mod successfully in their operations.19 Theseefforts have common features. Below you will find the general steps to befollowed in setting up a B Mod programme.

1 Conduct a job analysis to ensure understanding of job responsibilities.This usually entails the updating of job descriptions so that affected employ-ees understand the basic requirements of their jobs. The completion of thisstep also helps educate managers as to the responsibilities of their subordi-nates.

2 Define performance behaviours and set performance goals. Managementmust precisely define the meaning of performance so employees understandwhat they must do to be successful. With the help of subordinates, managerscan set reasonable goals for performance. These goals should be specifiedin numerical terms easily understandable by all employees.

3 Conduct a baseline audit to identify the rate of correct performancebehaviour. For example, clerical accuracy rates may be 54 per cent anda reasonable target might be 94 per cent (established in step 2). A deficiencyof 40 per cent would thus be identified through the baseline audit. Thisexample shows that a baseline audit is simply a quantified beginning pointfor initiating a B Mod programme. Based on the programme’s success tar-get, the results from the baseline audit show the extent of the behaviouraldeficiency to be eliminated.

4 Select powerful and abundant reinforcers to reward excellent perform-ance. As employees move towards performance goals, they should receivethe rewards they value. Managers should also be sure of the punishmentsthey will be using to eliminate undesirable behaviour.

5 Use continuous reinforcement to encourage new performance behaviours.Praise and recognition are the most useful rewards in the beginning of theprogramme.

6 Practise behavioural shaping to obtain closer and closer approximationsto the desired performance behaviour. Performance slippage should becorrected jointly by the employees and their superiors. If employees experi-ence a performance problem, they should not be criticised. Use teamworkand coaching to solve the problem.

7 Establish desired behaviours by adding new positive reinforcers whichemployees value. A merit point system or other incentive system can beset up on a variable ratio or variable interval schedule. This will motivatemore employees to achieve the performance targets set down in step 2.

8 Stretch the ratio or interval to move employees to a sustained level ofperformance.

9 Review and evaluate the programme to identify and measure targetgoals such as cost reduction, employee attendance, safety and improvedproductivity. In other words, find ways to expand the programme concept.This will ensure employee equity as more departments develop their ownprogrammes.



Some Reminders about Initiating a Behaviour Modification Programme

The nine steps noted above are neither complicated nor expensive. They dotake time to develop and implement. Before a B Mod programme is installed,management should diagnose key organisational features to see if conditions areright for programme installation. These key areas are noted below.

1 Moderate to high trust must exist between employees who will be affectedby the programme and their supervisors.

2 Employees must believe good workplace hygiene exists. In other words,they must perceive 1) adequate pay, 2) likeable co-workers, 3) safe andcomfortable working conditions, 4) good supervision and 5) fair companypolicies.

3 Employees must have control over the pace of their work. B Mod doesnot work well when employees’ work is machine paced.

4 Employee ability cannot be a cause of the problem.5 Employees must have complete understanding of successful performance

behaviours that they can measure and record.6 Employees must get regular feedback about their progress towards per-

formance goals. They should be able to control the feedback generationprocess, i.e., they should keep their own performance records.

7 Supervisors must be trained and committed to the B Mod programme.This means they must understand how to use the principles underlying BMod.

Summary Points

• Motives initiate, sustain and channel behaviour. Motivation progressesthrough a sequence of need, behaviour and goal attainment.

• Maslow’s hierarchy consists of two general levels: physiological needs andpsychological needs. These levels are also referred to as lower and higher-order needs. Individuals can progress up the hierarchy as their careersadvance or as they grow older or both. Ideally, employees become increas-ingly concerned with higher-order needs as their careers lengthen.

• Herzberg’s two-factor theory states that job satisfaction is the result offactors which are different from those causing job dissatisfaction. Motivationand job satisfaction are created by job content factors such as promotion,challenge and recognition. Lack of motivation and job dissatisfaction areavoided by providing hygienes such as adequate pay, good supervision,pleasant co-workers and decent working conditions.

• Expectancy theory is a process theory of motivation which explains howmotivation occurs and what behaviours it will activate. In contrast, contenttheories of motivation address the issue of which internal needs causemotivated behaviour.

• Expectancy theory is a useful managerial tool for understanding employeebehaviour. It specifies the relationships between effort, performance and



rewards. The theory articulates the significance of expectancy, instrumental-ity and valence. These concepts can be applied to work to help employeesunderstand the crucial relationship between performance and rewards. Thecomponents of expectancy theory are sensitive to individual differences andorganisational factors.

• Behaviour modification (B Mod) is a process theory of motivation andlearning which specifies the crucial role of the environment in shapingbehaviour. It states that behaviour is a function of its consequences.

• Positive and negative reinforcement increase the strength of a behaviour.Punishment and extinction reduce behaviour strength. These are calledcontingencies of reinforcement.

• A contingency of reinforcement can be adapted to continuous or partial rein-forcement schedules. Partial reinforcement schedules have variable effectson behaviour.

• Behavioural shaping is a process which induces closer and closer approxi-mations to a desired behaviour. Behaviours which deviate from the desiredapproximation are not reinforced.

• Stretching the ratio or interval of reinforcement helps sustain the strengthof a desirable behaviour.

• Critics of behaviour modification suggest that the application of its prin-ciples to work dehumanises employees. B Mod programmes which aredesigned on the basis of employee participation tend to have a positiveeffect on employee work attitudes and performance.

• Punishment has unintended consequences in the work setting when itis used indiscriminately. Punishment, as a contingency of reinforcement,should not be confused with negative reinforcement. Punishment can bean effective behavioural change strategy when it is: quick, intense, fair,focused, private, informative and not followed by rewards.

• Setting up a behaviour modification programme requires careful consid-eration of: 1) the level of employee-management trust, 2) current levelsof hygiene, 3) employee work which is not machine paced, 4) levels ofemployee ability, 5) how employees will receive performance feedback and6) the level of supervisory commitment to the programme.

Review Questions


3.1 According to Maslow’s hierarchy, employees are motivated by more than oneneed at a time. T or F?

3.2 Self-actualisation is always a more important need than physiological or securityneeds. T or F?

3.3 Safety needs are not strongly related to physiological needs. T or F?



3.4 The self-esteem need has two components. T or F?

3.5 Motivator or job content factors are easily habituated by employees, so thesefactors soon lose their motivational impact. T or F?

3.6 Motivator factors are necessary and sufficient for sustaining levels of employeemotivation. T or F?

3.7 Content theories of motivation address the how and why of motivated behav-iour. T or F?

3.8 Instrumentality is the belief that effort will lead to performance. T or F?

3.9 Locus of control is an individual difference which systematically affects compo-nents of the expectancy model. T or F?

3.10 The organisational reward system has minimal influence on the high performer’sinstrumentalities about the relationship between performance and reward. Tor F?

3.11 Before a B Mod programme can be put into operation, the manager shoulddetermine the current level of employee performance by conducting a baselineaudit. T or F?

3.12 In the long run, praise and recognition are most effective when administeredon a continuous reinforcement schedule. T or F?

3.13 B Mod is a cognitive content theory of motivation. T or F?

3.14 The connection between a behaviour and its consequence is called a contingencyof reinforcement. T or F?

3.15 A year-end bonus is an example of a variable interval reinforcement schedule.T or F?

3.16 B Mod programmes tend to be most effective when managers design theprogramme and then train supervisors and employees to use it. T or F?

3.17 It is safe to say that employees are usually hurt emotionally when they areaffected by naturally occurring punishment. T or F?

3.18 Punishment can still be used effectively when it is not applied equally to alloffending employees. T or F?

3.19 B Mod programmes can be criticised because they manipulate employeestowards managerially self-serving ends. T or F?




3.20 You own and operate a small desk top publishing and photocopying businessthat employs 25 people. Increasing health-care costs have forced you to considercancelling health and hospitalisation coverage for your staff. Your decision willcause your employees to become concerned with:

A self-esteem needs.

B self-actualisation needs.

C safety and security needs.

D affiliation needs.

E growth needs.

3.21 A major difference between motivator and hygiene factors is:

A motivators are controlled by supervisors and hygienes are content factorsin the job.

B hygiene factors create self-actualisation when present while motivation istriggered by the availability of acceptable pay and benefits.

C motivators are most concerned with negative factors in the external jobenvironment and hygienes relate to personal appearance and physicalhealth.

D motivators deal with job content factors that are intrinsic to the job andhygiene factors deal with characteristics of the work environment or factorsextrinsic to the job.

E hygiene factors can create job satisfaction and motivating factors can beassociated with job dissatisfaction.

3.22 Linking and performance under expectancy theory is necessary toenhance motivation.

A knowledge and abilities

B rewards

C probability

D equity

E job dissatisfaction

3.23 In expectancy theory applications to job behaviour, the employee can mosteasily manipulate:

A the reward, or second-level outcomes.

B expectancy, or the probability that effort will yield high performance.

C reward distribution.

D effort.

3.24 is useful to shape the behaviour of employees through the use ofreinforcers on the job.

A Horizontal job enlargement

B Expectancy theory

C Employee training and development

D Organisational behaviour modification

E Vertical job loading



3.25 The schedule of reinforcement which is least effective at strengthening employeebehaviour is the schedule.

A fixed ratio

B variable ratio

C fixed interval

D variable interval

E All of the schedules produce equal strengthening effects.

3.26 One of your staff members fails to ensure the protection of sensitive companydocuments by leaving his computer password on an e-mail message. Insteadof disciplining the employee, you decide to employ extinction to eliminate theirresponsible behaviour. Therefore you:

A reassign the worker to a less desirable job.

B ignore the oversight and pretend it did not happen.

C change the passwords for all staff members in the office.

D ignore the staff member in question.

E take the whole matter to your supervisor and ask her what to do.

3.27 The best action to take against an employee who endangers his co-workers is:

A no discipline, instead let his co-workers be mad at him.

B termination or give him the sack.

C discipline him using a fixed interval schedule.

D ignore the problem and hope that it goes away.

E take the matter up with your supervisor.


3.1 Given the basic relationships between the constructs in the expectancy theorymodel, what practical motivational suggestions can managers extract from it?

3.2 Explain the similarities between Maslow’s hierarchy and Herzberg’s two-factortheory.

3.3 How similar are B Mod and the expectancy theory? Identify at least threesimilarities between these two theories.

3.4 Industrial applications of B Mod have generally yielded improvements inemployee performance, work quality and levels of job satisfaction. Brieflydiscuss the caveats which managers must consider before they install a B Modprogramme.

3.5 Two employees working at comparable jobs perceive these conditions:

1 Employee one earns £50 000 annually, is a chartered accountant, works 47hours per week and has received excellent performance reviews.

2 Employee two earns £51 000 annually, is a chartered accountant, works 44hours per week and has received good performance reviews.

What should happen here?



Case Study 3.1: Promoting Employee ProductivityThe accounting employees of Lanchaster Corporation Limited are increasinglyharried and pressured by their work. The boss schedules more meetings, thephones are ringing off the hooks, employees from other departments are askingprocedural questions, and it is getting hard to concentrate on the work which ispiling up on desks. All of the accountants believe that their productivity suffersas a result. At the corporate office, accounting employees now have a ‘quiethour’ that lasts from 8 a.m. to 9 a.m. each working day. During this time theyare supposed to work on long-term projects, research reports and analyses orother conceptual work that requires few disturbances and high concentration.The hour has a corporate label: Achieving Maximum Potential (AMP). It wasstarted because the accounting employees work in a large, public open area. Thephysical working arrangement prevented them from concentrating on anythingbut the most routine work.

‘It’s like an invisible barrier that we have created to allow us one hour ofquiet time early morning. We don’t have offices with doors that can be closed’,says Nigel Andrews, staff manager for general accounting.

Employees in Lanchaster’s offices and regional divisions are getting used tothe fact that they can’t phone accounting between 8 a.m. and 9 a.m. each day.Initially, there was considerable confusion about accounting’s responsibilitiesto other corporate divisions and departments. It seemed that the policy wasnot widely understood nor accepted. During the AMP hour, employees aren’tinvolved in meetings, processing data, running accounting errands, debuggingprograms or any other distracting activities. Nigel maintains that so far account-ing employees are in unanimous agreement: AMP works. He notes that ‘Mostpeople outside the department are not fully supportive of the AMP hour. Somefeel it is an inconvenience, but most are “tentatively positive” about the pro-gramme. The accounting staff is flexible. If there is an emergency during thehour, we will respond’.

Diane Rigsby, who processes the corporate payroll, said she had received justone emergency call during the first month of the AMP programme. ‘We justinformed Human Resources that this hour each day is not a time to contact us.And most people think this is a good idea and they wish they could have asimilar programme.’

1 What kinds of needs is Lanchaster trying to satisfy for its accounting per-sonnel?

2 How might the AMP programme influence motivation and job satisfactionof employees in other departments?



Case Study 3.2: Motivating Employees at CypressSemiconductor∗

T. J. Rodgers, CEO, says: ‘Most companies don’t fail for lack of talent or strategicvision. They fail for lack of execution – the mundane blocking and tackling thatthe great companies consistently do well and strive to do better. At Cypress, ourmanagement systems track corporate, departmental and individual performanceso regularly and in such detail that no manager, including me, can plausiblyclaim to be in the dark about critical problems.

‘All of Cypress’s 1400 employees have goals, which, in theory, makes them nodifferent from employees at most other companies. What does make our peopledifferent is that every week they set their own goals, commit to achieving themby a specific date, enter them into a database, and report whether or not theycompleted prior goals. Cypress’s computerised goal system is an important partof our managerial infrastructure. It is a detailed guide to the future and anobjective record of the past. In any given week, some 6000 goals in the databasecome due. Our ability to meet these goals ultimately determines our success orfailure.

‘Most of the work in our company is organised by project rather than alongstrict functional lines. Members of a project team may be (and usually are) fromdifferent parts of the organisation. Project managers need not be (and oftenaren’t) the highest ranking member of the group. Likewise, the goal systemis organised by project and function. In Monday project meetings, employeesset short-term goals and rank them in priority order. Short-term goals takefrom one to six weeks to complete, and different employees have differentnumbers of goals. At the beginning of a work week, for example, a memberof our production-control staff initiated seven new goals in connection withthree different projects. He said he would report on progress with certainmini-computer problems (two weeks), monitor and report on quality rejectionrates for certain products (three weeks), update killer software for the assemblydepartment (two weeks) and assist a marketing executive with a forecastingsoftware enhancement (four weeks). On Monday night the project goals arefed back into a central computer. On Tuesday mornings, functional managersreceive a printout of their direct reports’ new and pending project goals. Theseprintouts are the basis of Tuesday afternoon meetings in which managers workwith their people to anticipate overload and conflicting goals, sort out priorities,organise work and make mutual commitments about what’s going to get done.This is a critical step. The failure mode in our company (and I suspect in mostgrowing companies) is that people over-commit themselves rather than establishunchallenging goals. By 5 p.m. Tuesday, the revised schedule is fed back intothe central database.

‘This “two-pass system” generates the work program that co-ordinates themostly self-imposed activities of every Cypress employee. It allows the organ-isation to be project driven, which helps us emphasise speed and agility, aswell as being functionally accurate, which works against burnout and failure to

* Reprinted by permission of Harvard Business Review, ‘No Excuses Management’, by T. J. Rodgers, July–August 1990, 84–98. Copyright by the President and Fellows of Harvard College, all rights reserved.



execute. On Wednesday morning, our eight vice presidents receive goal print-outs for their people and the people below them – another conflict resolutionmechanism.

‘On Wednesday afternoons at my weekly staff meeting, I review variousdatabase reports with my vice presidents. We talk about what’s going wrongand how to help managers who are running into problems. The followingreports typically serve as the basis for discussion: progress with goals on criticalprojects; percentage of deliquent goals sorted by managers (their goals plus thoseof their subordinates); percentage of deliquent goals sorted by vice president(the percentage of pending goals that are deliquent for all people reporting upthe chain of command to each vice president); all employees without goals(something I do not tolerate); and all employees with two or more deliquentgoals, sorted by manager.

‘As we’ve refined the goal system and used it more extensively, I’ve developedsome general principles. First, people are going to have goals they don’t achieveon time; the key is to sense when a vice president or a manager is losing controlof the operation. My rule of thumb is that vice presidents should not havedeliquency rates above 20 per cent, and managers should not let more than 30per cent of their goals become deliquent. When managers do have a deliquencyproblem, I usually intervene with a short note: “Your deliquency rate is runningat 35 per cent, what can I do to help?” I often get back requests for specificassistance. Part of my role is to hold people accountable. But it is also to identifyproblems before they become crises and to provide help in getting them fixed.

‘Second, people need positive feedback. Every month we issue a CompletedGoal Report for every person in the company. The report lists all goals completedover the past four weeks as well as those that have yet to come due. “IndividualMonthly Goal Report”, an excerpt from a monthly report for a production-controlstaffer, lists all goals completed in work week 45 of last year. The entire reportconsists of 49 goals, 28 of which were completed on time, 4 of which werecompleted late, and 17 of which were pending – an outstanding record.

‘The completed goal report is also a valuable tool for performance evaluation.At Cypress, the completed goal report triggers a performance mini-review;each month managers read through their people’s printouts and prepare brief,factual evaluations. At year end, managers have a dozen such objective reviewsto refresh their memories and fight the proximity effect. Managers shouldn’texpect outstanding performance unless they’re prepared to reward outstandingperformers. Yet evaluation and reward systems remain an organisational blackhole for three reasons. First, managers aren’t very scientific about rating theirpeople. They may be able to identify the real stars and the worst laggards, thevast majority of people (who must still be ranked) get lost somewhere in themiddle. Second, even if they evaluate people correctly, managers like to spreadraises around evenly to keep the troops happy. This is a deadly policy that sapsthe morale of standouts who deserve more and sends the wrong signal to weakperformers. Third, managers are totally incapable of distinguishing between“merit” and “equity” when awarding increases. Merit refers to that portion of araise awarded for the quality of past performance. Equity refers to adjustmentsin that raise to more closely align salaries of equally ranked peers. Merit and



equity both have a place in the incentive mix, but confusing the two makes formushy logic, counter-productive results and dissatisfied people.

‘As with all our resource-allocation systems, the focal-review system startswith policies at the top and forces middle management decisions to be consistentwith that thinking. Senior management and the board of directors review ourannual revenue forecasts, survey compensation trends among our competitors,and settle on a total corporate allowance for raises. The “raise budget” is notnegotiable, and it drives raises throughout the company. If the corporate budgetis 8 per cent, then every department must meet a weighted-average salaryincrease of 8 per cent. It’s up to managers to distribute the 8 per cent pool,which is where the focal-review system comes in.

‘Only after they have awarded percentage increases based strictly on meritcan managers make adjustments for salary inequities created by personal cir-cumstances and historical accidents.’

1 Does Cypress treat all of its employees in an equitable manner?

2 To what extent does the Cypress system utilise principles of expectancytheory?

References

1 Lawler, E. E., III and Suttle, J. L. (1972) ‘A Causal Correlation Test of the NeedHierarchy Concept’, Organizational Behavior and Human Performance, 7: 265–73.

2 Herzberg, F., Mausner, B. and Snyderman, B. (1959) The Motivation to Work, 2nd edn.New York: Wiley.

3 Herzberg, F. (1966) Work and the Nature of Man. Cleveland: World Publishing Company.

4 Dunnette, M., Campbell, J. and Hakel, M. (1973) ‘Factors Contributing to Job Dissat-isfaction in Six Occupational Groups’, Organizational Behavior and Human Performance,235–51.

5 Lawler, E. E., III, (1973) Motivation in Work Organizations. Monterey, CA: Brooks-ColePublishing.

6 Korman, A. K. (1971) Industrial and Organizational Psychology. Englewood Cliffs, NJ:Prentice Hall.

7 Stacy Adams, J. (1965) ‘Inequity in Social Exchange’, in L. Berkowitz (ed.), Advancesin Experimental Social Psychology, 4th edn. New York: Academic Press, 267–300.

8 Huseman, R., Hatfield, J. and Miles, E. (1987) ‘A New Perspective on Equity Theory:The Equity Sensitivity Construct’, Academy of Management Review 12: 222–34.

9 Tolman, E. and Honzik, C. (1930) ‘Introduction and Removal of Reward and MazePerformance of Rats’, University of California Publications in Psychology 4: 257–75.

10 Vroom, V. (1964) Work and Motivation. New York: Wiley.

11 Stahl, M. and Harrell, A. (1983) ‘Using Decision Modeling to Measure Second LevelValences in Expectancy Theory’, Organizational Behavior and Human Performance 22:23–34.



12 Hofstede, G. (1980) ‘Motivation, Leadership and Organization: Do American TheoriesApply Abroad?’, Organizational Dynamics 9: 42–63.

13 Adler, N. (1991) International Dimensions of Organizational Behaviour, 2nd edn. Boston:Kent Publishing Company, 18.

14 Hines, G. (1981) ‘Cross Cultural Differences in Two-Factor Theory’, Journal of AppliedPsychology 58: 313–17.

15 Locke, E. (1977) ‘The Myths of Behavior Mod in Organizations’, Academy of ManagementReview 2: 533–53.

16 Fry, F. (1974) ‘Operant Conditioning in Organizational Settings: Of Mice and Men?’,Personnel 51: 17–24.

17 Hammer, M. (1971) ‘The Application of Behavior Conditioning Procedures to theProblems of Quality Control: A Comment’, Academy of Management Journal 14: 529–32.

18 Solomon, R. (1964) ‘Punishment’, American Psychologist 19: 239–53.

19 Lockwood, E. and Luthans, F. (1984) ‘Contingent Time Off: A Non-financial Incentivefor Improving Productivity’, Management Review: 48–52.


Module 4

Organisational Control and RewardSystems

Contents

4.1 Why Organisations Need to Assess Employees’ Performance 4/24.1.1 Performance Appraisal Issues and Practices 4/34.1.2 Overcoming Reliability Errors in Performance Appraisal 4/54.1.3 Developing Performance Measures with Job Analysis 4/64.1.4 Performance Appraisal Methods 4/7

4.2 Goal-Setting and Management by Objectives (MBO) 4/104.2.1 How Does Goal-Setting Work from the Employee’s Perspective? 4/114.2.2 Observing Caution in the Use of MBO Systems 4/13

4.3 Rewards and Reward Systems 4/144.3.1 Classifying Rewards in the Work Setting 4/144.3.2 Distributing Rewards in Organisations 4/164.3.3 Employees’ Perceptions of Pay Rises 4/18

4.4 Components of Executive Compensation 4/194.4.1 What Are the Current Trends in Executive Compensation? 4/214.4.2 What Has Been the Effect of Downsizing and Delayering on

Company-wide Compensation Plans?4/23

4.5 A Comparison of Company Pay Practices 4/254.5.1 Making Intelligent Choices about Company Pay Plans 4/27

4.6 Individual and Group-Based Reward Systems 4/294.6.1 Cost-Savings Plans 4/304.6.2 Strengthening Competitive Advantage by Using Team-based

Rewards4/31

4.6.3 The Rucker Plan: an Incentive System that Works in theSelf-Directed Team Environment

4/32

4.6.4 Design and Timing Issues for the Installation of a Rucker Plan in aDelayered Firm Using Self-directed Teams

4/35

4.6.5 Profit-Sharing Plans 4/37

Summary Points 4/38


Case Study 4.1: Performance Appraisal at Work 4/45

Case Study 4.2: A Swedish-American Joint Venture 4/46


Module 4 / Organisational Control and Reward Systems

Learning Objectives


• Explain why organisations must evaluate employee performance.• Describe the key outcomes of the performance appraisal process.• Recognise the common threats to the reliability of performance appraisal

systems.• Describe appraisal methods and discuss their comparative characteristics.• Explain why goals have motivating properties.• Understand the strengths and weaknesses of management by objective

(MBO) systems.• Explain the pitfalls which can affect the success of MBO systems.• Distinguish among intrinsic, extrinsic, financial and non-financial rewards.• Describe the significance of distributive and procedural justice in perform-

ance appraisal and reward systems.• Explain the ways in which companies reward performance.• Note several ways that organisations can use to improve the design of their

reward systems.• Describe the organisational value of group-based reward systems.• Explain that a shift to a group-based incentive plan in an existing firm can

only occur after the destabilising effects of delayering and downsizing havebeen overcome.

• Describe why empowerment and a strengthened employment relationshipcan be advanced through the use of group-based incentives.

• Show why group-based incentive plans have better line-of-sight than puremerit-based reward systems which work only at the individual employeelevel.

• Develop the rationale for the accelerating use of ISO plans to strengthenemployee commitment to the firm’s strategic success.

4.1 Why Organisations Need to Assess Employees’ PerformanceAn organisation’s performance appraisal system is defined as a process whichgenerates valid information about employee work effectiveness for the purposeof making informed human resource decisions. Organisations must evaluateemployee performance for a number of reasons.

1 Employees need to understand the behavioural requirements of the job.2 Employees’ work is evaluated for its contributions to company goals.3 Employees need to know where they stand with the organisation in terms

of their performance.4 Employees’ motivation to do a good job is increased by the performance

appraisal system.5 Valid information about performance levels of employees should be used

to make decisions about salary increases, promotions, bonuses and trainingneeds.



6 Employees need a clear understanding of what the firm expects from themin terms of performance.

Firms realise that a good appraisal system makes organisational processesmore effective because managers can use the performance appraisal system as amotivational tool. An effective appraisal system creates many opportunities formanagers to interact with their subordinates about team performance measures,service quality, cycle times, company goals, and employees’ career aspirations.If there is no formal and objective performance appraisal system, employeesmay believe that the firm is unconcerned with treating them fairly. Table 4.1summarises some of the more important effects of performance appraisal fromboth the firm’s and the employee viewpoint.

Table 4.1 Effects of performance appraisal

For the organisation For the employee

Performance improvement

Validation of the selection system

Employee counselling

Training and development

Clarification of job expectations

Help in goal-setting

Development of employee potential

Manpower planning

Documentation of existing performance

Improved customer service

Product and process improvement

Need fulfilment (security, social, self-esteem)

Job satisfaction

Organisational commitment

Job involvement

Satisfaction with supervisors

Satisfaction with pay

Achievement of promotions

Greater responsibility

Personal career goals

Improved self-efficacy

4.1.1 Performance Appraisal Issues and Practices

Few managers would question the firm’s need to assess the performance behav-iour of its employees. The process of assessment must produce results which arefair, timely and accurate. Managements hope that actual performance and mea-sured performance are the same. When the focus of measurement is countingthe output from operations such as production and productivity, the correlationbetween actual and measured performance is strong. Measuring managerialperformance is much more difficult because the results of managerial work areharder to quantify.

Good appraisal systems try to improve the congruence of measured andactual performance. Figure 4.1 shows the performance measurement problemsthat result from low congruence between the two. It highlights three major mea-surement problems that crop up in performance appraisal systems. They includedeficiency, unreliability and invalidity. Deficiency represents actual performancethat is overlooked because the evaluator ignores it or the appraisal system failsto capture it. An example of this type of failure would be the appraisal systemthat tracks the time and frequency of calls handled by service representativeswhile it fails to capture the quality of the service or the satisfaction of thecustomer.



Deficiency True UnreliabilityInvalidity

Actualperformance

Measuredperformance

Deficiency problem

Reliability problems

Validity problem

Performance overlookedby the evaluator

1. Situational factorsaffecting the evaluator,such as mood or timingof the evaluation.

2. Disagreement betweenevaluators or inconsistentmethods.

3. Temporary personalfactors, such as fatigueor ill health of the personbeing evaluated.

Poorly defined task performancecausing invalidity.

Assessment

Figure 4.1 Actual and measured performance

Unreliability stems from numerous origins, many of which are related to prob-lems within the evaluator(s). Reliability refers to the constancy and stability ofperformance appraisal results under the same evaluators and similar circum-stances of administration. Invalidity comes from several aspects of performanceappraisal work. When a performance appraisal system is poorly documentedand not fully explained to managers and employees, it is quite likely that theywill engage in work activities that detract from their performance. This problemcan also stem from inadequate job descriptions that fail to put forth all criticaljob responsibilities for employees.

Validity is the quality of the measuring components in a performance appraisalsystem. Do the components measure what they are supposed to measure?Additional types of validity important in performance appraisal are shown inTable 4.3. Performance appraisal systems should have two other properties: con-sistency, two or more ways of gathering performance data producing resultswhich agree, and stability, the property of dependability of results over time.Stability means that performance measuring items should yield the same scoresat various evaluation periods if the performance characteristic or work require-ment has not changed.

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

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



Because of the problems noted in the table, it requires some effort on the partof the firm to remove personal biases, prejudices and idiosyncrasies of managersfrom the evaluation of work performance.

Table 4.2 Errors in performance appraisal

Type of error Definition

Personal bias A stereotype or bias which influences a superior’s ratingupward or downward.

Halo effect Rating an employee on one trait based on their evaluation onother traits.

Recency error The emphasis on recent performance examples in makingperformance assessments.

Central tendency error Assigning average ratings to all employees resulting in littlevariation among ratings.

Strictness or leniency errors Supervisor ratings based on the belief that employees do notmeasure up, or that all employees measure up.

Similarity error The supervisor has a performance quality in himself which helooks for in subordinates.

Forcing the rating to matchother criteria

Deciding on an overall rating first and then going back toadjust ratings on individual dimensions to justify the overallrating.

Table 4.3 Forms of validity

Type of validity Definition and example

Content validity The performance appraisal measure and its administration arelogically related to the aspects of performance being measured.Supervisors and employees agree that the dimensions ofperformance measured are related to actual job behaviours.

Empirical validity Performance measures are statistically related to other importantwork outcomes. An analysis shows that scores on the performancedimensions are related to quantitative measures of output.

Construct validity The performance appraisal system logically derives from a model ortheory of performance behaviour and motivation. A firm developsits appraisal programme from the expectancy theory of motivation.

Convergent validity Multiple measures of the same performance dimension yieldequivalent scores. Observation methods correlate highly with paperand pencil measures of performance.

Discriminant validity Measures of performance using the same method produce differentscores for different aspects of performance.

4.1.2 Overcoming Reliability Errors in Performance Appraisal

Methods to overcome the rating problems noted in Table 4.2 are described below.None of these is fool-proof, but when used in the proper combinations they canreduce the effect of errors in performance appraisal work.

Use multiple criteria. No job is so specialised that only one task activity ispredominant. Since this is true, performance appraisal systems should rely on



several performance dimensions or criteria. The more complex the job beingevaluated the greater the need for multiple assessment criteria. Not all jobbehaviours need to be assessed. Instead, managers should target for measure-ment those ‘core job behaviours’ that are essential to good job performance.

Emphasise behaviours rather than traits. Many traits that are valued inemployees may have very little to do with excellent performance on the job. Forinstance, seniority, company loyalty (organisational commitment), reliability, andfriendliness may be desirable attributes in employees but they may have littlebearing on job performance. While these traits may be prized by managers andtheir firms, they may not be dependable criteria to use to separate employeesby performance levels. Appraisal systems that are heavily weighted with traitmeasures also create the problem of interrater reliability. It means simply thatmultiple raters will have different personal meanings for traits such as loyalty,honour, friendliness and dependability. To the extent that they disagree overthe meaning of these traits, the degree of reliability of the appraisal system islowered.

Use several raters. As the number of raters used increases, the accuracy ofresults improves significantly. Since rater errors are normally distributed, theuse of more raters will increase the frequency of ratings near the distribution’smean. Because of this principle, you always see multiple judges used in sportscompetitions such as ice skating, gymnastics and diving. Often the highest andlowest scores are dropped and the competitor’s score is determined by the aver-age of the scores remaining. Clearly, this logic applies to the rating of employeeperformance in the organisation. The use of 360 degree performance appraisalcreates many of the strengths of multiple raters in performance appraisal work.In organisations that rely heavily on self-directed teams it is possible to per-form 360 degree performance appraisal by having: 1) employees conductingself-appraisal; 2) peers evaluating each other; 3) team leader appraising teammembers; and 4) team members appraising team leaders.

Train the raters. There is quite a bit of agreement among experts that sys-tematic training of evaluators can reduce substantially the types of errors thatthreaten system reliability. In very short order, problems of halo and leniencycan be virtually eliminated. With extended training of about two days, all of thereliability errors shown in Table 4.2 can be dramatically reduced.

How Managers Can Improve the Design of Performance Appraisal Systems

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

4.1.3 Developing Performance Measures with Job Analysis

Job analysis focuses on the content of what employees actually do at work as abasis for extracting dependable performance measures. The procedure consistsof defining the job to isolate the work behaviours which lead to performanceoutcomes. A job analysis produces for each employee a set of primary dutieswhich are documented as a job description. A job analysis also produces a



clear specification of the employee characteristics and experiential qualifications(skills, knowledge, education, etc.) to perform the job adequately. Once jobdescriptions are prepared for a job grouping, it is then possible to develop therelevant measures of performance effectiveness which make up a performanceappraisal system.

The most difficult aspect of job analysis is isolating the tasks in a given job.For instance, where does the job of computer programmer stop and computeroperator begin? Should part of the programmer’s job be the repair or replace-ment of computer modems? Such ‘territorial’ questions must be answered todefine the content of a job. The analyst has several options he can use to addressjob content problems. He can:

1 determine the common skills and qualifications required to do the job;2 isolate the work tasks which occur at the same place and time because of

task co-ordination required by the technology;3 use externally accepted qualities to cluster tasks based on professional defini-

tions (accountant or engineer), union demands, and licensing examinations;4 use the traditions of the firm which define how work has always been done.

Employees are most sensitive to validity issues in the performance appraisalsystem used to evaluate their task performance. The validity of the performanceappraisal system can be enhanced by addressing the following issues: 1) selectingthe most appropriate method to measure performance; 2) developing a systemwhich focuses on specific aspects of performance; and 3) effective training ofraters and developing a training manual for appraisal. Careful training canreduce the impact of the errors noted in Table 4.2. Reducing the frequency ofthese errors raises employees’ confidence in the performance feedback that theyreceive from their superiors during evaluation conferences.

4.1.4 Performance Appraisal Methods

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

Absolute Standards

This method judges each employee against a fixed and inflexible set of perform-ance criteria. When students take a course in which the instructor adheres tothe percentage breakdown grading system, they are being evaluated with sucha system. The absolute standard system often results in upward biased ratings(leniency error), because instructors (and supervisors) prefer to give positiverather than negative feedback. Figure 4.2 shows an example of an absolutestandards rating instrument which requires the supervisor to respond with a‘yes’ or ‘no’ answer for each performance dimension.

The performance dimensions on the rating form in Figure 4.2 have an ‘all ornothing’ feature. The dimensions are largely personality-based and do not assessactual job behaviours. The supervisor must make highly subjective judgments



about employee traits. Thus, this method can have serious validity problems.How would you react if your supervisor ticked ‘no’ on intelligence and goodjudgment in your appraisal?

Exhibits good manners (is polite and tactful)...........................................

Has intelligence and good judgement.....................................................

Demonstrates stamina and resilience.....................................................

Is committed to the company...................................................................

Shows self-confidence.............................................................................

Exhibits leadership qualities....................................................................

Is enthusiastic..........................................................................................

Co-operates with other employees...........................................................

Demonstrates initiative............................................................................

Persists until the job is done....................................................................

Please tick the YES or NO box beside each performance dimension

TIME IN POSITION .....................................................

YES NO

NAME ................................ SUPERVISOR........................ DATE OF HIRING...............

Figure 4.2 Absolute standards rating form

Graphic Scales Rating System

Graphic rating scales are the most popular systems in use today. Surveys indicatethat 57 percent of firms using appraisal systems rely on this method.1 The typicalgraphic rating scale form lists performance criteria which are meaningful toboth the supervisor and employee. In other words, the criteria possess contentvalidity. Using a numerical rating scale, the supervisor assigns a number to eachcriterion. Figure 4.3 shows a graphic rating scale method.

Employee Characteristic

1. Dependability

2. Co-operativeness

3. Customer courtesy

4. Willingness to accept responsibility

Excellent

5

5

5

5

Good

4

4

4

4

Average

3

3

3

3

Below

average

2

2

2

2

Poor

1

1

1

1

INSTRUCTIONS: circle a number which best describes the employee

NAME ....................................... DEPARTMENT............................. JOB TITLE................................

PERFORMANCE PERIOD ....................... SUPERVISOR'S NAME..................................................

Figure 4.3 Graphic rating scale form

This method of rating employees highlights the differences in the performanceof subordinates. Use of the system encourages the tendency to spread employeesout along each scale. Since degrees of performance success or failure are possible



for each dimension, supervisors are in a stronger position to assess the strengthsand weaknesses of each employee when this system is used. This characteristicimproves the quality of information given to employees during performancecounselling sessions.

The graphic rating scale does not eliminate threats to validity discussed earlier.Often supervisors have a tendency to use only part of the rating scale because ofindividual supervisor strictness, leniency, or similarity. Some organisations tryto avoid this problem by requiring supervisors to generate a fixed distributionof performance levels (10 per cent of employees must be rated either excellent orpoor, with the remaining 80 per cent rated between the two extremes). Forceddistributions can create problems for employees because they may conclude thatthe distribution is unfair.

Behaviour Anchored Rating Scale (BARS)

This system provides concrete examples of behaviours for different levels ofperformance. Employees often complain that they do not know what theirsuperiors want in terms of performance. Also, many employees say that littlerelationship exists between what they do on the job and how their work isevaluated. BARS systems emphasise work behaviour and how the work getsdone instead of characteristics of employees.

The design and implementation of a BARS system is an involved participativeprocedure which utilises the input of supervisors and employees rated by thesystem. Employees are consulted during the design phase to identify criticalwork activities which lead to success or failure on the job. Other groups ofemployees who are knowledgeable about the jobs are used to evaluate the criticalwork activities developed by the first group of employees. The design processcontinues with the elimination of critical work activities on which the groupscould not agree. This analysis procedure produces a pool of highly meaningfulitems describing effective and ineffective job behaviours. These behaviours arealways written in the language of those employees who do the jobs underanalysis. An example of a BARS for a sales assistant is shown in Table 4.4.

Table 4.4 Behaviour Anchored Rating Scale for a sales assistant

Inventory control and management: includes all those behaviours the assistant demonstrateswhen working with store inventory

7 If the manager asks this assistant about the level of stocking for a product, theassistant can immediately pinpoint the item on the computerised inventory report.

6 You could expect this assistant to ask another employee how to use the computerisedinventory report.

5 This assistant would be unaware of reordering dates for items in inventory.

4 When asked by the manager, this assistant could be expected not to know whichproducts are : currently out of stock.

3 This assistant can be expected not to know the names of products in the store’sinventory.

2 This assistant does not know where the store’s inventory is located.

1 This assistant does not ask where the store’s inventory is located.



In Table 4.4 each level of performance is defined in behavioural terms. Theseare the behavioural anchors. They provide examples of the possible behavioursrelated to a performance dimension. The clarity of the behaviours improvesemployees’ understanding of their jobs and helps them achieve higher perform-ance. The ‘instructional or teaching property’ of the BARS is increased becauseemployees were involved in their design.

How BARS Systems Differ from Other Performance Appraisal Methods

First, BARS systems emphasise how the work is performed (through the behav-ioural examples) versus the traits of employees. The strong behavioural empha-sis reduces the chances for extraneous employee traits or peripheral job require-ments to find their way into the employee’s evaluation. In addition. BARS applyto a closely grouped, or specific set of tasks. While this increases validity for thetasks in question, it may require that multiple BARS systems be developed tomatch other job groupings in the firm.

The quality of performance feedback from a BARS system may exceed thequality of feedback from other systems since the emphasis is on job behaviourand not on whether the individual is a ‘good or bad’ employee. This in turn mayenhance the significance of performance feedback in the minds of employeesthrough reduced defensiveness. On the negative side, BARS systems take along time to develop. Furthermore, they work best when job behaviour isalways observable. Developing a BARS system for jobs which require creativity,intellectual curiosity, innovation, and complex problem-solving is more difficult.Thus, it would be difficult indeed to develop BARS systems for the jobs ofscientists, professors, lawyers, or physicians.

4.2 Goal-Setting and Management by Objectives (MBO)Experts in management and organisational behaviour acknowledge the signifi-cance of goals in channelling employee behaviour towards organisational goals.The behavioural framework for a work-based theory of goal-setting was articu-lated by Edwin Locke, who describes the relationship between employees’ goalsand work performance.2

Goals are defined as those end states which reduce the intensity of needsand motives. His theory proposes that clearly specified, difficult goals result ingreater performance improvement than easy goals stated in general terms. Itis now widely accepted that goal setting systems: 1) increase work motivationand employee job performance; 2) reduce the stress of conflicting or confusingwork expectations for employees; and 3) improve the accuracy and validity ofperformance evaluation work in the organisation.

Table 4.5 shows the elements which make up a theory of goal-setting. Theprocess involves five motivational and behavioural steps. First, incentives forperformance and channelled employee behaviour are provided by the organisa-tional environment. Here the organisation, through its managers, specifies whatmust be accomplished. Further, the organisation should make clear the rewards(intrinsic and extrinsic) which go with goal accomplishment. The second com-ponent of the model highlights the importance of the goal-setting process. Note



that the goals can be mutually determined, employer-centred or assigned, orgeneralised as ‘do your best’. The process option chosen by the manager whois conducting goal-setting with subordinates is a function of 1) the importanceof employee acceptance of the goals, 2) the amount of available time for goalsetting, and 3) the importance of employee development through goal-setting.If these are prominent features of goal-setting arrangements, then the selectionof the mutual establishment approach is most appropriate.

Table 4.5 Aspects of the goal-setting process

Environmentalissues

→ Goal-settingprocess

→ Goal attributes → Employeeintentions

→ Outcomes

Specify resultsexpectedExplain rewardswhich areavailable

MutuallyestablishedEmployer-centredOr framed as ‘doyour best’

Specific

Measurable

Achievable

Resource-based

Time-specific

‘SMART’

Accept the goals

Commit to thegoals

Workperformance

Job satisfaction

Job motivation

The third element in the model shown horizontally in Table 4.5 highlightsthe importance of the attributes of the goals. Goals should have the SMARTqualities noted in the table. When goals lack these properties, they have lessmotivational impact because employees lose interest in them. The fourth ele-ment indicates that employee commitment and acceptance of goals creates thebehavioural intentions to strive for the pre-established goals. Intention is directlyrelated to both properties. Employee intentions are deepened by the clear speci-fication of the relationship between intrinsic and extrinsic rewards and the goalsin question. The fifth element in the model specifies the employee and organ-isational outcomes resulting from the process. Properly managed goal-settingsystems having adequate and timely formal and informal feedback generatetask performance that is valued by the organisation and its employees. Employ-ees receive valued personal rewards (recognition, pay rises, bonuses, promotions,status etc.) which create job satisfaction and increased work motivation whichin turn deepens the commitment to goal-setting per se.

4.2.1 How Does Goal-Setting Work from the Employee’s Perspective?

Consider the effect of an economisation drive to reduce costs in an insurancecompany by 10 percent. The manager is told that this is his goal for the nextyear and he will be eligible for an 8 percent bonus if it is achieved. He decidesto organise an employee task force to develop the office plan for achieving thegoal. He seeks employee input into sub-goal specification (participative goal-setting process). During his contact with subordinates, he explains his incentiveplan and establishes goals that have the properties of clarity, difficulty andlimited number. The process yields high commitment and acceptance of thegoal because of reward specification and goal properties (high intention andbehavioural effort). The mutual acceptance of the goal by the manager andhis employees increases the probability that the goal will be achieved and theoutcomes of job satisfaction, task performance, and motivation will occur.



The example and the model in Table 4.5 both imply that goal feedback isa highly important element for sustaining the focus of effort towards the goalin question. Organisations must carefully incorporate well-timed formal andinformal feedback that keeps managers and employees apprised of their progresstoward the specified goal. Feedback itself is a highly important intrinsic rewardfor many employees. Erosion in the valued outcomes shown in the model canoccur without well-timed and meaningful feedback.

Management by objectives (MBO) is simply an organisational application ofgoal-setting theory. Peter Drucker coined the term and he has been a lead-ing proponent of the organisational process for several decades.3 He advocatesMBO as a process which develops self-control in managers since these individ-uals control the process that leads to worthwhile organisational and individualoutcomes. Drucker pinpoints the importance of employee involvement in thegoal-setting process when he concludes that MBO discussions and involvementof employees in goal-setting cause them to work harder and perform better.

The MBO cycle shown in Figure 4.4 is an organisational elaboration ofTable 4.5. The practical concerns of firms and employees are embodied inthe theory of goal-setting. The result is the MBO cycle which rests on severalassumptions.

1 Employees perform better when they know what is expected of them andhow they contribute to the effectiveness of the organisation.

2 Most employees prefer self-determination at work.3 Employees can be motivated further by well-timed formal and informal

feedback about their work methods and results.4 Employees prefer intrinsic and extrinsic rewards that are consistent with

their performance levels.

Firms may use more than the seven steps noted in the MBO cycle shown inFigure 4.4. The seven steps are common elements in most programmes however.The seven ‘generic’ MBO steps are briefly explained below.Step 1. Analyse the mix of people, jobs, work methods and external demands.The key element here is blending people, work design and technology to meetthe constraints in the organisation’s environment. This is a strategic activityusually conducted by top management.Step 2. Plan goals, strategy, communication and training. This is the productionof an MBO ‘blueprint’ which details organisational goals and how they will‘cascade’ down the chain of command. The blueprint should also ensure propertraining for those covered by the system.Step 3. Define the employees’ jobs in terms of content, authority and responsi-bility. From the organisational standpoint this must be done to avoid duplicationof effort and resources. From the employee perspective, this step clarifies jobduties so that employees can see how their goals interlock up the chain ofcommand.Step 4. Articulate goal difficulty, clarity, number and feedback. Here theemployee initiates the superior–subordinate dialogue on goals by developinga set of goals for the next time period. Subordinates and superiors must bethoroughly trained in the proper specification of goals.



Step 5. Reach mutual agreement about goals, work methods, measurement, andtime frame. This step sets down the ‘MBO rules’ which govern the behaviourof employees as they strive for goal achievement. This step also formalises therole of the superior in the MBO cycle.Step 6. Make informal review of goal achievement, methods and possible revi-sion of goals. The MBO cycle must be flexible so that it can be adjusted tomeet unanticipated events. For instance, poor economic conditions may forcethe downward revision of sales goals.Step 7. Make formal review of goals achieved and rewards to be granted.This step completes the cyclical MBO process. It represents the firm’s formalacknowledgement of employees’ success in achieving their goals. To close thelearning loop, it is necessary to indicate clearly to employees what their rewardsare going to be. This step helps ensure that employees will involve themselvesin the next MBO cycle in which they will hopefully set even more ambitiousgoals.

ANALYSE the mix ofpeople, jobs, work

methods and externaldemands

PLAN goals, strategy,communication and

training

DEFINE theemployees' jobs interms of content,

authority andresponsibility

ARTICULATE goaldifficulty, clarity,

number, feedback

make FORMAL review of goalachievement and rewards

to be obtained

make INFORMAL review ofgoal achievement, methodsand probable rewards, and

REVISION of goals andmethods if necessary

reach MUTUALAGREEMENT about goals,

work methods, goalmeasurements and time

frame

1 2 3 4

567

Figure 4.4 The MBO cycle

4.2.2 Observing Caution in the Use of MBO Systems

MBO, like any other control system, must be managed and refined over time.Managerial vigilance ensures that the MBO system remains meaningful toemployees. The best ways to preserve the quality of the MBO system arenoted below.

1 Top management support, commitment and involvement must precedeMBO systems design, and continue throughout the life of the programme.

2 MBO must have a strong relationship with routine managerial activitiesand responsibilities. The MBO system must buttress the basic aspects of thefirm’s technology, products, and services.

3 MBO must emphasise organisational and personal development goals. Thesuccessful manager always ensures that the MBO system permits employ-ees to achieve higher-order need satisfaction for important areas such asprofessional competence and growth.



4 The firm must devote part of its resources to the effective training ofpersonnel to administer and function under the MBO system. MBO will notwork if it is put in place without the knowledge and co-operation of thework-force, because employees will not understand it and the firm will notderive the motivational and performance benefits of MBO.

5 The firm must tailor the MBO system to meet the needs of departmentswhich have different technologies and products. If MBO is not ‘customised’to fit departmental needs, the programme will lack integration and the valueof MBO information at the organisational level will be questionable.

6 Managers must avoid over-emphasis on the number of goals and howquantified they are. The ‘80–20 rule’ is applicable here because it saysthat ‘20 percent of the goals represent 80 percent of the work that needsto be done’. Observation of this rule prevents managers from buryingsubordinates under a mountain of overly narrow and quantified goals.

7 The benefits of an MBO system should far exceed the costs of the programmein terms of paperwork. MBO paperwork multiplies when managers fail torecognise the importance of participatively setting goals which use informalas well as formal feedback.

8 Equal emphasis should be placed on discussion and evaluation. Over-emphasis on discussion leads to uninspired goals while over-emphasis onevaluation leads to perceptions of manipulation and overcontrol.

9 MBO works best when it is flexible and goals can be adjusted to meetunforeseen circumstances. This point emphasises how important it is thatmanagers realise that the MBO system is constantly being ‘re-invented’ andrevised by the firm and its members.

4.3 Rewards and Reward Systems

Rewards strongly influence employee effort and performance levels. Employeesat all levels compare their efforts and rewards to the efforts and rewards ofother employees. The perceived equity of these comparisons leads to experi-enced levels of job satisfaction and motivation. How the rewards are perceivedcan easily outweigh the actual rewards distributed by the firm. The reward sys-tem has a heavy influence on perceptions of rewards. The expectancy theory ofmotivation makes it clear that if employees perceive a weak connection betweenperformance and reward, then the rewards will not function as motivators. Per-ceived inequity causes job satisfaction with pay to plummet. The first safeguardagainst turbulent or inaccurate employee perceptions of rewards can be installedby correctly classifying organisational rewards.

4.3.1 Classifying Rewards in the Work Setting

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



in the distribution channel for important organisational information: and doingwork which requires a number of skills and activities. Examples of jobs or occu-pations with high levels of intrinsic rewards include physician, politician, judge,research scientist, design engineer and architect. These occupations involve aset of varied and significant work skills and activities. The contrast in availableintrinsic rewards is noticeable indeed when you compare these professions withthe work done by employees in a car factory. Car assembly work has littlepotential for employee development and work cycles are very short and lim-ited to very specific behaviours. Since assembly workers are isolated from thefinal product they help produce, they receive very little feedback concerning theresults of their work.

Extrinsic rewards are given to the employee by the firm and they do not occuras the work unfolds. Extrinsic rewards can be provided by supervisors, peers andwork groups, and external organisations such as professional associations andunions. Extrinsic rewards can be further broken down into direct compensation,indirect compensation and non-financial rewards. Direct compensation refers toextrinsic rewards which include base salary or wages, performance bonuses,overtime and holiday pay, share options and pensions (both are deferred com-pensation). Indirect compensation refers to rewards that are given because ofthe employee’s organisational level versus his performance. Examples of suchrewards include top executive personal protection programmes, loans at lowinterest rates, personal services and perquisites.

The last category of rewards consists of non-financial compensation. The formsof such compensation are legion, with managers concocting some very creativesystems of non-financial compensation. Examples of these rewards include pre-ferred office furnishing, assigned parking spaces, impressive titles, recognitionprogrammes, insignias and other status symbols.

Are Intrinsic Rewards More or Less Important than Extrinsic Rewards?

Several behavioural scientists have proposed that intrinsic rewards are moreimportant than extrinsic rewards in influencing motivation and performance.4

Since 1980 the field of organisational behaviour has generated considerableresearch on the significance and effects of intrinsic rewards on employee behav-iour and performance. For instance, one study found that extrinsic rewards(incentives tied to performance) undermined the effect of intrinsic rewards (freetime spent on the work) when the work was unstructured and interesting.5

A second study found that the level of personal control over work and thecompetence level of employees had a much larger impact on perceived intrinsicrewards than on extrinsic rewards.6

The research results noted above indicate the managerial value of separatingextrinsic and intrinsic rewards.6 Further, it seems to be true that there is greatmotivational value in building as many rewards as possible into the job itself(intrinsic rewards). Current management thinking in this area concludes thatemployees will value goal-setting more if they know that participation in theprocess will lead to intrinsic and extrinsic rewards that they value.

A final reason for separating intrinsic and extrinsic rewards lies in the fact thatfirms have much more control over extrinsic rewards. The company can create



published policy regarding the distribution of extrinsic rewards. This is not thecase for intrinsic rewards. The existence of compensation policies acclimatisesnew employees to the organisation and articulates the relationship betweenperformance and rewards. Further, the policies help specify the relationshipbetween seniority and rewards such as fringe benefits. Table 4.6 below showscommon intrinsic and extrinsic rewards that are available to employees.

Table 4.6 Intrinsic and extrinsic rewards in organisations

Intrinsic rewards Extrinsic rewards

Direct compensation Indirect compensation Non-financial rewards

Participation indecision-making

More responsibility

Opportunities for personalgrowth

More interesting work

Variety of job activities

Basic salary or wage

Performance bonuses

Stock options

Overtime and holiday pay

Job protectionprogrammes

Time off with pay

Preferred office locations

Choice parking spaces

Impressive titles

Preferred lunch hours

Own secretary

Cellular phone, faxmachine

4.3.2 Distributing Rewards in Organisations

All firms are interested in the effective distribution of extrinsic rewards. Variousguidelines for distributing rewards have been developed by firms. The commonreasons that companies use to distribute direct compensation are shown below.

Performance

Assessing the performance or absence of performance occupies numerous peoplein any organisation. When rewards are allocated on this basis, then performancebecomes a motivator. The discussion on the design of performance appraisalsystems focused exclusively on this important relationship.

Effort

In the interest of minimising turnover and hiring costs, firms frequently decide toreward effort. This is often done to prevent new employees from experiencingjob dissatisfaction. Frequently managers reward effort in the hope that effortand potential will eventually be followed by actual performance. This is a non-performance-contingent basis for allocating rewards and it does not do muchgood to enhance performance! If the practice is widespread, high performersexperience reduced satisfaction with pay because they believe the firm under-values their proven abilities to produce.

Seniority

Length of service is used to group employees for the purpose of making humanresource decisions about such matters as amount of fringe benefits, eligibilityfor job change and transfer and redundancy. When seniority becomes a sub-stitute for performance in the allocation of rewards, managers soon learn that



it is encouraging tenacity versus performance and achievement. This of courseeliminates perceived equity for high performers. They leave the firm in duecourse and the ranks of the mediocre performers increase.

Downsizing and re-engineering changes in organisations are undermining thesignificance of seniority as a basis for distributing rewards. Since firms are usingmore contract workers and temporary workers who may be employed only aslong as it takes to complete a project, seniority is rapidly fading as a basis forpay rises and incentive distributions. Weakened labour unions whose workersreturn to work without forcing concessions on managements also reduce therole of seniority in compensation decisions. These threats to seniority-basedreward systems will not abate because large, global companies can easily shiftproduction away from facilities that are experiencing strikes to those facilitiesthat are not.

Equality

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

Power and Influence

Groups or individuals are able to increase their share of rewards at the expense ofother groups or individuals. This basis for rewards is closely related to seniorityand it is a focal concern to unions which wish to preserve their economiccapacity to influence employers’ decisions. Most often, managements develop areward policy which blends the reasons noted above. This will lead to severeconflicts in reward policies which employees quickly notice.

How do firms determine the value of their jobs?The most organised way to develop an effective reward system is to develop a

job classification scheme to rank jobs against each other based on compensatablefactors. These factors, noted below, help determine starting salaries, pay gradesand the number of levels in given pay grades.

1 Skill requirements are the types of training and educational background anemployee needs, to be technically qualified for a position. A chartered publicaccountant needs a special certification indicating that he has successfullycompleted so many hours of technical training.

2 Mental requirements are the intellectual and emotional demands of a job.They include problem-solving skills; decision-making aptitude; and theability to respond under extreme pressure.

3 Physical requirements include health, strength, stamina, height and weight.Although some of these requirements have been dropped for certain jobs,many job classifications still contain physical specifications.



4 Responsibility refers to the job’s impact on the organisation. It can bemeasured by the number of people supervised, size of budgets, and valueof equipment managed.

5 Working conditions are those environmental factors which affect work per-formance. Temperature, noise, lighting, vibration and humidity are exam-ples of this factor.

A typical job classification system rates the jobs in a cluster of jobs on thecompensatable factors. Points for each factor might be assigned by a panel ofexpert judges. The points would be accumulated for each job and then totalled.These totals for jobs can then be used to rank order the jobs in the company.Once this is done, the firm has an objective basis for distributing rewards basedon the demands of the job. This system gives the firm a partial basis for deter-mining wage and salary rates through compensation surveys. Similar firms canshare salary data which can lead to pay brackets which are market-determined.Many complications can upset a salary or pay-bracketing system. Being laid offthrough downsizing and deteriorating economic conditions may cause people toaccept jobs well below the bottom of established pay brackets. Likewise, labourshortages and/or enhanced skill requirements due to technological progressmay force starting salaries above the tops of established brackets in high growthindustries.

4.3.3 Employees’ Perceptions of Pay Rises

When researchers address the reasons why firms give pay rises, they findthat employees have divergent beliefs about the bases for pay rises. Table 4.7sheds light on employee beliefs about the reasons for pay rises. The numbersunder each column represent how the individuals designated in the name/rankcolumn ordered their organisation’s reasons for giving pay rises. Executivesbelieve their compensation is based on company profits and potential for profits(stock market performance). The two categories of salaried workers focus onarea (salary) surveys, company performance, and cost-of-living adjustments asprimary bases for pay rises. Hourly employees disagree about the influence ofunions depending on whether or not they belong to a union (note the nearlyreversed ranking by the two groups). These last two groups of employeesbelieve that company performance and financial prospects have little to do withthe reasons for their pay rises.

The greatest variability in beliefs about pay rises occurs with few exceptions(see, for example, the hourly non-union view of worker productivity) at theextremes of job level. Company executives rank items in nearly opposite orderfrom the rankings assigned by hourly-paid union employees. Top executivesfocus on external gauges of company success while union employees focus onbargained contracts and union demands. In all cases, employee productivity failsto be number one. Even though executives say their compensation is based oncompany performance, this is seldom the case.7 Research indicates that profits,market share, cost effectiveness, and company productivity are seldom used asa basis for determining the pay rises of executives.



Table 4.7 How employees rank reasons for pay rises in their firms

Factors believed tocause pay rises

Top man-agement

Exemptsalaried*

Non-exempt

salaried**

Hourlynon-union

Hourlyunion

Worker productivity 4 7 5 3 9

Company’s profits 1 2 3 5 7

Company’s potentialprofits

2 3 4 4 5

Fairness of pay amongemployee groups

6 5 6 6 8

Pay increases by topindustry competitors

5 6 8 7 4

Salary surveys 3 1 1 1 6

Difficulty in fillingposition

7 8 7 10 10

Union agreements 9 10 10 8 2

Union demands 10 9 9 9 1

Cost-of-living index 8 4 3 2 3

* Not paid for overtime. ** Paid for overtime.

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

4.4 Components of Executive Compensation

Executives make up about three percent of any work-force. Because the effective-ness of executives is measured by the rising market valuations of the companiesthat they head, executive pay systems are designed to be highly competitive.These pay schemes are complex and structured to ensure that highly effectiveexecutives are retained and motivated to achieve higher share prices for theircompanies. Most experts on executive compensation agree that executive com-pensation packages are not based on internal job evaluations like those thatapply to lower level employees. Instead, these pay packages reflect industrypractices and the compensation programmes of rival firms that are pursuingsimilar competitive strategies.

Fairly stable differences in executive compensation exist among top executivesacross industries. Table 4.8 shows the relationship between pay and executiveposition across six industries. It shows that, with the exception of the pay levelfor the second highest-paid executive in the construction industry, a pattern ofuniformity exists among the industries in terms of executive pay. This givessupport to the argument that boards of directors do look at executive paypractices within the industry and among industries to make decisions abouthigh-level executive compensation.

There are four basic components of executive compensation: 1) base salary,2) benefits, 3) long-term incentives and 4) annual bonus.8 Base salary is mostoften determined by a compensation committee at the directorate level. Thecompensation committee reviews executive salary data for firms of comparablesize both inside and outside the industry to arrive at an amount for executives’base salaries.



Table 4.8 Comparing the numbers in 2000: Executive pay in selected industries

Retail Manufacturing Commercialbanking

Construction Gas &Electric

Finance &Insurance

CEO’s salary 1.0 1.0 1.0 1.0 1.0 1.0

Chief operatingofficer (second incommand

.70 .70 .70 .70 .65 .70

Chief financial officer(third in command

.60 .55 .60 .60 .55 .56

Annual bonuses are designed to motivate executives to maximise net incomeand the majority of industries and their member firms use them. When annualbonuses are not used, one or more of the following conditions are usuallypresent: 1) the company exhibits tight control of stock ownership (such as a firmowned by its employees – ESOP); 2) the corporation is a not-for-profit (hospital,charitable foundation) or 3) the industry and its firms are closely regulated(power generation).8 For instance, in the US financial industry, CEOs earnedbonuses in 1995 that were 255 percent of their base pay. Their counterparts inpublic power generation utilities earned bonuses that were only 38 percent ofannual base pay.9

The third component of executive compensation is long-term incentives. Byfar the most popular feature of this aspect of executive compensation is theincentive stock option (ISO). The executive is granted the right to purchase aset number of shares of company stock at a stipulated price over a specifiedperiod of time. The incentive to the executive is to maximise the value of thefirm’s shares so that exercising the option yields a substantial profit in the formof a capital gain. An effect of ISOs is to increase executive stock ownership. InAmerica, by 1995, executive stock ownership had swelled to reach a worth ofeight times annual base salary; up from five times annual base salary two yearsearlier.10. The issue for shareholders in this dramatic rise is whether or not afirm has a higher market value if its top executives have substantial personalwealth tied up in company stock. Towers Perrin, a benefits consulting company,found that in 1995 higher-performing firms (median sales of $6bn) have highermedian CEO stock ownership levels, at 10 times annual base pay. Medium- andlower-performing companies had CEO ownership at eight and six times baseannual pay, respectively.10

The fourth component of executive compensation is executive benefits. Exec-utives typically receive higher benefits because they are tied to income level. So,executives receive higher contributions to their life insurance, disability insuranceand pensions. Many executives are also relieved of deductibles (co-payments)for health care costs.



4.4.1 What Are the Current Trends in Executive Compensation?

Trend 1: Strengthening the link between executive compensation and the marketvalue of firms. Many investor groups and experts in executive compensationpoint to the weak link between executive salaries and long-term company marketvalue. Some of the more common reasons given by the experts for this weakconnection are summarised below.

1 Corporate officers encourage their boards to support corporate diversifica-tion to spread business cycle risk over a portfolio of company subsidiaries.While the corporation may be no more profitable once it’s diversified, theexecutives are paid more because the size of the company is a much betterpredictor of executive compensation than is its profitability.

2 Compensation committees made up of board members conclude that ‘wecannot pay our CEO less than his peers in the industry’. Therefore, payfor all senior managers tends to rise despite company performance or theperformance of the company’s stock.

3 Shareholders have been far too willing to view executive salaries as alegitimate drain on earnings. This view is rapidly changing due to newdisclosure requirements which make the levels of executive compensationmuch more obvious and understandable to investors.

4 Profitability is a good predictor of executive compensation only when theexecutive owns the business.

5 The political features of firms break the link between performance andreward for executives. The executives who are most adroit politically (andnot necessarily in terms of performance) receive the most compensation.7

An example of this is the corporate board that is composed of companyinsiders and a few outside members who are cronies of the CEO. Theseconditions lead to board decisions that simply rubber stamp the CEO’sproposals for changes in executive compensation.

Trend 2: Executive compensation rises much faster than employee wages.According to the Wall Street Journal’s 1999 analysis of executive compensation,the heads of 30 major US corporations received compensation that was 212times higher than the pay of the average American employee.11 In 1965 themultiple was 44. In its review of the proxy statements of 350 large Americanfirms, William Mercer, Inc., a salary and benefits consulting firm, found that themedian salary for CEOs reached $1.432m, up from $1.294m in 1994. That is again of 11.4 percent for the period. At the same time, US wages and benefitsclimbed 2.9 percent, the smallest gain in 14 years. US middle managers did notfare much better. Their wages grew a modest 4.2 percent, the smallest gain since1977.

Cited as an example of excessive executive compensation is the pay packagereceived by Robert E. Allen, the former CEO of AT&T. In 1996 he receiveda $1.5m bonus and a tenfold increase in stock options even though the giantcorporation barely broke even after a restructuring charge of $5.4bn. That chargeincluded the cost of laying off over 40 000 workers. At the other end of the AT&Tcompensation continuum was Peggy McMullen.11 Between 1990 and 1996, she



had to take pay cuts to stay with the company. As a $15-an-hour equipmentoperator, she could not afford to replace her 17 year-old car and her ‘bonus’ wasa T-shirt, a tote bag and a week’s free lunches at her AT&T plant in Pennsylvania.After considering her stagnant wages in relation to Mr. Allen’s compensation,she remarked, ‘He should not have got his bonus.’

Trend 3: CEO pay rises much faster than the pay of the second-in-command.A Fortune study of 500 US companies in the 90s found that the pay of CEOs rosean average of 237 percent. In the same companies, the average compensation ofchief operating officers rose a more modest 88 percent.12 Executive compensationanalysts suggest that this trend coupled with the tendency of corporate boardsto look outside the company for new CEOs has made No. 2 executives muchmore willing to jump ship than to wait around for the CEO to retire.12

Trend 4: Pay gaps between American and British executives narrow. JanLeschley, the CEO of SmithKline Beecham earned £13.12m in 1995 accordingto the Financial Times compensation analysis of Britain’s top 100 companies.13

Matching pay trends in the USA, median annual compensation for top BritishCEOs rose a modest 2.7 percent in 1995 to £400 000 from £389 477 in 1994.However, for the same period, their median total compensation rose to £956 856from £547 416 in 1994; a gain of nearly 75 percent. Much like their Americancounterparts their rising compensation occurred because it is strongly connectedto the market value of their firms. Long-term incentive plans typically grantstock options to executives that require the share price to rise above a givenlevel within a designated time period to have value. If the overall stock marketis on the rise, as it has been for most of 1995 and 1996 in America and Britain,executives who hold large numbers of options stand to receive a substantialwindfall as the share price increasingly exceeds their options’ fixed price.

In Britain, CEO compensation has risen over the £1m level. This has happeneddespite Cedric Brown’s (CEO of British Gas PLC) public whipping over his totalcompensation of £493 000 in 1994. At that time Britons complained about his paylevel (in terms of company performance) and it started a government inquiryinto executive pay. Likewise, when WPP Group announced a new pay packagefor its CEO, Martin Sorrell, its major UK shareholders blasted the plan, whichwould have paid him as much as £25.7m over a five-year period based ona rising company share price.13 For 2000, the median pay for all CEOs on theFT100 should easily exceed the £1m level. Continued strong economic conditionsin the UK virtually ensure it.

Throughout Europe social and economic conditions are not as favourable asthey are in the UK for executive compensation. In Germany public outragecan trigger government restrictions on executive pay that include limiting thenumber of stock options that can be included in an executive pay package andusing high tax rates to limit executive pay in the form of bonuses. The Italiangovernment has used pension reforms to block how much money executivescan contribute to retirement plans. The effect of these trends was to create awidening gap between American and British CEO pay levels and the pay levelsfor European CEOs who run companies with annual sales greater than $500m(£330m).13 The 1999 breakdown in pay for these CEOs was: 1) USA: $3.45m, 2)Britain: $1.434m, 3) Germany: $837 000, 4) France: $795 000 and 5) Italy: $548 000.



Trend 5: More emphasis on the firm’s net income. Corporate boards areplacing more emphasis on the firm’s earnings, which accents the executive’sannual bonus versus his annual base salary. This change indicates the importancethat stockholders attach to earnings per share and the stock price-to-earningsratio (PE ratio). Stockholders believe that their interests are best served byexecutive pay programmes that make an ever-greater proportion of executivepay dependent on the firm’s rising net income. Table 4.9 shows this effect inAmerica over time.

Table 4.9 Elements of executive pay in America: 1988–2001

Proportion of compensation

1988 1994 1999 2000

Annual salary .4 .4 .2 .2

Annual bonus .2 .3 .3 .3

Long-term incentive .4 .3 .5 .5

In the twenty-five years covered by the table, the annual salary componentof compensation for the top three executives profiled in Table 4.9 has declinedby a remarkable 67 percent. During the same time period, the annual bonus forexecutives has stayed relatively flat percentage-wise. Of importance is the recentrise in long-term incentives as a proportion of executive pay since 1994 (216percent). The rise indicates that by the late 1990’s executives and shareholdersseemed to prefer to emphasise the long term maximisation of the firms’ marketcapitalisations.

Trend 6: Preventing ISO plans from diluting stock value. Shareholders andboards of directors have become alert to the problem of declining share valuesas a consequence of giving too much stock to CEOs and other employees. Inthe USA, 30 percent of large companies now have ownership guidelines forexecutives who receive stock as compensation. Examples of such guidelinesinclude: 1) executives must buy stock when the price goes down, 2) executivesmust sell stock when it reaches a threshold value; 3) they must hold stock whendramatic fluctuations in value occur and 4) a non-complete call-back provisionwhich prevents a CEO from selling his shares until a pre-determined time afterleaving the firm (prevents disgruntled CEOs from financing a start-up competitorwith the profits from selling the stock of his previous employer).14

4.4.2 What Has Been the Effect of Downsizing and Delayering onCompany-wide Compensation Plans?

As companies manipulate features of the employment relationship to increasetheir competitive advantage, they try to keep a lid on compensation costswithout de-motivating the work-force. The most common and effective methodto manage compensation costs is the continued reduction in the size of meritincreases awarded to employees. Nearly 25 percent of American firms surveyedby the Coopers and Lybrand accounting firm indicate that they held meritincreases to below four percent for 1997–1999.15 The survey found that reductionsin merit increases were contemplated by: 1) 25 percent of large firms with more



than 1500 workers; 2) 18 percent of mid-sized firms with 500–1499 employeesand 3) 19 percent of small firms with fewer than 500 employees. The companiontrend advocated by firms in each category is the widening use of pay-for-performance.

Reduction of merit increases and greater reliance on pay-for-performance(bonuses) across companies and industries has the effect of slowing the growthin costs of benefits programmes. Since pay-for-performance is a component ofthe annual bonus for employees, these payments do not drive up the com-pany’s contributions to their employees’ pension plans. If employees fail tomeet goals in the following year, the annual bonus disappears, unlike merit payincreases which become a permanent component of base pay. Thus, the pay-for-performance trend will continue in firms having restructured and downsized.Uncoupling merit pay and cost of living (COLs) increases is also on the rise asa compensation scheme in delayered and downsized firms. Service companieswith many clerks and office workers realise that compensation costs can bereduced by moving them from pay increases based on rises in the cost of livingto merit-based pay increases. This creates an opportunity for the firms to payeffective employees more than their peers who perform poorly.15 By uncou-pling merit pay and COL increases, a company makes clearer to employees theconnection between job performance and pay.

Delayered and downsized firms are also exhibiting more reliance on pay-for-performance. Annual bonuses are making their way down the chain of com-mand. Increasingly, managers and employees in delayered and downsized firmsare participating in bonus programmes. In such systems, managers, employees,and their self-directed teams receive smaller increases in base pay in exchangefor heftier bonuses that are tied to specific performance goals. If the goals areachieved, programme participants reap substantial increases in direct compen-sation. The programmes, and their clear goal focus, are often used to replaceprofit-sharing programmes that have poor line-of-sight. Firms using pay-for-performance usually guarantee to employees that their total annual compensa-tion cannot fall below a ‘floor’ level. Increases in pay are closely tied to theachievement of pre-established goals in the firm’s strategy plan. Firms recognisethat the broader use of the annual bonus makes the firm’s compensation strategya stronger contributor to sustainable competitive advantage.

Delayered and downsized firms rely more on part-time employees and tem-porary workers. Many companies report that they are able to avoid payment ofbenefits and better match their work-force requirements to business conditions.In America, this approach is more highly favoured by firms with less than 500employees which represents about 95 percent of all employers. At first glanceit may appear that the temporary employee is at a substantial disadvantage inthis circumstance. However, many firms report that they only use temporaryemployees for low-pay, high-turnover positions or to get through periods of highseasonal demand. Furthermore, after six months, many temporary positions areconverted to full-time slots. Thus, companies use this practice to reduce recruit-ing, selection and training costs. The temporary worker of course realises thatthis is occurring so he may be highly motivated to add value quickly in thehope that the position ‘will go permanent’.



4.5 A Comparison of Company Pay Practices

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

Cafeteria-Style Fringe Benefits

Such systems allow employees to select a package of fringe benefits designed fortheir individual needs. Also called ‘flexible benefits packages’, these programmesare designed to match the demographic characteristics of a firm’s work force.In the plan, management places upper limits on how much the organisationis willing to spend on fringe benefits. Some employees take all of the fringesin cash while others purchase specialised medical coverage and other benefitsconsistent with their needs.

Lump-Sum Pay Systems

Such plans allow employees to decide how they receive their pay during thecoming year. Plans range from weekly pay cheques to one large cheque atthe beginning of the year. The lump sum is treated as an advance which theemployee ‘earns’ throughout the year with his labour. If an employee leavesthe job before year end (and has received a lump sum payment), the unearnedportion must be paid back to the employer. The lump-sum programme doesgenerate administrative problems and it is no system for firms with cash flowproblems. However, such plans do give employees greater flexibility for makingsalary investment decisions.

Skill-Based Compensation

Such plans reward employees for learning new skills. They provide pay risesand bonuses for the number of new skills employees can master. This form ofcompensation leads to a work force with greater skill levels and interchange-ability. Some firms have adopted this approach while preserving merit-basedrewards which recognise achievement on the job. These systems can lead tothe creation of more challenging work which expands the available intrinsicrewards. Skill-based compensation is playing a more important role in firmsthat are using self-managed teams to perform work. Teams only become highlysuccessful and cost effective if team members are thoroughly cross-trained. Toencourage the rapid acquisition of cross-member job skills by employees inself-directed teams, firms often use one-time bonuses to reward employees whorapidly acquire the skills necessary to build a fully cross-trained self-directedwork team.

Accumulating Time Off

The time-off feature is attractive to most employees. The concept is built intomost holiday programmes which use a formula to determine days off with paybased on seniority. A variation of this programme would be a time-off reward



based on levels of job performance. Employees are allowed to accumulatetime-off credits. These credits can be ‘turned in’ for time off with pay. Suchprogrammes can be applied without loss of product or service quantity orquality.16

The All-Salaried Team

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

Open-Salary Information

Pay secrecy can obscure the actual relationships between performance andrewards. This effect was noted in Module 3 in our discussion of the managerialimplications of equity theory. If reasons for pay rises are poorly understood,employees are likely to believe the pay system produces unfair results. Suchreactions are generally known as perceptions of distributive injustice. In makingjudgments about his pay in relation to others under conditions of pay secrecy,the employee often underestimates his own pay relative to co-workers whilethey often overestimate their efforts relative to co-workers. Further, they overes-timate the pay of their superiors and underestimate their rewards. Pay secrecyexaggerates pay perceptions and creates the condition of chronic, perceived dis-tributive injustice. Managers may not want to make individual pay decisionspublic, but open salary information can increase the motivation benefits of pay.Open salary information usually involves publishing 1) ranges for pay rises,2) the number of pay grades, 3) organisational guidelines on the meaning ofperformance levels, and 4) policies on bonuses and fringe benefits. Thus, open-salary information aligns employees’ perceptions of pay fairness with acceptedrelationships between performance and rewards.

When managers are more forthcoming about pay rises and the methods usedto determine them, they can greatly improve employees’ perceptions of procedu-ral justice. This expression refers to employees’ beliefs about the fairness of themethods that are used to allocate rewards to employees and managers. Whenthese methods are performance-based, widely publicised and well-understoodby employees, their perceptions of procedural justice generally rise. Further, theperiodic use of job analyses and salary surveys demonstrates to employees thatthe company is serious about maintaining objective methods to ensure fairnessin pay decisions in relation to the value of the job in the organisation. It shouldbe noted that perceptions of procedural and distributive justice apply to all



human resources decision making systems. Hiring, selection, training, promo-tion, performance appraisal and termination practices are all subject to theseperceptions of employees.

Table 4.10 summarises the pay systems discussed. Some problems and strengthsassociated with each pay practice are summarised in the table.

Table 4.10 Examining reward practices in firms

Reward practice Employee perspective Implementation issues

Cafeteria-style fringebenefits

Creates balance between family needsand benefits package

Installation costs and administrationare increasingly outsourced to otherproviders

Lump-sum pay Nice to receive a large bonus, but it maynot be clear to the employee what he orshe did to earn it

Likely to be abandoned during businessdownturns. Can upset shareholders

Skill-based compensation A good incentive for learning newjob-related skills. It shows that the firmvalues a skilled and cross-trained workforce

Works best if skill gains are measurable,documented and verified. Do not tie thiscompensation to external educationalor management training programmeachievement

Accumulating time off Helps balance family, work, child andelder care demands on employees

Strengthens organisational commitmentand loyalty. More difficult to implementin self-directed teams

The all-salaried team A workable plan if team performanceis fairly measured and teams areempowered

Easier to implement as union influencedeclines. Validity of the team appraisalsystem must be high. Can reinforce360-degree PA

Open-salary information Greater perceived pay equity andjob satisfaction with work and withsupervision

Computer-based and outsourcedcontrol system make implementationeasy. Requires stable pay brackets andmarket-based, fair starting salaries

4.5.1 Making Intelligent Choices about Company Pay Plans

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



certain major guidelines should be followed in the administration of any creativepay plan in an organisation.18These recommendations help a company create acompetitive advantage that is based on a highly motivated work-force.

1 Does the plan capture the attention of the employees? The ideal situationis one that employees discuss and have early success with experiments inmore effective compensation.

2 Do employees understand the elements of the plan? Employees should beable to explain to new employees how the plan works and how it affectstheir earning power.

3 Does the plan improve communication? An effective pay plan shouldencourage greater understanding of company mission, goals, and perform-ance measures among employees.

4 Does the plan make payments to employees when it should? Incentivesshould be paid promptly when employees achieve pre-established perform-ance levels and they should be withheld when results are substandard.

5 Is the company performing better as a result of the plan? The companyshould see improvements in its strategic and financial performance. Thus,market share should improve and costs should be under more firm control.

Any pay or incentive plan which meets these five tests should be developedand spread throughout the firm. While this may not always be possible due todifferences among company units and pressing resource constraints, there arestill productive guidelines which can be followed to improve the performanceand effectiveness of the company incentive plan. These guidelines are shownbelow.18

1 Tie incentives in the reward system as closely as possible to actual per-formance on the job. Simply put, this means that employees can clearly seethe relationship between their performance on the job and the rewards thatthey value. This property is often called line-of-sight because employeesare confident that valued rewards will quickly follow performance. Line-of-sight is therefore closely aligned with the principle of instrumentality inexpectancy theory. Also, the principle of line-of-sight implies that employeesunderstand their unit’s strategic goals. And, some of their compensation isbased on the unit’s success at achieving those goals. This puts a portion ofemployees’ pay at risk. This practice therefore uses the company pay planas a tool to enhance competitive advantage. When a portion of employees’pay is tied to goal accomplishment, it strongly focuses their attention ongoals and the methods used to achieve them.

2 To the extent possible, the incentive system and benefits programmesshould be adjusted for individual differences among employees in thework force. Flexible benefits programs are a step in the right directionbecause they adjust the mix of fringe benefits to meet the needs of employeegroups in the work force. Flextime, parental leave, child care and elder careprogrammes and educational benefits are new examples of benefits whichare greatly valued by employees and they greatly appreciate the opportunityto configure their work benefits in a system which matches their personalneeds.



3 Incentive programmes should match the type of work performed by theemployees and the structure of their firm. If a company uses extensivelysmall work groups which make their own decisions about production andwork group affairs, the pay system should reflect the importance of groupdecision-making and collaboration. A gainsharing program would be appro-priate in such circumstances. This is another example of customising thereward system to take account of other organisational characteristics thatare closely related to competitive advantage.

4 The pay system should be consistent with the culture of the firm. Forinstance, if a company has succeeded by designing work that is performedby individuals who are paid according to the rules of a piece rate paysystem, then it would be a mistake to dismantle the system and replace itwith a team-based reward system.

5 Any incentive system should be monitored over time to ensure thatemployees are being paid at the prevailing salary levels for their work,that they are being fairly treated and the programme is being properlyadministered. This principle establishes the importance to the company ofperforming periodic salary surveys. Such efforts ensure that new employeesare hired at the proper entry-level salaries and that seasoned veterans arefairly compensated. Such efforts uphold the perception of pay equity in theminds of employees. Likewise, fair treatment and programme administra-tion ensure that employees come to expect procedural justice in their payand benefits packages. This means that employees believe that the organisa-tion’s practices in the pay and benefits areas are realistic, uniformly appliedand subject to review if an employee questions pay or benefits outcomes.

4.6 Individual and Group-Based Reward Systems

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

What Are Group-Based Reward Systems?

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



4.6.1 Cost-Savings Plans

The first systematic cost-savings, group-based reward system was the ScanlonPlan, developed in 1937. This plan tries to reduce labour costs below a historicbase level. Groups are motivated by bonuses, which are contingent on reducingthe costs of factors of production below established base rates. The ScanlonPlan also promotes a work climate with better labour management co-operationand improved group-based innovation and problem solving. Let us consider anexample:

Historically, labour costs at Townsend Ltd. have been 50 per cent of output value.Last month, the value of total output was £2m, and labour costs were £900 000 or10 per cent below the 50 per cent base rate. Under the Scanlon Plan, the £100 000savings would be put in an incentive fund, some of which (perhaps 30 per cent)would be retained as a reserve (to cover those future months when labour costs goabove 50 per cent). Another 25 per cent of the savings might be set aside for thecompany, and the remaining 45 per cent (£45 000) would be earmarked as a bonusfor labour.

Scanlon Plans are called gainsharing plans because the gains associated withcost savings are shared between the owners of the company and labour. Gain-sharing programmes can be powerful motivational systems if they are coupledwith managed innovation in the firm. Many variations of the Scanlon Planset up committees which are interlocked across company levels. One type ofcommittee is called a production committee and it is composed of supervisorsand their subordinates. A company may have several hundred production com-mittees which focus on finding ways to improve productivity in their areas ofwork responsibility. The productivity suggestions made by these committees arethen reviewed by a screening committee composed of managers, higher-levelexecutives, and skilled labourers. If suggestions which produce cost savings orproductivity improvements are implemented, all affected work groups receivebonuses adding up to some fraction of the savings generated for a specificperiod of time. Usually the bonus is 25-50 per cent of the savings made duringthe first year of the innovation.

Gainsharing programmes are extremely powerful tools for lowering costs andbuilding innovation into the company at the level at which the work is done.An additional benefit of these programmes is increased employee satisfactionand lowered turnover. There are some important points to consider before againsharing programme is introduced. These are briefly noted below.

1 Gainsharing programmes work best when a dependable history of labourcosts exists in the firm. If an organisation has good accounting data onproduction and labour costs, then it is possible to establish the formulaewhich determine when bonuses have been earned through cost savings.

2 Seasonal product demand makes gainsharing programme establishmentmore difficult since base production rates will vary because of the seas-onality.

3 The market may have to absorb additional output if the reduction in costsleads to an expansion of output.



4 The company should have a history of labour–management co-operation.Dependable labour and production formulae which determine bonuses arealways based on trust between labour and management.

5 The programmes are easy to establish in production units with between30 and 500 employees. Larger production units may require a network ofgainsharing plans which are joined through a common accounting system.

6 Top management must be committed to the concept of productivity enhance-ment and be willing to develop an employee education programme whichthoroughly trains all participating employees in the operation of the system.

4.6.2 Strengthening Competitive Advantage by Using Team-based Rewards

News announcements and analyses of corporate successes stress the impor-tance of adopting service-driven strategies that are linked to excellent productdevelopment and customer service to sustain competitive advantage. Often theseinitiatives unfold along with changes such as delayering, downsizing, concurrentproduct development and re-engineering. These popular improvement strategiesshare a common dependence on the the creation of effective self-directed teamsto perform work in firms that have lowered their administrative overhead. Thesechanges have led executives and consultants to consider the best way to mergethe self-directed team concept with: 1) superior customer service; 2) enhancedemployee empowerment; 3) TQM and reduced cycle time; 4) employee skillbuilding and cross training; and 5) features of work-force diversity. A criticalfactor for executives who are wrestling with these sometimes opposing forces isto design and administer an effective reward system in the self-directed teamwork environment. This segment takes up this issue.

The Crucial Role of Team-based Incentives in Organisations. Levels of teammember motivation, job performance and job satisfaction change dramaticallywhen executives decide to make changes in the firm’s competitive strategy. Man-agers who are inclined to think of their reward systems in strategic terms oftenagree that a strong psychological contract with employees can be a significantcontributor to sustained competitive advantage. According to Ed Lawler, anexpert in organisational behaviour, a well-designed team-based reward systemcan strengthen competitive advantage in six ways.19

1 Attraction and retention. Those firms that offer excellent incentives attractand hold the best people and their employees report high levels of job sat-isfaction and a willingness to remain with the company (lowered turnover).

2 Motivation and performance. If employees report that incentives are mean-ingful and they are given in a timely fashion, then firms find that theiremployees are more motivated and effective on the job. If employees reportthat the incentives are attractive and timely in relation to their performance,then they also report having higher instrumentalities and expectancies.Timely and attractive incentives increase employees’ beliefs that they canperform well and they become more optimistic that a high level of effortcan lead to excellent performance.



3 Skill development. If rewards are tied to cross-training and skill-building,team members will acquire the needed skills and the company’s work-force will be more adaptable and flexible. Increasingly, companies pursuingcompetitive advantage based on customised service perform ‘wall-to-wall’employee training. In spite of the difficulties of precisely measuring neces-sary skill levels, firms pursuing this strategy claim that skill developmentand training are indispensable in their battles for market share and customersatisfaction.

4 Organisational culture. Linking incentives to key company values can cre-ate a source of competitive advantage that is hard for rivals to copy. Incen-tives are strongly related to motivation, performance and job satisfactionand they are a big part of organisational culture since they suggest whichforms of performance are valued in the firm.

5 The reinforcement and definition of structure. Employees agree that theincentives for those at the top and the bottom of chain of command differin variety, length of deferral and size. Since delayering has become socommon across industries, more companies are using stock options andforms of pay-at-risk to motivate self-directed teams.

6 Cost. Incentives can account for up to 50 percent of the cost of goods sold. Inservice-driven firms, this percentage can go much higher. Incentive systemcosts should reflect the company’s strategic and competitive successes. Thepay-at-risk concept reflects this principle because bonuses for individualsand their teams are a function of their level of achievement of strategic goals.The more they exceed pre-established targets, the bigger their bonuses orstock options.

4.6.3 The Rucker Plan: an Incentive System that Works in the Self-DirectedTeam Environment

Improvements in competitive advantage can certainly be achieved by payingclose attention to reward systems design in the six areas noted. The trouble is,these six outcomes may have unique implications for firms that rely heavily onself-directed teams. For instance, these questions apply to the design of a rewardsystem in a team-driven firm.

1 How can the value added to output by self-directed teams be measured?2 How can a clear pathway between a team’s performance and its rewards

be created?3 How should a firm reward employees and departments that provide support

and service to self-directed teams?4 How can team involvement in systems improvements be ensured?

While there are no perfect answers to these questions, there are many examplesof effectively designed reward systems that hold promise for cost reduction indelayered firms which rely on self-directed teams. A program called the RuckerPlan of group incentives can be used by firms.20 Sharing a philosophical basewith the Scanlon Plan (see above), the Rucker Plan can be easily modified tocover self-directed teams.



In the Rucker Plan, the measurement of productivity is called the value addedwhich is the difference between the sales income from goods produced and thecost of the materials, supplies, and outside services consumed in the productionand delivery of that output. Payroll costs are all employment costs paid to,because of, or on behalf of, the employee group measured. The proceduresnoted below are often followed to establish a Rucker Plan.

1 Identify a base period that provides data that will be valid and useful forestablishing standards. The base period should be free of special circum-stances such as large charges to earnings, problems with product liability,disputes with suppliers or distributors, etc. The base period should be avalid and reliable indicator of typical performance.

2 Generate the following data using the base period standards.(a) Sales value of production (SVP)(b) Cost of materials, supplies, service, etc. (COM)(c) Cost of labour (COL)

3 Using these data, establish the following standards.(a) Value added (VA) = SVP − COM(b) Labour contribution to VA (LCVA) = COL / VA(c) Economic productivity index (EPI) = 1.00 / LCVA(d) Expected value of production (EVP) = EPI × COL (for the bonus period)

For example: a corporation determined that the following values (in millionsof pounds)

1 SVP = £25m2 COM = £11m3 VA = £14m4 COL = £6m5 LCVA = 6 / 14 = .42866 EPI = 1.00 / .4286 = 2.333

For the bonus period in question, the following business data were generated

SVP = 2.8 VA = 1.5COM = 1.3 COL = .6

AVP (actual value of production) = SVP− (COM + COL) = 2.8− (1.3 + .6) = .9EVP = .6× 2.333 = 1.398

Savings or loss = EVP− AVP = 1.398− .9 = .498 or £498 000

Labour contribution to value added is .4286. The money placed in a bonuspool for self-directed teams is £498 000 × .4286 = £213 443.

In a Rucker Plan, 75 percent of the bonus is paid monthly to employees andthe remaining 25 percent is held in an escrow account until year’s end. Thisreserve provides a cushion for periods when self-directed teams fail to meet thestandard. After a year-end audit, all reserve funds are distributed to employees.21

Some of the benefits of the Rucker Plan are noted below. Compare them to thebenefits and characteristics of the Scanlon Plan as they were described above.



1 The Rucker Plan conforms to current economic thinking that stresses themeasurement of profit in terms of the value added by factors of production(the extent to which the return to capital exceeds the cost of capital). TheRucker Plan determines labour’s contribution to economic surplus.

2 Once a company’s employees understand and accept the Rucker Plan theywill have ideas for raising labour’s value added. The Rucker Plan stressesthe use of problem-solving at the team level which fits well with the use ofempowerment in delayered and downsized firms.

3 The Rucker Plan is less rigid than the Scanlon Plan in its requirements foremployee participation (The Scanlon Plan requires the use of a screeningcommittee and production committees). The firm that uses the Rucker Planis more free to develop a customised system of team-based participation togenerate value-added suggestions.

4 The lower level of hierarchical control in a Rucker Plan (no screeningor production committees as in the Scanlon Plan) can be an advantagebecause cycle time is shortened for evaluating and installing suggestions forimprovement.

Why Do Self-Directed Teams have an Incentive to be More Productive if TheyParticipate in a Rucker Plan?

Rucker Plan teams have a strong incentive to increase their productivity becausethey have line-of-sight for several prominent plan features. Teams can raise thesales value of output by improving product designs and process effectiveness(fewer defects and fewer warranty claims). They can use concurrent productdevelopment to synchronise marketing, production, financial control, productengineering and R&D to shorten product development cycles. When teams usethese systems they can push the firm ahead of its rivals in the battle for marketshare resulting in higher profit margins and lower unit costs. These benefitsraise the sales value of output for a firm using the Rucker Plan faster than arival which does not adopt a system of team-based incentives.

The firm’s cost of materials (COM in the Rucker Plan) can be influencedby self-directed teams. All expenditures on materials, supplies and outsideservices are subject to review and control. The cost control contributions madeby specialists in purchasing, distribution, warehousing, inventory control, andaccounts control (payables and receivables) all raise the economic value added.The firm therefore competes more effectively for greater market share throughlowered prices and superior product designs and services. Using a Rucker Plancreates the team based incentives to encourage and nurture such improvements.

The Rucker Plan creates excellent line-of-sight which is a basic feature ofany effective team-based incentive system. When it is present, teams and theirmembers can see how their efforts and performance are tied to incentives. Teamscan see exactly how they add value to the firm’s goods and services. Line-of-sight is just as important as ensuring that incentive system standards are fairand dependable and that self-directed teams have the authority to create andinstall improvements which raise the sales value of output or lower the costs ofgoods sold.



4.6.4 Design and Timing Issues for the Installation of a Rucker Plan in aDelayered Firm Using Self-directed Teams

A major competitiveness theme is that the delayering and downsizing do notsustain competitive advantage. More often than not, these are stop-gap remediesfor the accumulated effects of bad management decisions that have eroded thefirm’s returns to capital. The installation of a Rucker Plan is a serious move bymanagement to make the incentive system a major feature of the firm’s renewedcompetitive advantage. To be successful, a Rucker Plan needs to be establishedin a firm that values its work-force and practises empowerment. The immediateeffects of downsizing and delayering may traumatise a company’s work-force inseveral significant ways and postpone or foil entirely the introduction of such aplan.

Delayering and downsizing decrease employees’ job security and erode theirwork-based social support systems. Heightened economic insecurity andincreased workloads can dramatically raise the level of job stress experienced byemployees (see Module 2). Table 4.11 shows some of the effects of downsizingand delayering throughout a company.

Table 4.11 Consequences of downsizing and delayering

Delayering and companydownsizing

Team/employee consequence Feature consequence

Reduction in number ofmiddle managers

More responsibility for workprocess control

Fewer candidates for seniormanagement positions, lesssystems know how

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

Employees must: 1) acceptlower pay; 2) ‘re-apply’for aposition 3) consider or accepta job transfer

Work-force with low moraleand commitment. Undoneprojects, drop in customersatisfaction

Automation andcomputerisation of routinejobs

Job termination with modestseverance package. Widerspan of control for remainingmanagers

Short term problems insystem integration and lowercustomer satisfaction

Reduced slack resourcesthroughout firm

Longer work hours andpressure to raise output withconstant or declining costs

Lowered ability to ramp upproduction and service

Management becomesaddicted to ‘cost reductionband aids’ instead of thestrategic repositioning of thefirm

Successive downsizingschemes result in chronicwork overload and job stress.Repeated reorganisationtriggers burnout

Declines in customersatisfaction may lead tolowered marketshare.Co-ordination problemsreduce the rate of productimprovements

Table 4.11 captures the destruction of numerous ‘hygiene factors’ caused bydownsizing and delayering. Hygiene factors are a major part of Herzberg’s



Two-Factor theory of motivation and job satisfaction (see modules 2 and 5).Downsizing and delayering disrupt the attainment of the lower-order need sat-isfaction by affected employees and managers. This triggers rapid rises in jobdissatisfaction among them. Job stress, job burnout, low morale, economic andjob insecurity, depression and feelings of worthlessness become chronic symp-toms of employees exposed to repeated bouts of downsizing and delayering.During and after these episodes, pay levels are often frozen and companywork policies become restrictive. Despite the introduction of employee empow-erment programmes and the creation of self-directed teams, there is a period ofdeclining work-force productivity that occurs as the effects of downsizing anddelayering spread. These transitional conditions are extremely unfavourable forthe promotion and installation of group-based incentive systems like the RuckerPlan.

If a firm has downsized and delayered, the following conditions should bemet before a Rucker or gainsharing plan is installed.

1 The firm has returned to profitability and no future wage freezes areplanned;

2 The management team is stable;

3 Self-directed teams are working and members have completed training inTQM, process control, and team building (Module 9);

4 The company is not being positioned for sale or spinoff;

5 Outsourcing of non-essential functions has been completed;

6 The firm is using service-driven and market-based measures of customersatisfaction.

From these recommendations you would be right if you concluded thatinstalling a Rucker Plan is an end-stage activity in a firm’s effort to build anew and sustainable source of competitive advantage. Figure 4.5 below traces atypical turn-around scenario which can lead to installing a Rucker Plan.

An ideal situation for installing a gainsharing programme is in a ‘greenfield’or ‘start-up’ operation. If a company decides to add to its production capacity bybuilding a new facility, it has a unique opportunity to make a Rucker Plan a basicfeature of its employment relationship. All personnel and operating decisionscan be guided by the use of self-directed teams, employee empowerment, somemeasure of employment security, a lean organisational structure and a service-driven business model. The wrenching effects of downsizing and delayering areavoided and the work-force never experiences the chronic deficits in hygienefactors noted in Table 4.11.

Building a Rucker Plan into a new facility or operation requires much moreplanning. It may ensure the creation of a strong organisational culture (seeModule 9) that fits the service-driven basis for competitive advantage suggestedin Figure 4.5.



Phase I. Remedies for high cost structure – up to two years to complete

Financial and market share goals areunmet (the management team selects astrong remedy for a languishing shareprice, slow product development andintroduction, and dissatisfied customers)

Downsizing and delayering plans lowerthe cost structure of the business(severe decline in hygiene factors andwork force morale, some unwantedturnover among high-skill employees)

Phase II. New strategic direction – another year or so

Company announces new customer-driven strategy to raise market share andcreate a lean company structure to controlcosts (employees are bundled into workteams and are trained in customerservice, TQM and teamwork skills)

Outsource non-critical activities (humanresources processes such as payrolladministration, recruitment, benefitscontrol, tele-marketing and other non-core sales functions)

Phase III. Cementing a new basis for competitive advantage

Installation of new practices in aresponsive firm that improves customerservice based on market-basedperformance measures. Self-directedteams deliver front-line service

Rising share price,improved marketshare and lower unitcosts

Complete installationof Rucker Plan andpilot test policies

Begin developingand installing theRucker Plan

Figure 4.5 How the Rucker Plan fits in a plan to strengthen competitiveadvantage in the firm

4.6.5 Profit-Sharing Plans

The rationale for the profit-sharing approach is that all employees contributeto the success of the firm, so all should share in the increased profits. Thepopularity of profit-sharing plans varies in direct proportion to the health ofthe economy. When sales are strong and costs are stable, organisations do wellfinancially. These conditions create executive interest in profit sharing. Suchprogrammes may be short-lived when inventory builds, sales flatten, costs rise,and profits fall.

The sense of partnership between management and labour has promptednumerous firms to adopt such plans, and many boast of their success withprofit-sharing. Little research has, however, been done to validate these claims.One programme, that of the Lincoln Electric Company, has a well-documentedpattern of success with profit-sharing. Let us examine this.



The Lincoln Electric Company was founded in 1896, and is the largest man-ufacturer of electrodes and arc welding equipment in the United States. The2000 company employees share approximately 80 per cent of the company prof-its each year. The formal profit-sharing plan was introduced in 1934 and hasoperated continuously ever since. Bonuses are determined by the following fac-tors: 1) overall company profits, 2) supervisor merit ratings, and 3) cost savingssuggestions.

The company places special emphasis on hiring employees who are intelligentand have competed in athletics. Management encourages competition for higherpositions and the firm has a strict policy of promotion from within. Througha company-wide network, employees sit on committees designed to solve pro-duction problems and to control costs. A ‘Suggestion System Board’ reviewssuggestions once a week.

The Lincoln Electric Company headquarters is a spartan building, which hasoffices with furnishings which are functional rather than symbols of an execu-tive’s rank in the company. All employees park their cars in a common lot andthey eat in a common cafeteria. Newly hired engineers work on the assembly-line for six months so that they fully understand all aspects of production.

The company has an interesting system to ensure product quality. All pro-duction employees mark the components they produce or assemble with theirinitials and work area. If a welding unit is found to be defective, the purchaserships it back to Lincoln and the employee or employees responsible for thedefective components fix it in their own time. This means that while they arerepairing the defective unit, they cannot earn incentive bonuses for productionoutput above established base rates. This programme results in a unit failurerate of less than one half of one per cent each year. Company profitability isenhanced by this programme because the employees who build componentsand assemble the products become their own quality-control inspectors. Indeed,there is a built-in incentive to build the units correctly the first time.

Many firms have successfully overlaid gainsharing or profit-sharing plans ontheir compensation systems. These firms have also reaped benefits in the areas oflabour–management relations, employee job satisfaction, and levels of employeeinnovation. In every case, organisations which have been successful with suchplans have strong organisational cultures which place employees at the centreof organisational concern. The use of incentives is always widespread andmotivational systems rely heavily on individual employee accountability. Workclimates evolve which highlight the importance of achievement and companyloyalty among employees. As a result, turnover and absenteeism are usually low.While all of these things are tangible benefits of profit-sharing and gainsharingplans, such pay systems require constant maintenance and high commitmentfrom managers and employees alike.

Summary Points

• Performance appraisal systems monitor progress towards meeting organi-sational goals, communicate performance expectations to employees, andcreate informed data for making human resource decisions.



• Validity and reliability are the two most important properties of a perform-ance appraisal system. Performance appraisal content and empirical validityare the two measures which are most important to organisations. Reliabil-ity is generally a function of the number of dimensions in a performanceappraisal system, uniform administration procedures and the level of under-standing and training of managers who use the system. Reliability can beenhanced by using multiple raters to judge the performance of employees.

• Threats to performance appraisal system reliability include personal bias,halo effect, recency error, similar-to-me error, forcing the rating, centraltendency, leniency error and strictness.

• The system of graphic rating scales is the most popular assessment tool.This system overcomes some of the limitations of the absolute standardmethod.

• BARS systems are designed with the help of employees, and can generateuseful behavioural data which employees perceive as relevant to successfuljob performance. BARS systems are more expensive to design, but they canbe extremely useful for jobs with specific behavioural requirements. As jobclusters multiply, additional BARS systems may have to be built.

• Goal-setting theory supports MBO. MBO works best when it is participative,when ample formal and informal feedback is provided to employees, andwhen provisions for goal revision are built in to the system. When creatinggoals for employees, the SMART principle should prevail. Goals should bespecific, measurable, achievable, resource-based and time-based.

• MBO systems fail without sustained top management support. They mustalso be anchored to routine managerial activities, personal development,training, and departmental needs.

• Rewards are classified as extrinsic or intrinsic. Intrinsic rewards occur asthe work unfolds, and employees experience them as challenge, personalgrowth, work meaningfulness and work significance. Extrinsic rewards areenvironmentally based and they can be further classified as direct, indirector non-financial compensation. Extrinsic rewards are usually the subject ofpublished organisational policies.

• Extrinsic rewards can be distributed to employees based on their: 1) per-formance, 2) effort, 3) seniority, or 4) difficulty of replacement. Organisationsoften adopt pay policies which reflect concern for equality or the power ofcertain groups.

• Pay systems should be built on the basis of a job analysis which ranks jobsbased on the extent of their value adding factors.

• New pay practices include cafeteria-style fringe benefits, lump-sum pay,skill-based compensation, accumulating time off, the all-salaried team andopen-salary information.

• Any changes in pay systems should be evaluated in terms of their effectson employee perceptions of procedural and distributive justice. Procedu-ral justice refers to pay practices that are fair and subject to review anddistributive justice refers to pay outcomes (in relation to inputs) that arejudged as fair and reasonable by the employees who receive the rewards.



• Group-based reward systems can improve productivity when labour andmanagement view themselves in a performance partnership. The Scanlonand Rucker Plans are cost savings or gainsharing programmes and theLincoln Electric plan is a profit-sharing plan.

• New guidelines for altering pay systems stress: 1) matching the pay systemto the organisation’s strategic goals so that competitive advantage is createdor extended; 2) adjusting the pay plan to reflect the extent of diversityin the work force and 3) ensuring that the pay system fits with otherfirm characteristics that are strongly related to the company’s sources ofcompetitive advantage.

• Over time, as companies become less responsive in their mature, low-growthor declining industries, their cost structures rise.

• These conditions cause managers to ignore or overlook the revitalisingeffects on strategic competitive advantage of group-based incentives. Oftentimes, it is not until employees have been empowered and self-directedteams are in place that problems with team motivation crop up. At thatpoint, managers try to use group-based rewards to strengthen competitiveadvantage.

• Delayered firms cannot expect to sustain improvements in service qualitynor keep highly trained personnel unless they adopt group-based incen-tives. As a basis for excellent service delivery, group-based incentives havebetter line-of-sight than company-wide ISO plans. This is true because theperformance standards that support a Rucker or Scanlon Plan for motiva-tion are more strongly related to employees’ service improvement effortsand creativity. On the other hand, ISO plans depend on a rising shareprice to enrich (motivate) participating employees. Share price is to a greatextent influenced by stock market conditions and the prevailing economicenvironment.

• The trend to make employees’ pay dependent on the performance of thecompany and their abilities to meet its goals (pay-at-risk) is being accel-erated by the penetration of ISO plans to lower-level employees acrosscompanies and their industries. ISO plans were once only common inunder-capitalised start-ups with too-few employees. Now, large firms haveseen the light and they are fueling this widening trend not only for theproven motivational outcomes in the plans but also because the plans createsizable tax advantages.

• The best way to motivate self-directed teams in a delayered firm is bymaking group-based rewards contingent on the groups’ performance. Toa considerable extent, such plans reinforce the pay-at-risk trend becausethe bonuses are not available unless productivity and service are improvedby employees in a cost effective way. From a macro-economic perspective,group-based rewards boost the disposable income of employees. However,to be earned, employees must first measurably improve their productivityor add value to the services that they deliver. Such incentive plans are notinherently inflationary because the firm first earns rising revenues through agrowing market share before it pays out group-based bonuses. The bonusesare not promised nor guaranteed in the future to employees. Thus, in an



economy with many delayered firms we see rising productivity and rates ofincrease in sales that exceed the rate of growth in wages over time. Theseare exactly the conditions that have prevailed in the United States sinceearly 1995.

Review Questions


4.1 Organisations typically do not gather performance appraisal data to evaluateprogress in achieving organisational goals. T or F?

4.2 Validity refers to the stability of performance appraisal results over time. T orF?

4.3 Standardising the administration of performance appraisal will improve thesystem’s reliability. T or F?

4.4 Recency error affects performance appraisal system reliability. T or F?

4.5 Employees would naturally be most concerned about the content validity of theperformance appraisal system. T or F?

4.6 One outcome of a systematic job analysis is job descriptions for employees. Tor F?

4.7 Absolute standards spread employees out along a set of numerical performanceappraisal scales. T or F?

4.8 BARS systems are developed through management input only. T or F?

4.9 BARS systems help managers identify the employee traits most associated withperformance. T or F?

4.10 MBO rests on principles of expectancy theory. T or F?

4.11 Employee development goals are always secondary to company goals in MBO.T or F?

4.12 Goals generally sustain the intensity of employee effort if they are easy andfeedback is irregular. T or F?

4.13 Goals in MBO systems are set by the least senior employees and filtered upwardsto top management. T or F?

4.14 Extrinsic rewards include recognition and status symbols. T or F?

4.15 One type of intrinsic reward is non-financial compensation. T or F?

4.16 Separation of extrinsic rewards and intrinsic rewards helps managers gain ben-efits from goal-setting. T or F?



4.17 The most useful basis for the administration of rewards is a combination ofseniority and effort. T or F?

4.18 Compensatable factors are useful for determining performance dimensions inappraisal systems. T or F?

4.19 Pay secrecy influences perceptions about the reasons organisations give payrises. T or F?

4.20 Skill-based compensation can lead to a more flexible work-force. T or F?

4.21 Employees covered by a Scanlon Plan could receive bonus cheques duringperiods of declining sales. T or F?

4.22 A Scanlon Plan would be easy to install in a unionised company. T or F?

4.23 Seasonal product demand would influence a profit-sharing programme. T or F?

4.24 Group-based incentive programmes work in the long run because they empha-sise intrinsic rewards over extrinsic rewards. T or F?

4.25 Reduction in the number of job classifications in a firm would have to occurprior to the design and installation of a successful group-based incentive system.T or F?

4.26 The successful installation of a group-based incentive system would eliminatethe need for periodic salary surveys. T or F?

4.27 If a firm covers all employees by an individual stock ownership plan (ISOP) andthe firm enjoys a rising share price, the number of shares outstanding will staythe same. T or F?

4.28 The use of contract workers (temporary employees) by a firm employing aRucker Plan should have no effect on levels of employee motivation for per-sonnel covered by the plan. T or F?

4.29 Employees expect that their good performance will lead to organisational goalattainment and in turn, their individual needs and goals will be met or satisfied.T or F?


4.30 Which of the following choices does not represent a use for performanceappraisals?

A Evaluation of employee work behaviour.

B Making promotion and other reward decisions.

C Ascertaining staff development needs.

D Making termination and demotion decisions.

E Selection of likely candidates for a job from an applicant pool.



4.31 Two managers evaluate the same employee’s performance using the samesystem and rating items but obtain different results. Which of the followingchoices applies to this appraisal system?

A unreliable.

B biased.

C invalid.

D insufficient.

E inaccurate.

4.32 Which of the following forms of performance feedback is most likely to improveemployees’ performance?

A The feedback is not recorded in some way.

B The feedback is constructive and specific.

C The feedback is threatening and coercive.

D The feedback is put into writing.

E The feedback precludes discussion or evaluation by the subordinate.

4.33 Which of the following choices does not apply to a behaviour anchored ratingscale system?

A Uses specific behavioural statements which are related to core performanceareas in the job.

B Uses bipolar forced rating scale items.

C Has a clear definition of the performance dimension measured.

D Uses input from employees in the system design process.

E Emphasises job behaviours versus job attitudes.

4.34 Which of the following choices is not a feature of good practice in goal setting?

A More than 10 in number.

B Challenging.

C Related to personal development.

D Goals are feedback-linked.

E Difficult.

4.35 Which of the following choices is not a strength of group-based and participa-tory reward systems?

A Performance feedback can be channelled to individuals and to their groups.

B Work group members become more competitive with each other.

C Peer recognition.

D Member commitment and performance increase.

E Team members can be identified and prepared for leadership roles.

4.36 Which of the following choices represents why extrinsic rewards should beseparated from intrinsic rewards?

A Extrinsic rewards are more important than intrinsic rewards.

B Employees value them differently and they are influenced by job contextand job content factors.



C Employees do not believe that they have more control over intrinsic rewardsthan they do over extrinsic rewards.

D Firms try harder to influence and control intrinsic rewards than they doextrinsic rewards.


4.37 Which of the following choices is a typical reason for giving pay raises in firms?

A Performance and effort.

B Seniority or tenure on the job.

C Equal treatment for groupings of employees.

D The power and influence of groups in the organisation.

E All of the above.

4.38 Which of the following choices represents a goal of a well designed companypay practice?

A Integrate improved productivity and quality of work life issues.

B Provide rewards to the most senior employees.

C Influence the number of and availability of extrinsic rewards only.

D Generate data which can then be used in human resources decisions.

E Involve employees in as many pay decisions as possible.

4.39 Which of the following choices would improve cost control and product qualitythrough alterations in the reward system in a firm?

A Shorten the period between bonuses even if the size of the gainsharingbonus declines substantially.

B Anchor gainsharing bonuses to tangible improvements in productivity andservice quality delivered by self-directed teams.

C Firmly connect the gainsharing bonuses to the firm’s strategic goals.

D Make all changes in the incentive system based on the results of salarysurveys done in the industry.


4.40 Rosalie works for a manufacturer of hard drives. She is paid $15 an hour forassembling 30 hard drives. She is paid $.50 for each hard drive she producesover the first 30. Which choice below represents the compensation system beingused?

A Piecework.

B Pay-at-risk.

C Commission.

D Rucker Plan.

E Individual Merit Plan.




4.1 Describe how halo effect, recency error and similarity error threaten effectiveperformance appraisal practices.

4.2 What are the reasons for conducting a job analysis?

4.3 What are the major dimensions of the goal-setting process which enable man-agers to succeed in this process?

4.4 What is the value of trying to classify rewards as extrinsic and intrinsic?

4.5 What mistakes do organisations make in administering rewards?

4.6 Contrast a gainsharing and a profit-sharing plan. What are the key elementswhich must be considered when installing a gainsharing programme?

4.7 What are some advantages to creating and installing a Rucker Plan in a companyas opposed to using a Scanlon Plan?

4.8 What are the typical organisational consequences of delayering and down-sizing?

Case Study 4.1: Performance Appraisal at Work

Synergistics Ltd is a large corporation which manages sports facilities andindoor convention facilities in Europe and the United States. The company isan autonomous division of a large international hotel conglomerate. Synergisticshas recently taken over the management contract for a major sports facility inLondon. The facility specialises in a variety of sporting events such as soccer,tennis, gymnastics, and ice-skating competition. In addition, the company plansto make the facility more attractive to major product-oriented conventions formultinational companies doing business in Europe.

The previous company managing the facility had a performance appraisalsystem which was trait-based. Both employees of the facility and managersfrom Synergistics believed that the system was inadequate and a new oneshould be designed to be based on more objective criteria.

Redesign of the performance appraisal system was started by consultantswho organised a steering committee of employees who were deeply interestedin changing the system. The composition of the steering committee rangedfrom senior managers to employees who were responsible for sports field andconvention preparations. Nine employees made up the steering committee. Thisgroup revised all of the job descriptions for the fifty employees to be covered bythe new appraisal system. As a part of this task, employees were interviewedin small groups to gather their opinions about work dimensions which could bedirectly observed and assessed across all relevant jobs involving the facility. Inthis way, the following dimensions were developed:



– Acceptance of responsibility.– Productivity orientation.– Working with others.– Following safety procedures.– Applying job knowledge.– Planning time and work.

With the help of supervisors, the steering committee next developed at leastsix behaviours to support each of the work dimensions. A numerical rating scalewas developed and approved by employees. The steering committee and theconsultants produced a training manual to teach all supervisors how to use thenew performance appraisal system. In one-day training sessions, supervisorswere taught: 1) how to recognise appraisal errors, 2) how to conduct feed-back sessions properly, 3) how to set objectives in the context of performanceappraisal, and 4) how to handle employee disagreements about performanceratings. The performance appraisal system forms and administration procedureswere then pilot-tested to determine their validity and reliability respectively.

The new system has been in place since 1985 and has been well received byemployees and managers. Several managers have been promoted to higher levelpositions, and two senior managers have taken positions managing facilities forthe company in other major cities. The facility employees believe that the newappraisal system represents their job activities much more accurately. They alsobelieve that the information provided to them during the feedback sessions ismore meaningful and job-related than the information they received from theold trait-based system.

Supervisors are also pleased with the behaviour-oriented system. Most findthe new approach to be more accurate. Furthermore, they state that they aremore willing to keep accurate records in their employee appraisal work becausesubordinates are now more willing to act on the feedback they receive.

1 Why is it important that employees help to design a new performanceappraisal system?

2 What other work did the steering committee perform besides helping todesign the new performance appraisal system?

Case Study 4.2: A Swedish-American Joint Venture∗

By 1984, General Electric’s Mobile Communications Business was in trouble.General Electric’s CEO Jack Welch directed John Trani, then general manager ofGE Mobile to fix the Lynchburg, Virginia division or close it. In 1984, followinga predictable cost cutting scheme, Trani cut the work-force by 700 positionsand he froze the pay of salaried and hourly employees. Recognising that a

* Source: Excerpted from B. Filipczak, (1993) ‘Ericsson General Electric: The Evolution of Empowerment’,Training, September, 21–7. Reprinted with permission of Training. Copyright 1993. Lakewood Publications,Minneapolis, MN. All rights reserved. Not for resale.



layoff and cost cutting were only short-run moves, he fretted over ways to raiseperformance to simultaneously regain a portion of the subsidiary’s competitiveadvantage. Using a consultant named Tim Ross, who was a specialist in group-based reward systems, Trani authorised the ‘Winshare’ programme to improveGE Mobile Communications.

According to Ross, now director of Ross Gainsharing Institute in Chapel Hill,North Carolina, there are three ways to configure a gainsharing programme.First, a programme can stress the gainsharing bonus which is the cash receivedby employees when the company or division exceeds a pre-established prof-itability goal. Such a programme need not stress employee involvement or amanaged suggestion system. The second form of gainsharing also stresses thebonus, but includes some form of employee involvement. The third configura-tion for gainsharing represents a fundamental change in how a company relatesto its work-force. It contains extensive employee involvement in the areas ofproductivity enhancement and cost control. This option opens up managementcontrol systems in such a way that employees become involved in cost savingsdecisions.

At the Lynchburg plant, top managers were reluctant to adopt the employeeinvolvement portion of the gainsharing programme. Ross maintained that hehad to prod managers and executives into adopting the more substantial thirdgainsharing option. The gainsharing part of the programme created a quarterlybonus for employees based on the subsidiary’s performance. If profits rose abovea given level, the employees shared in the profits based on a pre-establishedformula developed by management. The employee-involvement portion of theprogramme was based on the idea that production line employees had themost first-hand knowledge about the utility of cost improvement suggestions.Since the average tenure for production personnel was 22 years, this assumptionwas reasonable. Reluctantly, managers agreed that production personnel werecertainly qualified to make quality improvement and cost reduction suggestions.

Soon, a system was created which gave production personnel the opportunityto make suggestions to improve production, reduce waste, streamline processes,improve vendor relations, and simplify jobs. The Winshare programme wasunique in its urgency to adopt quickly useful suggestions made by productionpersonnel. Rather than a traditional suggestion system which pumped sugges-tions into the ‘blackhole management hierarchy’, employee teams called ‘WinTeams’ were given the power and the budgets to implement the ideas them-selves.

With voluntary membership, the Win Teams quickly grew in number. Bythe late 80s, 50 teams were controlling budgets for production improvementswhich had grown from a modest $250 to over $6000 per team. Led by anelected employee, each team has the authority to discuss, modify and acceptideas. Further, without management approval, teams could implement any ideathat they decided was feasible. Managers and other exempt employees (staffspecialists) could belong to Win Teams, but their contributions were confined toresearch and facilitating interunit collaboration which may be necessary to ensurethe success of a production improvement suggestion. Only the production WinTeam and its leader can authorise final approval to implement an idea.



What started out as a suggestion system with a twist has evolved into aserious employee empowerment programme which has altered the fundamentalmanagement control system in the subsidiary. The Winshare programme hasbecome a new and important part of the company’s culture.

Due to the company’s re-emphasis on its core business (i.e., making mobileradios), the Winshare programme and earlier cost cutting schemes, the subsidiaryreturned to profitability in 1986. Ericsson, a Swedish maker of mobile commu-nications equipment was attracted to GE Mobile Communications because ofits increased competitiveness and its rapid return to profitability under Trani’sprogrammes. Making Jack Welch an offer that he couldn’t refuse, he sold 60percent of GE Mobile to Ericsson and the new joint venture was renamed Eric-sson GE. The benefit to Ericsson was a significant entry to the lucrative USmarket because the GE name on its radios and cellular phones would createstrong recognition for its products in the USA The now-highly profitable jointventure had sales of $1.1bn in 1992 and the Lynchburg plant employs over2000 employees. Apparently employee involvement and identification with thecompany has not slipped in spite of GE’s recent sale of another 20 percent ofits position in Ericsson GE to Ericsson. Production line employees take theirjobs seriously and they express great confidence in their ability to compete withaggressive companies such as Motorola. Jimmy Howerton, an associate on theproduction line sums up the attitude of the Ericsson GE Lynchburg employees:‘IT doesn’t matter what name is on the gate because this is my company.’

1 What factors seem to account for the success of the Winshare programmeat Ericsson GE?

2 What principles of effective reward system management seem to be at workin the Lynchburg facility?

3 Discuss the impact that gainsharing bonuses have on Ericsson GE employeemotivation and performance. What principles of effective reward systemmanagement seem to be at work in the Lynchburg facility?

4 Based on this example, what are five or six ways that managers can improvecost control and product quality through alterations in reward systems?

References

1 Luther, A. and Teel, K. (1977) ‘Performance Appraisal: A Survey of Current Practices’,Personnel Journal (May): 245–7.

2 Locke, E. (1968) ‘Toward a Theory of Task Motivation and Incentives’, OrganizationalBehavior and Human Performance: 157–89.

3 Drucker, P. (1954) The Practice of Management. New York: Harper & Row.

4 Herzberg, F. (1966) Work and the Nature of Man, Cleveland, OH: World Publishing.

5 Daniel, T. and Esser, J. (1980) ‘Intrinsic Motivation as Influenced by Rewards, TaskInterest, and Task Structure’, Journal of Applied Psychology: 566–73.



6 Fisher, C. (1978) ‘The Effects of Personal Control, Competence, and Extrinsic RewardSystem on Intrinsic Motivation’, Organizational Behavior and Human Performance: 258–73.

7 Ungson, G. and Steers, R. (1984) ‘Motivation and Politics in Executive Compensation’,Academy of Management Review: 313–23.

8 Milkovich, G. and Newman, J. (1990) Compensation, 3rd edn. Homewood, IL:BPI/Irwin, 530–534.

9 Vaitkus, L. (1999) (Ed.), IOMA’s Report on Salary Surveys, 2.

10 Towers-Perrin, Annual Study of US CEO Compensation Practices, 1995.

11 Lubin, J. (1996) ‘The Great Divide’, Wall Street Journal (April 11): R1, R4, all rightsreserved.

12 Hausman, T. (1996) ‘Seconds Behind’, Wall Street Journal (April 11): R4, all rightsreserved.

13 Lynn, M. (1996) ‘SmithKline Boss tops “overpaid” list’, Sunday Times, Section 2: 1,4–5.

14 Vaitkus, L., op. cit., 3.

15 Ibid, 4.

16 Hammer, W. and Hammer, E. (1976) ‘Behavior Modification and the Bottom Line’,Organizational Dynamics (Fall): 3–21.

17 Greenhaus, J. (1988) ‘Here Come Richer Pay Plans’, Fortune, (19 December): 50–8.

18 Perry, N., Black, R. and Black, J. (1994) Organizational Behavior, 5th edn. New York:Harper Collins, 228–30

19 Lawler, Edward, III (1987) ‘The Design of Effective Reward Systems,’ in W. Lorsch(Ed.), Handbook of Organizational Behavior, Englewood Cliffs, NJ: Prentice Hall, 255–271.

20 Heyel, Carl (Ed.), The Encyclopedia of Management, 2nd edn. New York: Van NostrandReinhold, 1973, 895–900.

21 Henderson, R. (1989) Compensation Management, 5th edn. Englewood Cliffs, NJ: Pren-tice Hall, 363–364.


Module 5

Job Design and Employee Reactionsto Work

Contents

5.1 Understanding Job Design 5/25.1.1 How Jobs Were Designed before QWL 5/25.1.2 Is Scientific Management Declining as a Job Design Philosophy? 5/45.1.3 Horizontal Increases: The Roles of Job Enlargement, Job Rotation

and Cross-Training5/4

5.1.4 Job Design and Herzberg’s Two-Factor Theory 5/45.1.5 The Psychology of Employee–Job Interactions 5/6

5.2 Making Use of Job Design for Individual Employees 5/95.2.1 Job Design Principles 5/95.2.2 Assessing Managers’ Interests in Job Design 5/11

5.3 The Team Approach to Job Design 5/135.3.1 How Managers Design Self-Directed Teams 5/145.3.2 Companies which Have Used the Self-Managed Work Team Concept 5/155.3.3 Merging Self-Directed Team and Empowerment Concepts 5/175.3.4 Employee Empowerment Spreads Participative Decision-Making in

the Organisation5/19

5.3.5 Limits to Participation in Organisations 5/22

Summary Points 5/23


Case Study 5.1: Alton’s Experiment with Changes in Job Range and Depth 5/27

Case Study 5.2: Building Cross-Cultural Work Teams 5/29

Learning Objectives


• Explain why levels of employee motivation and performance are related tohow jobs are designed.

• Describe the difference between jobs which fulfil higher-order needs andthose which do not.

• Explain the approaches for job design at the individual employee level.• Explain why managers continue to be interested in the effects of job design.• Correctly apply ‘rules of job design’.


Module 5 / Job Design and Employee Reactions to Work

• Trace the link between job design, employee participation and reduction ofjob stress.

• Discuss how employee personality interacts with the way jobs are designed.• Diagnose the conditions which may make employee participation effective.• Describe new developments in team-based employee participation.

5.1 Understanding Job DesignJob design is the linking of specific task behaviours to jobs. It is followed bythe application of work techniques, equipment and job control procedures tothe job and its activities. In recent years social pressures and employee dis-satisfaction with traditional methods for designing task behaviours and jobshave prompted organisations to adopt new designs which improve the ‘qualityof work life’ for employees. The concept of quality of work life (QWL) refersto the extent to which employees are able to satisfy important personal needsthrough their work experiences.1 QWL programmes also focus on improvingthe performance of employees. This can be achieved through management’sefforts to construct more meaningful jobs which enhance job involvement andmotivation. In essence, QWL programmes try to integrate employee needs withorganisational goals. QWL programmes are important but they are not the pri-mary focus of organisational improvement programmes. However, there may besignificant implications for QWL in company programmes concerned with self-directed teams, downsizing, re-engineering and delayering the company. QWLprogrammes are still important programmes in companies and their industries.Since 1990, QWL programmes have come under closer management scrutiny.They are no longer designed and implemented simply to raise levels of employeesatisfaction. Their effects are judged much more in terms of organisational pay-offs such as improving a competitive advantage like product innovation, loweredwarranty claims and improved customer service before, during and after pur-chase. This is the point: QWL programmes are valuable, but they must showa noticeable, positive effect on the bottom line as well as meet the higher-orderneeds of employees!

5.1.1 How Jobs Were Designed before QWL

Traditionally, managers used the principles of scientific management to simplifyand standardise task activities for workers. Using its principles, managers breakdown work into elements which are analysed by number and the time necessaryto complete them. The elements are reassembled into a job that is the ‘one bestway’ to accomplish the work function while minimising wasted time, employeefatigue, training costs and materials costs. Jobs designed in this way have alimited number of tasks and each is made to be so simple that the employeeneed not think about his work actions. This approach to the work design tried toensure the maximum productivity of labour so that the corporation could achievemaximum economic efficiency. The primary tools of the scientific managementapproach to job design were time and motion studies, differential piece-rate paysystems and the scientific selection of workers who possessed traits and abilities



that closely matched the requirements of the simplified jobs in the scientificmanagement scheme. The effects of scientific management on employees andthe design of work systems are noted below.

1 Limited social interaction. Due to speed requirements, noise and arrange-ments of equipment, workers may find it hard to talk or interact duringwork.

2 Low skill requirements. When jobs are designed through scientific man-agement they are specialised to keep training costs low.

3 Machine pacing. The level of output is adjusted by altering machine ratesrather than changing employee activities.

4 Job activity repetition. The same tasks are performed over and over duringthe work shift. Many jobs may require performance of an operation up toas many as 2000 times per day.

5 Task specialisation. All jobs have only a few steps and partially completedproducts are moved from one production step to the next.

6 Low employee creativity and ingenuity. Jobs based on scientific manage-ment use only a limited portion of the employee’s capacities

7 Tools and methods are pre-specified. Efficiency experts determine the bestway to accomplish work so that efficiency and production are maximised.2

While scientific management has led to the development of the modern-dayproduction methods, its implementation can create profound work adjustmentproblems for employees. Many organisations have work systems which use itsprinciples. Such organisations become over-dependent on work rules and stan-dard production rates at the expense of job control by employees. As organisa-tions and their employees drift apart over the issues of job satisfaction, productquality and labour costs, absenteeism, customer complaints, product and servicedefects may all increase while efficiency decreases. Scientific management oftencreates physical work arrangements which leave employees feeling isolated andcut off from their co-workers. Craftsmanship, pride in the finished product andproduct quality can all be sacrificed for job specialisation and productivity.

Employee work alienation caused by downsizing and re-engineering hasbecome so commonplace that managements are using features of QWL pro-grammes to shore up employee job satisfaction. Frequently the features of QWLshow up in company programmes such as use of self-managed teams, employeeempowerment and Scanlon-like plans. As job satisfaction declined under therestrictive work systems created by the application of scientific management,managers observed declines in job involvement, company loyalty, product andservice quality and productivity. At the same time, grievance rates rose, unionactivity broadened to address QWL issues and managers responded in someinstances by tightening controls and increasing the number of supervisors onproduction floors. These changes induced further worker alienation and man-agement continued to apply scientific management principles to regain efficiencyand control over employees and the work rules which governed their behav-iour on the job. The vicious circle described above has largely been broken incompanies that have adopted TQM programmes and self-directed teams. The



relationship between these programmes and QWL will be explored throughoutthis module.

5.1.2 Is Scientific Management Declining as a Job Design Philosophy?

With time, managers have realised that job designs which rely solely on scien-tific management will not sustain the growth of the organisation nor will suchdesigns create challenging work for today’s highly mobile knowledge work-ers. When applied in a simplistic and universal way, the approach leads toundesirable organisational and employee outcomes. Work-forces have changeddemographically in the last 30 years and have different expectations about themeaning of work. Work systems designers must now emphasise the balancebetween employees’ higher-order needs and the requirements of the technicalsubsystem to produce high quality goods at competitive prices. Therefore, sci-entific management is no longer viewed as a universally applicable method forrationalising all production systems. It still has its advocates and its benefits.However, as the model of efficiency based on manufacturing principles has givenway to measures of customer satisfaction, job design methods have shifted fromthe simplicity of scientific management to the complexity of self-directed teamsthat make substantive decisions about products and processes.

5.1.3 Horizontal Increases: The Roles of Job Enlargement, Job Rotation andCross-Training

Job enlargement is a method of job design that increases the number of workactivities in a job to decrease the extent of boredom and over-specialisationexperienced by the employee. Job rotation advances job enlargement by exposingworkers to a variety of specialised jobs over time. These two variations of jobdesign are based on the idea that scientifically designed jobs may be boringbecause they lack variety due to their over-specialised nature. Therefore, ifjobs have more variety, employees will be more stimulated, interested andmotivated by their work. When the principles of enlargement and rotation areapplied, variety in work is increased by adding to the number of work activitiesperformed by the employee or by shifting the employee through different jobsover time. Cross-training is a variation of job enlargement because employees aretrained in different specialised work activities. All three activities horizontallyenlarge jobs because they expand the number and variety of tasks and jobs thatthe employee can perform.

5.1.4 Job Design and Herzberg’s Two-Factor Theory

The frontal assault on scientific management job design systems has been ledby Frederick Herzberg.3 His theory of job design is referred to as the two-factortheory of job motivation and it is sometimes referred to as job enrichment.Job enrichment proposes that jobs should include motivating factors. Herzbergcontended that two separate sets of factors influence levels of job dissatisfactionand job satisfaction (and motivation). In his studies, he found that employees aremotivated by work when the motivating factors of challenge, responsibility, pride



in work, recognition and opportunities for personal growth (i.e., promotions)are abundant and attainable. Herzberg goes on to say that the absence of themotivators leads to a loss of employee initiative, increased work apathy and thecessation of employee creativity. However, this does not imply that employeesare dissatisfied by their work. Herzberg says that employees are simply notmotivated because they have no reason to form positive work expectations.Because the motivators are associated with the content of work, they are oftenlabelled as intrinsic factors or satisfiers. (See Module 2.)

Serious erosion in job satisfaction is possible if the motivators are absent andhygienes or extrinsic factors are scarce. Hygienes are those conditions whichmust exist in the context of work to maintain a condition of ‘no dissatisfaction’.They include: salary, job security, working conditions, status, company proce-dures, quality of supervision and the quality of interpersonal relations withsuperiors, peers and subordinates.

Herzberg’s work stimulated organisational efforts to improve job designsover the simplified and specialised designs created by the use of scientificmanagement. Herzberg has advanced a number of ‘principles of job design’which are briefly noted in Table 5.1.

Table 5.1 Herzberg’s principles of job design

Principles Examples

1 Give employees as much control over themechanisms of task completion as possible.

A manager allows repairmen to order partsand maintain inventories.

2 Hold employees accountable for theirperformance.

A manager conducts semi-annual, formalfeedback sessions with subordinatesconcerning goal achievements.

3 Within limits, let employees set their ownwork pace.

The company installs a flexible hours workpolicy.

4 Design jobs so employees experienceaccomplishment.

A manager gives employees the authorityto handle customer complaints personally.

5 Design jobs so employees learn new skillsand work procedures.

A company offers a seminar to teachmanagers approaches to quality control.

Herzberg argues that reducing hygiene factors is unproductive if a firm needsincreased motivation, performance and job satisfaction. Managers must maintainan appropriate level of hygiene while improving the motivating aspects of thejob. Let us look at an example of a job with a deteriorating design.

Adrian is a supervisor in a department which processes accounts receivable trans-actions and maintains an up-to-the minute record of the purchase history of allthe firm’s clients. For the last five years Adrian has seen his responsibilities growto include management briefings on the ageing of accounts receivable, overseeingthe computerisation of the data entry process, and formal authority for makingpromotion and salary recommendations. Recently his company was acquired by alarger firm. The firm’s management issued a set of policy guidelines which statedthat the ageing of accounts receivable would be taken over by the accountingdivision and all promotion and salary recommendations would now be handled bythe human resources and personnel divisions.



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

Machine maintenance man

Department head

Hospital nurse

Chemical plant supervisor

Chief of surgery

Chief executive officer

Prime minister

Director of a researchlaboratory

Assembly-line worker

Medical records clerk

Rubbish collector

Professor

Judge

Computer technician

Civil engineer

HIGH

JOB RANGE

LOW

LOW JOB DEPTH HIGH

Figure 5.1 Job depth and job range

Criticisms of Herzberg’s theory.

Herzberg’s work broke new ground for addressing job design problems. How-ever, criticisms of his work surfaced in reported research.5 The theory was ques-tioned on methodological and psychological grounds. For instance, researchersquestioned Herzberg’s use of the critical incident method which he used to askrespondents to describe those factors that they connected to being either satisfiedor dissatisfied with their jobs. Researchers note that humans tend to blame exter-nal factors when they experience dissatisfaction and they give themselves credit(cite internal or personal factors) when they experience job satisfaction. In termsof the psychological characteristics of his theory, researchers have complainedthat it is based on a theory of work motivation that is too simple.

Herzberg believed that only certain jobs should be enriched and that manyworkers preferred simple jobs. He believed that management should make alldecisions about job enrichment and that those employees who will have enrichedjobs should not participate in the process of enriching the jobs. In many ways,Herzberg’s prescriptions undermine current trends in organisations to greateremployee participation and empowerment. The unanswered questions aboutHerzberg’s theory encouraged research aimed at providing a fuller picture ofthe nature of the interaction between employees and their jobs.

5.1.5 The Psychology of Employee–Job Interactions

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



using only technical data produced by the results of scientific management.The psychological content of the job has been shown to be instrumental indetermining employee reactions to work. Job content refers to the subjectiveaspects of the job and the social setting in which it is performed (as perceivedby the job-holder). The subjective and objective qualities of a job must bedistinguished to have a full understanding of how they affect employees.4

It is now accepted that perceptions of job content precede job performance.Employees make conclusions about the presence or absence of job contentfactors prior to attaining some performance level. It then follows that managerscan influence job performance by changing job content.

The Components of Job Content

Widespread agreement now exists for six job content factors which have beenlabelled as core job dimensions (see Figure 5.2).6 Table 5.2 provides the definitionsof each core job dimension. Skill variety, task identity and task significance areexamples of job range. Autonomy and feedback represent job depth while socialopportunities represent the employee’s perceptions of interpersonal relations inwork. From Figure 5.2 it is apparent that the job content factors determine thecritical psychological states.

CORE JOB DIMENSIONS

(JOB CONTENT FACTORS)

CRITICAL PSYCHOLOGICAL

STATES

PERSONAL AND WORK

OUTCOMES

Experienced

meaningfulness of work

Experienced responsibility

for work outcomes

Knowledge of results of

work activities

High internal work motivation

High quality performance

High job satisfaction

Low absenteeism and turnover

Skill variety

Task identity

Task significance

Social opportunities

Autonomy

Feedback

GrowthNeedStrength

Figure 5.2 The job characteristics model

Critical Psychological States

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



Table 5.2 Job content factors

Skill variety: The extent to which the job requires a number of different skills, talents andabilities to accomplish task activities. Jobs which require both technical and interpersonal skillspossess high skill variety (lawyer, social worker, etc.).

Task identity: The degree to which the job requires doing a complete task from beginning toend and experiencing a visible and identifiable outcome (e.g., being responsible for all steps ofproduct assembly).

Task significance: The degree to which the job has a substantial and lasting influence on thelives of employees and other people, both in the immediate organisation and in society.

Autonomy: The degree to which the job gives the employee personal freedom and discretionto control work activities and schedules.

Feedback from the work itself: The degree to which the job itself provides direct and completeinformation on the effectiveness of employee work behaviour.

Social opportunities: The extent to which the job allows the employee to have social contactwith friends and requires interaction with others to complete the work.

combine to create opportunities to satisfy higher-order needs (personal growth,advancement, recognition, challenge etc.). Feedback from the work itself deter-mines knowledge of results, which is defined as receiving information about thequality of one’s work as the task unfolds.

The critical psychological states are employee reactions to the job content fac-tors. They represent the employee’s readiness to become physically and mentallyinvolved in his work. When all of the states occur for employees, they preferto do a good job and are disappointed when they are not successful at varioustask activities. When all three states are operating, employees are guided bytheir personal standards of performance excellence and they are fully involvedin their jobs.

The model in Figure 5.2 indicates that the employee’s growth need strengthhas a moderating influence on the relationship between the employee’s joband his experienced work outcomes (and those valued by the organisation).This individual quality refers to a cluster of higher-order needs including 1)achievement, 2) power, 3) independence and 4) personal control. It influencesthe basic relationships in the model.

How Does Growth Need Strength Work for Employees?

Consider an employee with high growth need strength (a person who is highlymotivated by challenging work and who prefers to make independent job deci-sions which can lead to advancement) whose job has low growth potential. Hewill exhibit low internal work motivation, erratic or low performance, job dis-satisfaction and perhaps absenteeism (see Figure 5.2). This individual’s job is adefinite candidate for job design because the employee’s orientation to achieve-ment and challenge makes changing the core job dimensions highly worth while.In effect, the job has little intellectual content. An employee may possess lowgrowth need strength and his job may be impoverished in core job dimensionterms. This situation would preclude job redesign because the employee is prob-ably not interested in satisfying growth needs at work. He has probably foundsome way to satisfy these needs outside the work setting. This situation is reallyan example of a poor employee selection system and a poor job design system.



The above discussion indicates the importance of individual differences injob design. Employees with low growth need strength do not prefer jobs withextensive job content factors. Job design expenditures will achieve equivocalresults under this condition. Job design is effective with workers having highgrowth need strength working at jobs with few job content factors.

5.2 Making Use of Job Design for Individual Employees

Job design practices consistent with the job characteristics model provide oppor-tunities for employees to satisfy their higher-order needs. For employees whoprefer challenge and meaningful goals in their work, it is extremely importantfor them to fulfil their growth needs through the proper design of their jobs.

The job characteristics model has advantages over Herzberg’s two factortheory because it is a more valid way of describing how employees interactpsychologically with their jobs. Second, it pinpoints job content factors whichmay be in need of change. Finally, it shows how new job designs can lead toimprovements in employee motivation, job satisfaction, performance and othervalued organisational outcomes.

5.2.1 Job Design Principles

Basic job design principles can improve employee motivation and performancethrough horizontal job loading. Job range can be expanded by applying jobrotation, job enlargement and cross-training to the work of employees. As notedearlier, these three job design principles require the employee to handle more jobactivities, perhaps at different times, related to a core work activity. Expandingan employee’s job range by using job rotation may decrease his boredom onthe job. Job rotation may not result in sustained improvements in employeemotivation and job satisfaction if the activities involved in rotation are highlysimilar. For example, restaurant employees may not be much more motivatedin the long run whether they are given the opportunity to wait on tables, cleantoilets or wash dishes.

Job enlargement may be a more effective job design principle because itchanges the nature of work by trying to eliminate the over-specialisation createdby scientific management. Jobs are expanded to include those tasks related tothe core work activity performed by an employee. Instead of being rotated fromone task to another, the employees are given jobs with greater task identity. Anexample of job enlargement could be the replacement of machine control of workpace with employee-determined work pacing. Job enlargement makes greaterdemands on employees than job rotation. It frequently requires employees toacquire new skills as tasks are added to expand the basic nature of jobs. Inmany respects, employees must be willing to accept more responsibility.

Cross-training practices called skill-based learning, where employees can earnbonuses and rises when they acquire new work skills, can make employeesmore versatile. Such programmes do increase the expertise of the work-force.However, they also create pressures on the pay system.



After 30 years of experience in job design, a number of dependable principleshave emerged for improving organisational and individual outcomes of jobdesigns. The most sustained improvements from job design seem to emergefrom principles loosely described as vertical job-loading. This expression refersto those changes which influence the planning and doing components of work.When an employee experiences more control, autonomy, challenge and directresponsibility over work outcomes, then the job has been vertically loadedor expanded. This could also be called increasing job depth. Vertical loadingmethods for increasing job depth are noted below.

1 Employees should be provided with direct feedback on their performance.Jobs should be designed so that employees can be their own quality controlinspectors. Formal performance reviews should be scheduled and informalfeedback should be frequent.

2 Employees should be given an opportunity to learn new skills. Theemployees need to have an opportunity to expand their work aptitudesand competencies.

3 Employees should be able to influence the scheduling of work. An exam-ple is a flextime programme that requires all employees to work the corehours of 10 a.m. to 2 p.m. However, based on individual needs, they canvary work arrival and departure times as long as they work the requirednumber of hours each week.

4 Each job should be given some unique qualities which differentiate itfrom other jobs. This means the job should fit the personality of its holder.

5 Employees should have control over job resources. For repairmen, thismay mean letting them service their own equipment or maintain their ownparts inventories.

6 Personal accountability should be increased. This means employees shouldbe held accountable for the outcomes they achieve at work.

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

Other Approaches to Job Design

There are other approaches to job design. These invoke some of the principlesof job design noted above. Some of these trends are described below.

Four-Day Work Week.Many organisations allow employees to work four 10-hour days to create a three-day weekend. While some productivity gains canoccur in these programmes, the more frequent effects include higher accidentrates and employee fatigue partly because many employees who work underthis arrangement are able to add a second job to supplement their incomes.



Job-Sharing.In job-sharing, two employees fill one job. The concept allowsmothers to work as they raise their families. Shared jobs often result in lessboredom and less fatigue. In addition, the organisation often gains greateroutput from two employees sharing a job than from a single employee fillingthe position. The organisation also may benefit from lower fringe benefits costs,although the administration of fringe benefits plans can become slightly morecomplex when job-sharing is widespread.

Telecommuting. In telecommuting, work is performed with computers byemployees in their homes. In the United States over two million people currentlyperform their jobs in this fashion. Telecommuting is a joint effort of the employeeand the organisation to create a better fit between the employee’s personal needsand the organisation’s task demands. By the year 2000 this number is expected torise to 10 million.7 While employees enjoy having the choice of telecommuting,they note that there are some problems in it. For instance, home-based workersnote that they lose the regular contact with other employees in the office setting.Some workers fear that they may lose promotion opportunities and that theirsalary rises may be less than those of their office-based colleagues. From theorganisation’s viewpoint, telecommuting may encourage employees to slack off.To the extent that these issues are resolved, telecommuting will become morecommon because it does significantly reduce for the organisation the costs ofsupporting an employee.

Flextime. In flextime, employees determine when they arrive at work andwhen they leave. Employees in flextime systems typically work a set of corehours each day, perhaps 10 a.m. to 2 p.m., and they must work a specific numberof hours each week. Beyond that, they are free to set their arrival and departuretimes based on their personal needs and the work requirements of their depart-ments. The benefits claimed for flextime are numerous. Organisations using thesystem state that they have lower absenteeism, increased productivity, reducedovertime expenses, greater employee job satisfaction and fewer episodes of traf-fic congestion at work facilities. Employees do respond favourably to flextimebecause it is, in a sense, a form of vertical job loading. Employees are givencontrol of a major job decision, namely when they come to and when theyleave work. Flextime works well for jobs that are manufacturing based and donot require extensive customer interaction. It is not a viable option in serviceorganisations that need to have employees at predetermined service locationsprepared to greet customers or to handle their requests.

5.2.2 Assessing Managers’ Interests in Job Design

The dual goals of improved organisational effectiveness and satisfaction ofemployee needs ensure managers’ continued interest in new approaches tojob design. More competition, increased use of technology, improvement in jobdesign methods, better understanding of the implementation process and greaterdependability of results of job design programmes are all influencing managersto try job design in their organisations. Hackman offers four reasons why theinterest in job design will continue to grow:

1 Work design alters the relationship between people and their jobs. The



job depth quality of job design expands the number of available intrinsicrewards.

2 Job design directly changes behaviour since it focuses on what employeesdo instead of what they feel (emotions). This sort of change is moredurable.

3 Job design offers opportunities for initiating other changes. A successfuljob design effort encourages more flexible employee attitudes and employeescan become more innovative in their work.

4 Job design helps organisations better satisfy employee needs. Scientificmanagement job designs curtail opportunities to satisfy higher-order needs.Improved feedback on performance and greater acceptance of responsibilityraise employees’ achievement aspirations.

What Problems Can Occur in Job Design Programmes?

If job design were easy, all organisations would have their own functioningprogrammes. A variety of obstacles can stand in the way of successful jobdesign innovations. Common obstacles are noted below:

1 Technology. Many jobs cannot be designed to eliminate the effects ofmachine pacing and repetitive work. The economic savings of assembly-linejob designs may be so great that the organisation can be profitable evenwith employee job dissatisfaction and high turnover.

2 Programme start-up and maintenance costs. The full costs of sustaining ajob design programme can force an organisation not to initiate or to endits job design programme. Frequently job design is introduced when thecompany is doing well and profits are robust due to expanding sales. Whenstorm clouds gather on either of these horizons, the first organisationalcasualty is often the job design programme. Downsizing and re-engineeringprogrammes designed to reduce costs may quickly undo the benefits of ajob design effort.

3 The failure to consider employee preferences. A job design programme canfail because it does not account for the needs of employees. In particular,programmes designed and implemented by management without signifi-cant employee input are quite susceptible to failure due to low employeecommitment. This danger has actually declined in importance during thepast 10 years. This is true because TQM, employee empowerment andself-directed team programmes use principles of job redesign. Their overallprogramme goals may differ, but the methods of job enrichment and jobredesign are evident in these programmes.

4 Managerial and union resistance. Managers must delegate authority in anumber of ways to make a job design programme work. This requirementmay compromise the autonomy of some managers: therefore they will resistjob changes which focus on altering the job depth of their subordinates. Fur-ther, unions may be reluctant to endorse job design for economic and unionsolidarity reasons.8 This form of resistance has also declined substantiallyduring the past 10 years. Job insecurity caused by downsizing and restruc-turing have lowered both forms of resistance. Additionally, the globalisation



of production assets has made it easier for managements to shift productionto subsidiaries that have little labour unrest from those facilities that maybe undergoing labour turmoil.

5.3 The Team Approach to Job DesignAutonomous work groups represent a team approach to job design. Thisapproach flows from socio-technical systems theory which represents a sys-tematic effort to reconfigure the way organisations integrate employees and thetechnologies they use to accomplish work. The general framework for socio-technical systems theory was developed and advanced by the Tavistock Instituteof Human Relations in London.

The socio-technical systems theory is composed of two elements: the socialelement represents the social and interpersonal aspects of task group behaviourat work and the technical element refers to the operational, equipment and tech-nical/mechanical processes used by task groups to get their work done. Thus,socio-technical systems theory integrates two opposing forces in the design ofwork: 1) the scientific management and productivity emphasis on specialisationand 2) the human needs and interpersonal relations aspects of the behaviouralsciences concerned with human development in the workplace.9

Researchers at Tavistock conducted studies which laid the groundwork forthe autonomous work team concepts which would be adopted later by industryin Europe and America. Trist and Bamforth studied the effects of technologicalchange in British coal-mining operations.10 Before the technology of coal-miningwas changed, miners worked in teams having considerable autonomy to estab-lish work-pacing and social interaction. The introduction of mechanical methodsfor gathering coal focused on task specialisation and inflexible work routinesand led to the break-up of the tightly knit teams of miners. The technologi-cal innovation was designed to enhance productivity. It was a failure becausethe work design failed to account for the miners’ needs for sustained socialinteraction in their work.

This study and others conducted by Tavistock staff experts led to the conclu-sion that the technical and social work systems are so interdependent that workdesigns must be built which account for their interplay. The basic building blockin such designs is the autonomous work group which has the qualities notedbelow.

1 The group is assigned a whole task, in which the mission of the group issufficiently identifiable and significant that members find the work of thegroup meaningful.

2 Each worker in the group possesses a number of the skills required for com-pletion of the group task, and so the flexibility of the group in carrying outthe task is increased. When individuals do not have a robust repertoire ofskills initially, procedures are developed to encourage cross-training amongmembers.

3 The group is given autonomy to make decisions about the methods bywhich the work is carried out, the scheduling of various activities, the



assignment of different individuals to different tasks and, sometimes, theselection of new group members.

4 Compensation is based on the performance of the group as a whole ratherthan on the contributions of individual group members.11

Several qualities can emerge in functioning autonomous work groups. First,they may be cohesive because members have a high frequency of interac-tion in their work arrangements. Cohesiveness may also be fostered becauseautonomous work groups are given the responsibility to select new membersand train them in work methods.9

The cross-training of members is usually accomplished with greater effec-tiveness by the autonomous work group than by the organisation at largebecause members are simply closer to the tasks performed. These groups realisethat interchangeability of members is a key to sustained productivity. Mem-bers of such groups may also acquire group managerial skills more quicklysince autonomous work groups may have rotating leadership positions. Closelyrelated to the productivity issue is the emergence of performance expectationsin autonomous groups which resemble organisational performance requirementsmore closely. Since rewards, bonuses and pay rises are contingent on group per-formance, members come to value interdependence and collaboration in theirwork. They quickly learn that these are the work behaviours which make thegroup more successful in meeting its product quantity and quality challenges.

5.3.1 How Managers Design Self-Directed Teams

In the 1990s, the autonomous work group concepts based on socio-technicalsystems theory have been transformed to the self-directed team initiative. Self-directed teams are formal work groups made up of members who are jointlyresponsible for ensuring that the team accomplishes its goals and who leadthemselves. Managements can follow some well-accepted principles for design-ing self-directed work teams. These principles are based on extensive research inthe areas of socio-technical systems theory and widespread use of self-directedteams in both service and manufacturing organisations. Typically, the companiesinterested in setting up self-directed teams must consider the following: 1) cre-ation of high performance norms, 2) minimising or channelling group conflictto useful ends, 3) creating satisfying interpersonal relations and 4) integratingcharacteristics of the technical work system into the structure of the group.The following prescriptions have been offered by Hackman for designing self-directed teams.

1 The team should be relatively small (8–20 members) so that group member-ship may be psychologically meaningful.

2 Team-centred interventions such as sensitivity training should be avoidedbecause such efforts may alter group climate and reduce task effectiveness.In other words, if teams are to receive training, it should be in work skillareas or cross-training.

3 The pay system should be structured so that individual pay is determinedby team performance.



4 The role of the supervisor should be changed from vertical liaison withhigher management to horizontal integrator of other work teams.

5 The team should be given the authority to plan, organise and control adefined piece of work and be responsible for both the quality and quantityof its performance. This is an expanding job range and job depth for theteam.9

5.3.2 Companies which Have Used the Self-Managed Work Team Concept

Due to the popularity of self-directed work teams, organisations are coiningnew names for their team-based efforts to organise work. They are called self-managed teams, semi-autonomous work groups, empowered teams or cross-functional teams. The integrating principles among them is that they are apermanent part of the organisation’s structure and their members have substan-tial responsibilities for a variety of team management and team work processdecisions. In sum, the teams assume responsibilities formerly handled by super-visors and middle managers. Their new responsibilities include: training anddevelopment, quality control, performance evaluation, personnel interviewingand selection for possible hiring, work scheduling and control and discipline.A mature self-managed team could be expected to perform the following tasks.Members will:

1 Evaluate each other’s performance, using peer appraisals.2 Cross-train each other until all members are familiar and competent to

perform all related jobs assigned to the team.3 Schedule work and assignments within the team, which could be based on

flextime or four-day 40-hour work arrangements.4 Divide work assignments to fit the needs of team members.5 Monitor team performance, make corrective changes in work processes and

equipment utilisation and report the results of these activities to highermanagement.

6 Apply TQM principles and service quality improvement activities to allphases of the team’s work.

The principles noted above have been applied to the work arrangements atNew United Motor Manufacturing (NUMMI) which is a joint venture betweenToyota and General Motors in GM’s Freemont, California plant. After being shutdown due to labour problems in 1982, it re-opened as the joint venture in 1984and it initiated operations which were heavily dependent on the self-managedteam concept. Prior to its 1982 closure, the plant had developed a reputationfor having high levels of absenteeism, alcohol and drug abuse among workers,and very poor productivity and product quality. Re-opening in 1984 with over60 per cent of the original employees, the plant also had a diverse work-forcemade up of 26 per cent Hispanics, 20 per cent blacks and 15 per cent females.After joint evaluation by management and United Auto Workers Union (UAW)officials, 2200 new employees were added. Union conditions attached to re-opening the plant required the joint venture to offer ‘compelling reasons’ forrejecting a candidate and that an arbitration process be established to handle



disputes over selection. The NUMMI system has many organisational and workfeatures which support the self-managed team concept:

1 Employees are carefully screened and selected after a three-day assessmentprocess which includes individual and team interviews, exams and problemsimulations.

2 A four-day orientation programme for new employees includes team con-cepts as well as principles of cross-training.

3 New employees sign a contract which specifies the principle of job security.4 Examples of status such as management-only dining rooms and parking

facilities were removed.5 Top management advanced the principles of trust and respect through the

mechanism of self-managed teams.6 A suggestion system with a rapid feedback system was installed and 95 per

cent of all suggestions are accepted in some form.7 Jobs were integrated to eliminate excessive job specialisation and to facilitate

repairs and product quality.8 Recognition and financial incentives for successful suggestions were team

based and meaningful.9 Wage compression in self-managed teams allowed team leaders to earn only

$0.40 more per hour than team members.10 Plant management shared with self-managed teams information about plant

performance, product quality and plant safety.11 A philosophy of integrated manufacturing which utilised standardised

work, just-in-time inventory management, preventative maintenance per-formed by self-managed teams and job-centred quality control.12

Once these 11 principles were installed at NUMMI, the performance compar-isons of the new system and the pre-1982 system were remarkable. Absenteeismfell from 25 per cent to 4 per cent. Worker complaints fell from 5000–7000 dur-ing a pre-1982 three-year contract period to just 100 in an 18-month period after1987. By 1991, the rate of employee participation in the suggestion system hadtopped 85 per cent. Most importantly, quality and productivity levels had risendramatically. For instance, a Consumer Reports reliability survey found that theNUMMI facility produced cars with a reliability coefficient 37 per cent higherthan comparable GM plants. Car owner surveys also found that NUMMI autoswere about 10 per cent more reliable. Finally, hourly paid workers and salariedworkers at NUMMI were on average 48.5 per cent more productive than theircounterparts at other comparable GM plants.12

According to Massachusetts Institute of Technology (MIT) researchers, NUMMIhad succeeded in creating a ‘lean production system’.12 The success of theNUMMI facility and other efforts to build team-based work systems in com-panies have helped spark interest in the current re-engineering tidal wave whichis sweeping through organisations in the manufacturing and service sectors.Researchers have identified several elements of lean production systems whichrely on team-based work systems. They are shown below.



1 Elimination of buffers or inventory, including extra workers.2 Quality and efficiency are seen as positively related, with quality pre-

eminent.3 Emphasis on ability to change quickly from one product to another.4 Multi-skilled workers with a good understanding of the production process.5 Higher level of training.6 Commitment to retain highly trained workers.7 Compensation that is partly contingent on corporate, plant and/or individ-

ual performance.8 Reduction of status barriers.9 High-commitment work practices.12

Experts on lean production systems and organisational re-engineering con-cluded that the NUMMI system transfers the maximum number of tasks andresponsibilities to those workers actually adding value to the car on the line.This, in turn, creates teamwork among line workers and a simple but com-prehensive information display system that makes it possible for everyone inthe plant to respond quickly to problems and to understand the plant’s over-all situation. Workers respond only when there exists some sense of reciprocalobligation, a sense that management actually values skilled workers, will makesacrifices to retain them and is willing to delegate responsibility to them.12

5.3.3 Merging Self-Directed Team and Empowerment Concepts

The nine principles of re-engineered, lean production systems are suggested inFigure 5.3. It shows that basic responsibilities for controlling self-directed teamwork activities have moved from the traditional supervisor and middle managerto the team. As Figure 5.3 shows, the need for first-line supervision diminishesbecause the self-managed team absorbs most of the activities formerly performedby department heads, supervisors, foremen etc.

Major job re-engineering efforts to create lean production systems have helpedmove forward the process of employee empowerment. In this process organisa-tions share decision-making power with employees to make decisions of higherquality in less time. Employees receive more authority and, with time, they cangain skills, competence and self-confidence in their work. Quite often, empower-ment occurs in the context of self-directed team work designs. The organisationalfoundations for employee empowerment and self-managed teams can be foundin Likert’s ‘System 4’ organisation (see Table 5.3). This organisational designprovides the rationale for work-force empowerment because it lays the ground-work for a participative, supportive work environment which is essential to thedevelopment of a team-based work design. Second, organisations which adopta ‘System 4’ design have often just installed new production methods and tech-nology and they find that such innovations create pressure to overturn old worksystems based on specialisation and principles of scientific management. Old,inefficient job designs based on limited employee decision-making are simplyswept away because they do not match new technologies. Further, any companycan adopt new technologies to attempt to create a new source of competitive



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

Centralised, traditionalhierarchical control systems

Executive

Middle manager

Decentralised,Systems 4 control structure

empowerment-based

Executive

Middle manager

Supervisor Team

Supervisor Team leaderplan and schedule work

assign jobs and tasks

manage customer relations

train and develop workers

evaluate performance

screen applicants

discipline, hire and fire

perform quality control

Work unit Self-directed team

Figure 5.3 Self-directed teams are replacements for a traditional control structure

Preconditions for Worker Empowerment

Team-based work systems are the only logical choice for organisations that adaptlean production systems and re-engineered work designs. Yet, such improve-ments may fail if employees do not meet three prerequisites for empowerment.13

The first is the capability to become psychologically involved in participativeactivities. In cultures which value hierarchically based authority systems, inno-vative organisations which seek the advantages of an empowered work-forcewill be challenged to convince employees that participation is both acceptableand desirable. The second prerequisite is that employees must have the moti-vation to act autonomously. People who are internalisers are more likely to usesources of internal motivation to guide their work decisions while externalisersare much more likely to approach supervisors for guidance on work-related deci-sions. A paradox is apparent here. Autonomy and initiative (internal locus ofcontrol) are building blocks for empowerment, but an internaliser’s motives forsuch actions may undermine his team’s decision philosophy and work design.Thus, in highly effective self-managed teams there is always a dynamic tensionbetween the autonomous member’s needs for individuality and the team’s needsfor co-operation, compliance and consensus. Such teams are effective becausethey have found the proper balance in developing the identity of members andsubordinating members’ identities to the collective will of the team. The third



prerequisite to empowerment is the capacity to see the relevance of participationfor one’s own well-being. Often, this requires that team members take a longview of the development of personal proficiencies and job skills. Members ofempowered self-directed teams need to believe that the organisation is com-mitted to them and their well-being. The two most powerful expressions of thecommitment of organisations to their employees are found in their guarantees ofjob security and their use of team-based reward systems such as profit-sharingor gainsharing.

5.3.4 Employee Empowerment Spreads Participative Decision-Making in theOrganisation

In many ways, participation in decision-making by employees is a core elementof job design. Participation is the active involvement of employees in makingdecisions about issues affecting them on the job. From the individual employee’sstandpoint, participation has three important features:

1 Psychological involvement. When employees are involved in making work-related decisions, they are often absorbed in what they are doing. They areactivated mentally and stimulated by the challenges inherent in their work.Work excellence cannot be achieved by only physical involvement in work.Work can be accomplished with only physical involvement, but employeeswill not be mentally interested in what they are doing. There is also ahuge difference between psychological involvement and ‘looking busy’.Employees who are engaged in the latter behaviour are not satisfying theirhigher-order needs through work. Looking busy is a behaviour designed tofend off the attention of supervisors. It is a form of avoidance behaviourintended to help employees ‘escape’ their superiors’ attention.

2 Motivation to contribute. Participation encourages employees to make per-sonal contributions to their organisations. When the organisation’s socialsystem meets the employee’s belonging needs, and the technical work sys-tem presents him with challenging and meaningful work, the conditions areright for creating the motivation to contribute. Another way of saying thisis: intrinsic rewards help employees internalise the motivation to contribute.When employees are ‘instructed’ to participate, managers get uninspiredcompliance. Employees acquiesce to pressure from managers who insistthat they be involved in decision-making. It then follows that employeesexperience low commitment and acceptance of organisational goals. Com-pliance is a one-way passive response from employees. Participation is atwo-way process which links the various levels of the organisation’s hier-archy together. When motivation to contribute is widespread, employeescreate ideas and ‘push them up the hierarchy’.

3 Acceptance of authority. When employees experience the greater controlthrough participation, they become more willing to accept delegated author-ity. Often they come to expect that more authority is delegated to them.When employees can decide how to get work done, they have more owner-ship of their jobs. When acceptance of authority is embedded in an emphasison teamwork, employees come to depend on their team members more. This



increases collaboration and greater innovation and provides employees witha wider base for need satisfaction. Therefore, acceptance of authority cancontribute to teamwork. This principle operates clearly in fully functioningself-directed teams.

The Qualities of an Organisation which Uses Participation Effectively

The qualities can be best identified by articulating the differences betweenLikert’s ‘System 1’ and ‘System 4’ organisations.14 A System 1 organisation isone that ignores the importance of teamwork in organisational effectiveness.The System 4 organisation places teamwork at the core of organisational design.Table 5.3 contrasts the differences between these two forms of organisation.

Table 5.3 Contrasting the participative and non-participative organisation

The non-participative organisation The participative organisation

(System 1) has: (System 4) has:

1 Leadership which does not value or instilconfidence and trust. Superiors andsubordinates do not solicit each other’sopinions.

Leadership that instils confidence and trust.Superiors and subordinates freely discussproblems.

2 Motivation systems which operate only onlower-order needs. Motivation may bebased on threats of job loss.

Motivational systems which tap the fullhierarchy of needs and their relatedrewards.

3 Communication which only flowsdownward and it is subject to distortionand inaccuracies.

Communication which flows in all directionswith clarity and accuracy.

4 Subordinates who are not involved ingoal-setting.

Subordinates who are highly involved ingoal-setting.

5 Decision-making which is concentrated atthe top of the organisation.

Decision-making which occurs at all levels.

6 Control processes which are centralised. Control processes which are dispersed andemphasise self-control.

7 Performance standards which are low andpursued passively.

Performance standards which are ambitiousand pursued with energy.

Considerations for Managers who Wish to Use Participation and EmpowermentEffectively

Managers must be willing to meet certain organisational and personal prerequi-sites before they try to ‘democratise’ their organisation. Let us consider some ofthese prerequisites.

1 Employees must be trained to be effective members of empowered, self-directed teams. Clearly, empowerment and self-directed teams cannot beinstalled under emergency or crisis conditions.

2 Managers must believe in, and practise the principles evident in the System4 organisation. This necessitates a profound shift in the manager’s job. Hemoves from being a source for decisions to being a coach for self-directedteams and an integrator of self-directed team activities.



3 Managers must firmly believe that employees have or that they can developa high growth need strength. This belief is central to successful empower-ment programmes.

4 Employees must view participation as a central feature of their orientationto work and professional development. If participation is an intrusion, thenemployees will experience participative work activities as distracting.

5 Employees must have the ability to attack problems which are best solvedthrough participative means. The skills necessary for effective participationare different from those intellectual and conceptual skills that are requiredfor solving technical issues. Employees should receive training in both areasof problem-solving.

6 Employees must use common organisational terminology when they aregiven the task of solving problems participatively. In some respects, exten-sive departmentalisation (the grouping of similar tasks together) in an organ-isation undermines participation.

7 Managers and employees must accept the fact that programmes of empow-erment, self-directed teams and introduction of new technologies are allfacets of creating and sustaining competitive advantage. The failure oforganisations to renew themselves through these processes can only lead todeclining profitability (less competitive companies) and increasing economicinsecurity for workers.

Alternatives to a Fully Empowered, Participative Organisation

Several organisational variations can be installed which do not require an organ-isation to be totally participative. The Scanlon Plan is a system which sets up aseries of interlocking employee committees for: 1) reviewing work procedures,2) evaluating suggestions for improving productivity and cutting costs and 3)involving employees in production decision-making. (See Module 4, section4.4.1.) A Scanlon Plan allocates group-based bonuses to employees who are ableto exceed a historical standard for product output, total labour hours, materialsusage etc. The standard is based on production information and it should bestable and widely understood by employees and managers. The work groupscovered by such a programme participate in a bonus system which also reservessome money for productivity gains for periods when the work group is unableto exceed the historical standard. Also, a portion of the gains are set aside forthe company. In most programmes, the employees receive at least 50 per centof the money from the accrued savings.

The Scanlon Plan also depends on productivity improvement suggestionsfrom employees. These suggestions originate in production committees whichare composed of supervisors and their employees. Scanlon Plans call for ascreening committee which evaluates suggestions requiring large amounts ofmoney for implementation. The screening committee is composed of managersand employees. Benefits of Scanlon Plans include greater employee participation,wider acceptance of changes in work procedures, increased output and efficiencyand better worker-management relations.



5.3.5 Limits to Participation in Organisations

Organisational arrangements and control systems can make the use of empow-erment, self-directed teams and participation expensive and time consuming toinstall. Some organisations may have good reasons for avoiding these innova-tions. Some of the logic of this avoidance is summarised below.

1 The industry in which the firm is located has high entry barriers andits customers are very loyal to the industry’s firms and their products.This circumstance could be strengthened if the industry enjoys governmentprotection in the form of tariffs.

2 Global competitors tend to overlook the industry because it is too small, orthe firms in it have excellent product and process protection through trademarks, patents and licences.

3 Worker productivity gains can still be achieved without greatly increasingcapital intensity.

4 The organisation already has lean staffing systems. This means that theorganisation has few management layers.

5 Employees’ jobs are specialised and their work is controlled by standardrules and regulations.

6 Organisations may not have employees of sufficient ability to solve problemsthrough participation. If they are allowed to participate in decision-makingand they produce inferior solutions, they then have more job stress.

7 Some employees may have insufficiently strong growth need strength; there-fore they are inclined to avoid participation at work. Only employeeswith high growth need strength can be expected to respond positively toincreased job depth (empowerment and participation).

8 Heavily unionised organisations may find it very difficult to redesign jobsin such a way that self-directed teams, empowerment and participation aresuccessful. In 1995, General Motors had to give in to the autoworkers’ unionbecause they refused to accept the company’s plan to outsource more partsproduction work. The union argued that this decision took jobs away fromunion members and its 140 000 members walked off the job. GM lost $50million per day in net profits during the 13-day strike. The success of thestrike was a strong blow to the company’s plans to lower costs by shiftingproduction work to vendors.

9 Installation of participation and empowerment is often accompanied by lay-offs of lower and middle managers. While the lay-offs may reduce costs,they may also deplete the organisation’s managerial resources. If a companyenjoys robust demand for its goods and services, it may have trouble fillingnew management positions from inside the organisation.

10 Organisations may start participation and empowerment only to lose theirway because the process of change becomes an end in itself rather than ameans to improve performance, productivity and quality. This ‘means-endsinversion’ is possible in organisations that install new systems which arenot firmly linked to a well-articulated strategic plan.



In summary, participation, empowerment and self-directed teams are keymethods for increasing competitive advantage through more effective employ-ment management practices. These innovations rest on the System 4 organ-isational pattern and the changes necessary to support self-directed teams.Organisations can increase their competitive advantage by adjusting their work-force practices based on the principles of participation, empowerment and self-directed teams.

Summary Points

• QWL (quality of work life) programmes have become more common inindustry and they represent organisational efforts to help employees satisfyimportant personal needs through their work experiences.

• Scientific management is the traditional approach to job design which breaksjobs down into their elements and recombines the core elements to createthe most efficient job design. It always results in more specialised andsimplified jobs. It is often associated with employee alienation, turnover,absenteeism and lowered production quality.

• Herzberg’s two-factor theory proposes that the absence of hygiene leads tojob dissatisfaction while the presence of motivators leads to job satisfaction,motivation and performance, if hygienes are present. While Herzberg’stheory has been criticised on research grounds, it was the first significantdeparture from scientific management as a method for job design.

• Job range refers to the number of tasks performed by an employee, whilejob depth is the amount of discretion the employee has to select variousjob procedures to accomplish work. When these two principles are appliedto job design, they are referred to as horizontal and vertical job loadingrespectively.

• Employee perceptions of job content factors (Herzberg’s motivators) arebelieved to precede job performance. Therefore, managers must be alert toopportunities to enhance the motivating potential of jobs.

• Job content factors are skill variety, task identity, task significance, socialopportunities, autonomy and feedback.

• Employee growth need strength is an individual difference composed ofachievement, interest in work, challenge, desire for independence and per-sonal control over work. It is a moderating factor which must be consideredprior to attempting changes in job design.

• Job rotation increases levels of employee skills by moving them from onejob to a related one for a given period of time. Job enlargement expandstask identity by adding related tasks to the employee’s core work activity.Managers may resist efforts to change job designs because they are unwillingto delegate authority.

• Self-directed teams are organisational arrangements which integrate thetechnical and social aspects of group work. Countless companies are adopt-ing this type of job design to exploit new forms of competitive advantagebased on improvements in the design of work.



• Empowerment is the sharing of decision-making power by the organisa-tion with its employees. It is commonly found in companies that supportparticipation and exhibit features of System 4 organisations.

• Participation is composed of three elements: 1) psychological and physicaljob involvement, 2) motivation to contribute and 3) acceptance of responsi-bility.

• System 4 organisations use participation and empowerment in job designsto raise individual and work team effectiveness. Managers who wish touse participation more effectively must value participation and also mustgive employees the opportunity to become accustomed to the behavioursrequired by participation.

• The Scanlon Plan is a form of managed participation which focusesemployees’ attention on receiving group-based rewards for achieving pro-ductivity gains.

Review Questions


5.1 Scientific management recognises the importance of individual differences injob design. T or F?

5.2 QWL refers to an organisational philosophy about the importance of satisfyingemployees’ lower-order needs at work. T or F?

5.3 Task specialisation is generally reduced when scientific management is used asthe basis for job design. T or F?

5.4 Herzberg’s hygiene factors contribute to long-run job satisfaction, motivationand performance. T or F?

5.5 Job depth is significantly influenced by adding to a job’s content. T or F?

5.6 Job range can be positively influenced by job rotation. T or F?

5.7 Generally, employees decide on a given level of performance before theyevaluate their levels of experienced job content. T or F?

5.8 Employee growth need strength is an integral part of Herzberg’s two-factortheory. T or F?

5.9 A job with poor job content factors occupied by an employee with high growthneed strength could be redesigned successfully. T or F?

5.10 Critical psychological states refer to permanent features of the employee’spersonality. T or F?

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



5.12 Flextime is not the same as a four-day, 40-hour work week. T or F?

5.13 Job design changes are most successful if they focus on behaviour rather thanemployee emotions. T or F?

5.14 Self-directed teams integrate the technical and social aspects of work. T or F?

5.15 Job range changes very little for members of a self-directed team. T or F?

5.16 Generally there is no upper limit on the number of self-directed teams set upin an organisation. T or F?

5.17 The Scanlon Plan is a form of group-based profit-sharing. T or F?

5.18 Scientific management may be used more often in a System 1 organisation thanin a System 4 organisation. T or F?

5.19 High internal organisational differentiation between departments is a barrierto widespread employee empowerment. T or F?


5.20 All of the following are principles of scientific management except:

A time and motion studies.

B decision-making responsibility assigned to empowered teams.

C piece-rate pay or individual incentive systems.

D simplification of work and training requirements.

E using job-based performance skills to select job applicants.

5.21 A weakness of scientific management is that:

A it underestimates the significance of worker ingenuity and work creativity.

B it gives too much authority to employees who may not be ready to handleit.

C it doesn’t pay enough attention to the problem of employee pay.

D it only works in factory settings.

E it over-emphasises employee training and development.

5.22 Assembly-line jobs:

A tend to be non-repetitive.

B require minimal mental attention.

C require the employee to set the pace of work.

D impose high skill requirements on employees.

E entail significant training and development costs.

5.23 Job enrichment is most closely associated with:

A Taylor’s scientific management.

B McClelland’s socially acquired needs.

C Herzberg’s two-factor theory.

D Maslow’s need hierarchy.

E Vroom’s expectancy theory of motivation.



5.24 When an insurance claims processing clerk is given the responsibility and signa-ture authority to handle certain types of claims work, her job has been:

A enlarged.

B enriched.

C horizontally loaded.

D simplified.

E re-engineered.

5.25 The degree to which an employee’s job requires completing a whole task or arelated sequence of tasks is called:

A autonomy.

B skill variety.

C task identity.

D feedback from the work itself.

E task significance.

5.26 Enlarging a job is most closely related to which of the following job contentfactors?

A skill variety.

B autonomy.

C task identity.

D task significance.

E feedback from the job itself.

5.27 The key moderating concept in the job characteristics model is:

A need for achievement.

B locus of control.

C growth need strength.

D job involvement.

E emotionality.

5.28 Which of the following is typically not a cause of problems in job redesignefforts?

A Targeting employee skill deficiencies for improvement through training anddevelopment.

B Rapid changes in technology.

C Failure to consider employee needs in the redesign effort.

D Failure to consult with union membership prior to starting the redesignprogramme.

E Redesign programme cutbacks caused by falling revenues.




5.1 What are the reasons for failure in job designs based on scientific management?Outline four elements which would correct some of the problems associatedwith job designs based on scientific management.

5.2 Why is it important to consider individual differences in job design programmes?

5.3 What are some of the forces which are shaping organisational efforts to improveQWL for employees?

5.4 In what ways does flextime influence job depth? How might a flextime systemimprove organisation–employee relations?

Case Study 5.1: Alton’s Experiment with Changes in Job Rangeand Depth∗

Alton Ltd. installs and services computer equipment in wholesaling businesses.Alton owns the equipment, and through a leasing arrangement, maintains theequipment for its customers. The firm has 300 field repairmen who installand service equipment. These individuals are all graduates of Alton’s technicaltraining programme. Lately, the repairmen have been complaining about manyfeatures of their job. The director of field services is concerned because theaverage number of monthly calls made by repairmen has been steadily dropping.Turnover has also increased and several key customers have cancelled leases infavour of new arrangements with Alton’s competitors.

A job design expert was retained by Alton to study the problems in the designof the repairmen’s job. The director of field services told the expert that Alton’srepairmen are the best in the industry because they undergo 40 hours of trainingeach year to update them on the latest repair techniques. After some prompting,he did have several observations about the repairmen. These are noted below.

1 The company assigns each repairman weekend duty once every two months.Frequently the repairmen will not show up for weekend calls.

2 The salary level, fringe benefits and vacation benefits for repairmen areconsistent with the industry.

3 The repairmen get along quite well although most of their work is donealone.

4 Instructors in the company’s training programme have noted that repairmenare describing their jobs in increasingly negative terms.

5 Customer dissatisfaction with some leasing and servicing contracts has beengrowing.

6 The company is experiencing a decline in the number of applications to thetraining school.

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



The job design expert decided to interview some repairmen. He talked with50 employees from all of the field territories. A summary of their commentsfollows.

– ‘We can’t order parts. Management does the ordering, and it’s often tooinfrequent and the parts come too late.’

– ‘We aren’t able to carry non-routine parts. Management prefers to special-order these parts which further delays us in making repairs.’

– ‘We have to go through management when we encounter a repair problemand we cannot contact engineering directly.’

– ‘Management fixes our work schedules and determines the sequence of ourcustomer calls.’

– ‘All customer complaints must be routed through the sales manager. Thisdelays our response further.’

– ‘Management determines the maintenance schedule for our vans and equip-ment. Often these schedules do not match our equipment needs and theschedules become outdated as we get new repair equipment.’

The repairmen had other important reactions to the job. They enjoyed thetraining seminars because they were able to learn new repair methods. Mostsaid they found their work to be challenging and full of variety. Yet manyexpressed frustration over their inability to provide timely customer service.They felt some of the company’s work rules prevented them from delivering thebest service and they felt this reflected badly on them as individual employees.They felt satisfied with employee benefits and the pay system. Many repairmenindicated that they were looking for employment elsewhere.

The job design expert organised a series of meetings attended in each instanceby two supervisors and four repairmen. These ‘job expert’ groups were chal-lenged to come up with job changes for the repairman position. After eachgroup generated its list, it was asked to screen the suggestions for feasibility,specificity and applicability to the repairman job. Ten of these meetings wereconducted in the London territory. Below is a partial list of the suggestionscreated by the groups.

1 Repairmen should have full authority to order routine and non-routineparts.

2 Repairmen should go directly to engineering for technical assistance.3 Repairmen should handle their own vehicle and equipment maintenance

up to £500 in annual repair costs.4 They should design their own territory coverage and be able to work from

their homes. Each repairman would have an electronic signalling devicewhich would keep him in touch with his territory office.

5 Repairmen should process customer accounts up to £1000 in repair work.6 They should maintain their own quality control reports.7 They should help select new applicants and take turns at instructing in the

annual training seminars.



Based on these suggestions, the expert implemented his plan for improvedjob design. Fifty repairmen and their supervisors from the London territorywere selected to participate in a small pilot programme. In this programme,work attitudes (job satisfaction, job involvement), performance, job motivation,absenteeism, customer satisfaction, job response times and vehicle maintenancecosts were all monitored. All seven of the suggested job changes were madein the jobs of the London repairmen. Similar measurements were made for50 repairmen in Birmingham and Liverpool. However, no job changes wereimplemented in their jobs.

After eight months, the measurements noted above were retaken for repairmenin the three territories. The job design expert and the director for field serviceshad good reason to be pleased. Little change was noted for the repairmen inLiverpool and Birmingham. However, the London repairmen showed significantprogress in several key areas. These are summarised below.

1 Absenteeism had dropped by 10 per cent.2 Job satisfaction and job involvement were up 25 per cent.3 Vehicle maintenance costs had not risen during the period, and repairmen

reported less lost vehicle time.4 Job response times had improved by eight per cent and customer satisfaction

with service calls was up 18 per cent. Customer complaints showed a dropof 27 per cent.

1 Why were the repairmen so dissatisfied with their jobs?

2 Does the growth need strength of the repairmen play a role in the expert’sjob design programme?

3 Did employee participation play an important role in the success of theAlton job design programme?

Case Study 5.2: Building Cross-Cultural Work Teams∗

Brussels. Anyone can talk about cultural differences. Fons Trompenaars triesto make his students feel them. To do that, the Dutch leader of workshops on‘multicultural’ management teaches his students (mostly executives) to play agame invented by one of his colleagues, L. P. Burg. The object: building towersmade of paper.

Mr Trompenaars, a 39-year-old former Royal Dutch Shell executive, divides agroup of several dozen Swedish managers into two groups. Four are designatedas ‘international experts’ in building paper towers. Everyone else becomes anative of a make-believe village called Derdia. ‘Your culture loves towers butdoesn’t know how to build them,’ Mr Trompenaars tells the Derdians. ‘It’s a bitlike the British car industry.’

* Source: B. Hagerty, ‘Learning to Turn the Other Shoulder’, Wall Street Journal, 14 June, 1993, B1, B3. Reprintedby permission of Wall Street Journal 1993, Dow Jones & Company, Inc. All Rights Reserved Worldwide.



The experts are sent out of the room to learn to make paper towers andprepare to pass that skill on to Derdia. Meanwhile, Mr Trompenaars initiatesthe Swedes into strange customs of Derdia.

Derdian greetings involve kissing one another on the shoulder. Holding outa hand to someone means ‘Please go away’. If they disagree, Derdians say ‘Yes’and nod their heads vigorously.

What’s more, Derdian women have a taboo against using paper or scissors inthe presence of men, while men would never use a pencil or a ruler in front ofwomen. The Swedes, reserved a moment ago, throw themselves into the taskof acting like Derdians. They merrily tap one another, kiss shoulders and bray‘Yessssss!’

Soon, two ‘experts’ are allowed back into the room for a brief study of Derdianculture. The Derdians flock to the experts and gleefully kiss their shoulders. Theexperts turn red. They seem lost already.

‘Would you please sit?’ asks Hans Olav Friberg, a young ‘expert’ who, backin Sweden, works for a company that makes flooring.

‘Yesssss!’ the Derdians say in a chorus. But they don’t sit down.‘Who is in charge here?’, Mr Friberg inquires. ‘Yesssss!’, the Derdians reply.Mr Friberg leaves the room to confer with his fellow experts. ‘They didn’t

understand us’ he tells them. But fellow expert Kakan Kalmerno isn’t aboutto be deterred by strange habits. He is taking charge. As he briskly practisesmaking a paper tower, Mr Kalmerno says firmly to the other experts: ‘The targetis to have them produce a tower.’

The four experts carry paper and other supplies to the adjoining room, nowknown as Derdia. They begin to explain the process to the Derdians veryslowly, as if speaking to small children. When one of the Derdians shows heunderstands the workings of scissors, Mr Kalmerno exclaims ‘Good boy!’

Although Mr Kalmerno works hard at making himself clear, the Derdians’customs and taboos obstruct progress. The men won’t use rulers as long aswomen are around but don’t explain this behaviour to the experts. The answerto every question seems to be ‘yes’. At the end of 30 minutes, no tower hasbeen constructed.

The game is over, now comes the self-criticism. ‘They treated us like idiots,’protests one of the Derdians.

The lessons are clear, but Mr Trompenaars drives them home: If you don’tfigure out the basics of a foreign culture, you will not get much accomplished.And if your biases lead you to think of foreign ways as childish, the foreignersmay respond by acting childish.

Still, Mr Kalmerno, the take charge expert, thinks his team was on the righttrack. ‘If we’d had another hour,’ he says, ‘I think we would have had 15 towersbuilt.’

1 What advice would you give to the ‘tower experts’ to make them moreeffective at teaching the ‘Derdians’ to construct towers made from paper?

2 How have many foreign businesses working in other countries dealt withthe culture problems illustrated in this exercise?



References

1 Smith, D. K. (1975) The Functions of Work. New York: Omega Publishing: 383–93.

2 Walker, C. and Guest, R. (1952) The Man on the Assembly-Line. Cambridge, MA:Harvard University Press.

3 Herzberg, F., Mauser, B. and Snyderman, B. (1959) The Motivation to Work, 2nd edn.New York: Wiley.

4 Ivancevich, J. and Matteson, T. (1987) Organizational Behavior and Management. Plano,TX: BPI.

5 Dunnette, M., Campbell, J. and Hakel, M. (1973) ‘Factors Contributing to Job Dissat-isfaction in Six Occupational Groups’, Organizational Behavior and Human Performance:235–51.

6 Hackman, J. R. and Oldham, G. (1976) ‘Motivation Through the Design of Work: ATest of a Theory’, Organizational Behavior and Human Performance: 250–79.

7 Hamilton, C. (1987) ‘Telecommuting’, Personnel Journal (April): 91–101.

8 Ivancevich, J. and Glueck, W. (1983) Foundations of Personnel, 3rd edn. Plano, TX: BPI.

9 Griffin, R. (1982) Task Design: An Integrative Approach. Glenview, IL: Scott–Foresman.

10 Trist, E. and Bamforth, K. (1951) ‘Some Social and Psychological Consequences of theLong-Wall Method of Coal Getting’, Human Relations: 3–38.

11 Hackman, J. (1977) ‘Work Design’ in Hackman, J. R. and Suttle, J. L. (eds.), ImprovingLife at Work: Behavioral Science Approaches to Organization Change. Santa Monica, CA:Goodyear.

12 Pfeffer, J. (1994) Competitive Advantage Through People. Cambridge, MA: HarvardBusiness School Press, 69–76.

13 ‘How Does Service Drive the Service Company?’, (1991) Harvard Business Review(November–December): 146–58.

14 Likert, R. (1961) New Patterns of Management. New York: McGraw-Hill, 6, 103.


Module 6

Understanding Work GroupDynamics and Group-BasedProblem-Solving

Contents

6.1 Describing Work Groups and their Characteristics 6/26.1.1 Types of Groups in Organisations 6/36.1.2 Why Individuals Are Attracted to and Join Groups 6/5

6.2 Work Group Composition, Cohesiveness and Norms 6/66.2.1 Cohesiveness: The Social Adhesive in Work Groups 6/76.2.2 What Managers Need to Know about Work Group Norms 6/96.2.3 Groupthink: When Work Groups Expect too much Conformity 6/11

6.3 Significant Aspects of Work Group Structure 6/126.3.1 Guidelines for the Management of Work Group Size 6/15

6.4 From Statics to Dynamics: Work Group Development andDecision-Making

6/15

6.4.1 Understanding Stages of Work Group Development 6/166.4.2 Work Group Risk-Taking and Creativity 6/186.4.3 Brainstorming, Nominal and Delphi Decision-Making in Groups 6/18

6.5 Practical Guidelines for Managing Groups 6/216.5.1 Managing Intergroup Behaviour and Performance 6/236.5.2 Laggards in Groups: Spotting and Correcting Social Loafing 6/25

6.6 Decision-Making in Teams: Deciding on the Extent of Participation 6/26

6.7 Work Groups in Competition and Conflict 6/286.7.1 Two Organisational Views on Conflict in Groups 6/296.7.2 Managing Conflict within and between Groups 6/29

Summary Points 6/31


Case Study 6.1: Assessing Work Group Creativity 6/38

Case Study 6.2: Team Productivity at A. E. Leeson’s Ltd. 6/40


Module 6 / Understanding Work Group Dynamics and Group-Based Problem-Solving

Learning Objectives


• Differentiate clearly the types of work groups existing in organisations.• Describe the factors that encourage individuals to join organisations and

work groups.• Explain the organisational importance of work group cohesiveness.• Describe the relationship between work group cohesiveness, work group

performance, and the intervening impact of organisational goals and workgroup norms.

• Recognise the symptoms of groupthink and take corrective actions to min-imise its effects on group decision-making.

• Explain each stage of group development, and the managerial problemsunique to each one.

• Recognise the problems that curtail group creativity.• Diagnose the role of participation in work group decision-making.• Suggest practical guidelines for making work group decision-making more

creative and efficient.• Recognise the symptoms of social loafers and select the best corrective

actions for them.• Adopt a useful managerial strategy for handling intergroup relationships.• Diagnose conflict between groups and suggest approaches for handling

conflict.

6.1 Describing Work Groups and their CharacteristicsEffective task groups are elusive phenomena in most managers’ minds. Mostof us have work experiences which reinforce stereotypes of time ineffectiveness,petty bickering among members and uninspired ideas which leave members witha distaste for group-based work in their organisations. However, as we saw inModule 5, the work-force management practices of participation, empowermentand self-directed teams continue to spread throughout companies and theirindustries. The powerful drivers of deregulation, increased global competition,dramatic improvements in the technologies of communication and productionand the search for cost reductions force organisations to search for improvementsin competitive advantage that are rooted in work-force management practices.Increasingly, the strategic and financial success of companies is tied to theability of work teams to deliver more new products to the market with ever-rising quality in customer service. Organisations try to harness multiple systemsand information streams to support improvements in these two areas. Most topmanagements correctly realise that the complexity of these information streamsand the organisational systems to process them will be only as good as thecompany’s self-directed work teams. For these reasons organisational groupdynamics, group characteristics and group decision-making are critical issuesfor all managers. We begin our study of groups by considering what they areand in what forms we find them in organisations.



6.1.1 Types of Groups in Organisations

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

What Is a ‘Group within the Organisation’?

A work group is defined as two or more employees who 1) interact with eachother, 2) perceive themselves as sharing several common interests or goals and 3)come together or are brought together to accomplish a meaningful organisationalactivity.1 In most organisations, employees are assigned to formal work teamswhich must be productive in some organisationally meaningful way. When aformal assignment mechanism allocates employees to various work groups, theemployees are said to belong to formal groups. These groups have the specificcharacteristics of 1) two or more members, 2) prescribed interaction patterns, 3)purpose(s) stated in meaningful organisational terms and 4) members who areaware of the formal group’s existence and their involvement in it.2 Such workgroups can be either task groups (which may or may not be self-directed teams)which work together on a series of related activities or command groups whichexercise authority within the organisation. An example of a task group that isa self-directed team is the work team which assembles car emission systems atVolvo’s Kalmar plant. An example of a command group is the board of directorsfor any public corporation. Members of a board of directors may be groupedinto sub-committees that have responsibilities to oversee particular companyfunctions, while each board member is responsible for representing shareholderinterests.

Are all Organisational Groups Formal Groups?

Informal groups are constantly being created in organisations. An informalgroup is a group of employees who come together voluntarily for a commonpurpose, which may or may not be work related. Informal groups satisfy theirmembers’ needs for social contact and inclusion and needs which may notalways be satisfied by membership in formal work groups.

Managers do not always encourage informal group formation because theybelieve such groups may develop goals which are not consistent with organi-sational goals. For example, an informal group may agitate for safer workingconditions. They may even threaten management with public exposure of unsafeworking conditions. Thus, informal groups can function as ‘whistle-blowers’about organisational work systems which may be unsafe. In a different fashion,employees may restrict output among members of an informal group to frustratemanagement in setting higher production standards. In this way, obstreperousinformal groups can create change in organisational practices.



Organisations can also experience problems with informal employee groups,since management may be too quick to attack informal groups, rather thanexamine ineffective management practices such as scheduling and planning ofwork or controlling the rate of flow of materials through production units. Whensuch conditions persist, management resistance to informal groups increases andinformal groups with goals counter to organisational goals emerge in the organ-isation. Under these conditions employees may experience greater satisfactionwith their informal group membership, but such problems also trigger greaterpolarisation of positions taken by labour and management. To the extent thatorganisational work systems allow for regular satisfaction of individual needs,informal group goals will often parallel and reinforce the goals of the organ-isation. For this to happen, employees who are members of informal groupsmust experience procedural and distributive justice in such company systems asperformance appraisal, reward and job design systems.

Project Teams and Effective Organisations

Many very successful organisations use project teams to generate solutionsfor important organisational problems.3 Several firms have developed culturesof excellence based on project team work. The general characteristics of suchsystems are noted below.

1 The life span of the typical project team is kept short. Texas Instrumentssets up teams with life spans of less than four months.

2 Membership is always voluntary. Members always retain their functionaldepartment membership responsibilities so they must perceive the projectsto be interesting and motivating. If they are dull and meaningless, novolunteers will come forth.

3 The project team is pulled together quickly without a formal selectionprocess. Employees with expertise and interest in the project are drawn inwhile the problem is fresh and important.

4 Follow-up is swift in that immediate links with higher management areforged at the time the project team is organised. Upper management’s taskis to find business applications for the project team’s work.

5 Support staff is not assigned to the project team. This prevents it frombecoming ‘ossified’ in bureaucratic procedures. In most cases, team membersshould develop expertise in gaining organisational support for expandingteam activities.

6 Communication and project documentation are informal in that the projectteam’s focus is not allowed to shift from problem characteristics to theteam’s organisational procedures. Thus, project teams do not leave wide‘paper trails’ in their organisational wakes.

Not all organisations value project teams, but strong evidence continues toaccumulate which attests to their successes in more quickly creating productand service breakthroughs. Smaller companies recognise that project teams arenothing more than a return to the way a business operates during its develop-mental stage. All new businesses start off as project teams because employeesmust be willing to attack at once any problem that arises that might threaten



the existence of the firm during its start-up. Thus, entrepreneurs should try tooperate their fledgling businesses like project teams. Interestingly, as companiesflourish, the lessons learned through project team successes are forgotten. Largesuccessful firms, by using the project team concept, have learned to re-createsome of the urgency of the small, entrepreneur-run business.

6.1.2 Why Individuals Are Attracted to and Join Groups

The central aspect of joining groups and organisations is the individual’s beliefthat membership creates a pathway to the satisfaction of important needs. Itthen follows that the more individual needs group membership satisfies, themore important the group will be. Table 6.1 lists the main factors which makeindividuals want to join groups.

Table 6.1 Factors causing group formation

Factors Workplace example

1 Interpersonal attraction

a. Proximity Clerks in a mailroom form an informal T.G.I.F. club(Thank God Its Friday).

b. Physical attraction Young engineers join an expensive health clubin the hope of meeting attractive people of theopposite sex.

c. Attitude similarity Students who believe the university should havemore intramural sports form a protest group.

d. Economic and social similarity Chief executive officers of banks are asked to siton the boards of other banks.

e. Race and gender similarity Female Indian engineers form a career interestgroup to discuss employment problemsexperienced by minorities.

f. Perceived ability of others Employees with athletic ability organise acorporate sailing team.

2 Activities of the group Employees organise a darts club to compete in atournament.

3 Goals of the group Employees organise a fund drive to raise cash forAIDS research.

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

Interpersonal attraction is defined as a set of factors which lead to theconclusion that members share similar and highly desirable characteristics. Forinstance, employees who share work areas are likely to form friendships throughsustained contact created by proximity. When an individual exemplifies thephysical characteristics of beauty or handsomeness in a given culture, individualsare attracted to and seek association with him or her.1

Similarity of attitudes, values and beliefs also attracts individuals to certaingroups. An individual’s efforts to gain employment with a given investmentbank are often driven by the belief that his personal values will be endorsedby the work culture of the bank in question. Likewise, an engineer may pursuea job with a design firm because he thinks his high work standards will be



matched by other engineers in the firm. Membership in fraternal and socialorganisations operates on this principle.

Similarity of economic status, social status, race and gender give meaningto the expression ‘Birds of a feather flock together’. This adage demonstratesthe powerful pull of exclusive clubs and social organisations. If a group projectsexclusivity as an image, individuals with the appropriate characteristics in theareas noted above will be strongly attracted to reference groups. Individualswho want to gain membership in a given reference group begin to practisethe accepted behaviours of the reference group well before their membershipis solicited because they find self-satisfaction in ‘practising’ member behaviour.This is a common trait among members of reference groups based on economic,social, race or gender factors.

Perceived ability of others encourages people to seek out others who have arecord of problem-solving success in areas of current group activity.4 In manywork situations, problem-solving ability often supersedes other forms of attrac-tion because members believe group-based rewards are more obtainable ingroups made up of people with proven problem-solving skills.

Group activities and goals are two interrelated reasons for group attractive-ness.1 Group activities and goals function to help attract members who findthe group’s activities and goals to be intrinsically motivating. Participation inactivities which lead to desirable goals, such as voluntary work at hospitalsor working with youngsters learning to read, is often enough to sustain groupmembership and attract new members.

6.2 Work Group Composition, Cohesiveness and NormsWe often describe our membership in groups as being involving and interestingon the one hand, or alienating and barren on the other. These human reac-tions to membership experience are based on similarities and differences amongmembers. This phenomenon is known as group composition, which is definedas the degree of similarity or difference among members of a group. Thecomposition of a group may be homogeneous or heterogeneous with respectto member traits. Homogeneous groups have members with similar qualitiesin several areas (values, work experience, intelligence, gender and education).Heterogeneous groups have members who differ in given characteristics.

Most managers conclude that groups do a better job when employees workwith others who are like themselves. Studies, however, conclude the oppositeand support the value of heterogeneity as the prime supporter of high-qualitygroup decision-making.5 Heterogeneity seems to have two effects: 1) it createsmore conflict and 2) it increases a group’s potential problem-solving capacity.1

When groups have members who vary on numerous qualities, they are less sus-ceptible to their members’ biases and they can sustain effective group processesthat ensure the thorough analysis of decision alternatives.



6.2.1 Cohesiveness: The Social Adhesive in Work Groups

An important result of group composition is cohesiveness. It is usually definedas a multifaceted concept composed of: 1) attraction to the group, includingresistance to leaving it, 2) high morale exhibited by members and 3) strongco-ordination of member effort.1 Table 6.2 compares the features of a highlycohesive group with the features of a group lacking cohesiveness.

Table 6.2 Features of cohesive and incohesive work groups

A cohesive work group tends to An incohesive work group tends to

Perform well if its goals conform toorganisational goals

Perform poorly regardless of its or theorganisation’s goals

Have energetic members who are motivatedby the group’s goals

Have members who are indifferent to groupeffort and goals

Have less absenteeism Have high lateness and absenteeism

Have members who celebrate the group’ssuccess and lament its failures

Have members who are indifferent to thesuccesses and failures of the group

Have members who value highly groupmembership

Have members who are indifferent to groupmembership

Resist transfer Seek transfer

Become homogeneous over time Remain unchanged in terms of membercharacteristics

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

Can Managers Influence the Causes of Cohesiveness?

Managers can raise cohesiveness by controlling work group composition. Themanager must match a group’s task to the characteristics of employees who willmake up the work group. The more seamless the match between member qual-ifications and task demands, the more likely that members’ mutual interests inthe task will create cohesiveness and maintain members’ motivation to performwell. The work group’s size is also a factor in cohesiveness and performance.Generally, the larger a work group the greater its potential for interpersonalconflict and disagreement which detract from task accomplishment. Time con-straints, the importance of members’ acceptance of the group’s decision and taskco-ordination needs are factors favouring small rather than large task groups. Ifthe task at hand must proceed from information-gathering through discussingalternatives to making a decision, and the above conditions apply, a smallerwork group will be more successful and cohesive than a larger work group.

Managers can also influence the clarity of group goals and activities. Membersgenerally find their work groups to be more attractive if they perceive greatertask clarity and if they are convinced that the work group knows where itis headed. By clarifying work activities and setting reasonable performancegoals, managers can encourage attitude similarity and group-based confidenceconcerning the likelihood of task success.

Managers also must institutionalise the role of disturbance handler in hetero-geneous groups which have capacities for high performance but also for inter-personal conflict. The disturbance handler can facilitate agreement and move the



work group beyond the negative effects created by personality-based conflict.Similarly, the manager needs to establish ground rules for handling interpersonalconflict in heterogeneous groups with potential for strong performance.

Cohesiveness and performance can also be influenced by managers who createthe group perception of a common enemy. As long as the external threat isperceived by the group as being manageable and members believe the grouphas various strategies for meeting competition, then cohesiveness may rise andpull group performance along with it. If the threat of external pressure is toogreat, cohesion may break down and the attitude of ‘every man for himself’may prevail.

Finally, managers can influence cohesiveness and work group performanceby carefully timing positive feedback about work group performance successes.The feedback should emphasise group-based rather than member-based worksuccesses. Closely related to this idea is that managers must reserve somerewards which are given strictly for work group-based performance successes.This does not mean that individual rewards should be given less emphasis ingroup work. Instead, it means that managers must develop and use a two-tieredreward system to bring forth both high individual task performance and highwork group performance.

Managers must recognise that cohesiveness has important effects on workgroup members’ abilities to satisfy their personal needs. Generally, cohesivegroups have a history of satisfying members’ needs in the important areas ofinclusion, stress and personal anxiety reduction and self-esteem. While theseoutcomes are important to work group members, their presence does not ensurethat the group will be high performing in organisationally meaningful ways.

Relationship between Cohesiveness and Performance

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

2. Low group performance 3. High group performance

1. Low to moderate group performance

Low High

High

High

Low

Low

GroupPerformance

Extent of Agreement betweenGroup and Organisational Goals

Cohesiveness

Figure 6.1 Cohesiveness, goals and work group performance



When work groups are cohesive and their performance goals are clear, highand they match organisational performance goals, work group cohesiveness isstrongly related to the performance of the group. On the other hand, workgroups can be cohesive and have performance goals which do not align withthose of the organisation. Here, the group will be cohesive and perform poorlyagainst organisational standards. Consider the following example:

Employees in the customer order department took great pride in their department’sability to ship orders within 24 hours of receipt. The firm maintained its orderingprocess on a manual card system which was accessed by highly trained employeesat a centralised location in the firm. The company was very proud of the unit’slow error rates and high customer satisfaction.

Due to increased work-loads and a company-wide effort to computerise oper-ations, data-processing experts were asked to install an electronic, decentraliseddata-processing system which they hoped would speed up order processing, ship-ping and in turn help manage accounts receivables more aggressively.

Managers and employees in the ordering department resisted the new system.They refused to aid in systems analysis and conversion. Further, they argued thatanyone with the proper access code would be able to ‘meddle’ in customer accounts.The level of resistance became so high that company management abandoned theirplan to computerise customer ordering in spite of the fact that all competitors hadsuccessfully converted to electronic systems.

Employees in the department were outraged that company management wastrying to ‘change the rules in the middle of the game’. High departmental cohe-siveness coupled with extreme variance between departmental goals and companygoals for systems automation created a conflict which the department eventuallywon. The company backed down to restore order and realign departmental andcompany performance goals. Had the firm not done this, cohesiveness in thedepartment would have remained high, but its performance on organisational goalswould have been quite low.

6.2.2 What Managers Need to Know about Work Group Norms

Work groups have norms for controlling members’ behaviour. Norms are thegroup’s standards for members’ behaviour. Norms exist in any work group andexhibit several common properties.

1 Norms streamline and summarise the influence process to make the workgroup more efficient at policing member behaviour. If a strong norm aboutperformance exists, group members will quickly censure members’ behav-iour that does not conform to the norm.

2 Norms apply to member behaviour and not to their thoughts. This meansa group member can privately disagree with the group’s course of actionand still be a member in good standing if he continues to support the groupthrough his behaviour. Behaviour counts; thoughts do not.

3 Norms develop for those behaviours which influence levels of membereffort and group goals. These two areas are at the core of any work group’sexistence and it follows that the work group will have explicit meaning fornorms which symbolise effort levels and group goals.



4 Norms develop over time and they are resistant to change. This prop-erty of norms ensures they will remain intact even as group membershipchanges. Indeed, they must remain intact so ‘senior’ group members canteach new group members ‘the ropes’. The transmission of norms to suc-ceeding generations of new group members often becomes ritualised andthe process itself becomes the ‘tradition’ or heritage of the work group.The continuation of these customs is comforting to older group membersand intimidating to new ‘probationary’ members who seek inclusion in thegroup. These ritualised practices may be norms to specific work groups,but in the wider organisational analysis they are important symbols oforganisational culture.

5 Some members have more right to deviate from work group norms thanother members do. Usually, the higher the person’s stature in a group, themore rights he has to deviate from norms especially if he professes to havethe best interests of the group in mind.7

By now you have recognised that the work group’s system of norms cre-ates the basis for conformity, or the conscious adjustment of behaviour to thegroup’s norms. In the simplest terms, members exhibit the compliance motive togain rewards from the group and to escape punishment. Managers can controlcompliance and ensure the development of healthy norms in work groups.

Table 6.3 Managerial principles for controlling work group norms and memberconformity

1 Create a desire to remain in the group. Cohesiveness is an important benefit valued bymembers, so acknowledge employee expressions of esprit de corps.

2 Show how high standards for group achievement meet individual needs and triggerrewards at the group level.

3 Specify the importance of giving up individual gains in favour of group success. Themanager must be a role model for this.

4 Seize opportunities to show the small difference between members’ personalpreferences and what the group asks of its members.

5 Carefully define how members’ contributions help the group achieve its goals.

6 Give members a say in creating norms about effort levels and performance standards.

7 Develop a simple and accepted system for recording and publicising work groupsuccess in core performance areas.

8 Develop valued rewards to motivate members who meet or exceed team performancestandards.

9 Forge a link between team goals and personal accomplishments.

10 If creativity is necessary to ensure team success, temporarily suspend norms toencourage member innovation.

11 Make it clear that there are serious negative consequence for non-compliance withcore performance norms.

12 Do not expel members who deviate from norms if: 1) they have a history of helpingthe group, 2) they are high status members and 3) the group has a history of helpingrather than isolating deviants.

13 Do not allow work groups to become too isolated so that they ignore the company’sneed for co-ordination.

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



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

6.2.3 Groupthink: When Work Groups Expect too much Conformity

If cohesiveness is extremely high, members of the work group voluntarilyadapt their behaviours to the group’s norms. If a work group’s critical thinkingprocess is suspended because of high cohesiveness and conformity, groupthinkis present.

The Indicators of Groupthink which Managers Should Recognise

When groupthink is present, members are much more concerned with solidarityand fellowship than with the quality of decisions. Work groups experiencinggroupthink usually exhibit some or all of the symptoms noted below.

1 The illusion of invulnerability. Members conclude that success can beachieved easily even in the face of unfavourable odds.

2 Collective rationalisation. The group believes it cannot fail because mem-bers are oblivious to indicators which could spell trouble.

3 Mindguards. Much like celebrities who have bodyguards, groups haveself-appointed guards who sift through and eliminate unwanted negativeexternal information. Thus the group insulates itself from disagreeable oruncomfortable external information.

4 Belief in the inherent morality of the group. The group may concludewrongly that its decision is moral and upright, and justified on moralityalone.

5 Negative stereotyping of the opposition. The group in question may char-acterise the opposition as dull, stupid, confused or cowardly.

6 Direct pressure applied to dissenters. If a member disagrees with thegroup’s course of action, considerable pressure is applied by mindguards tobring him back in line.

7 Self-censorship. Here group members may doubt the soundness of thegroup’s decision, but they opt for silence rather than rock the boat byexpressing an unpopular idea.

8 Illusion of unanimity. Each member mistakes the silence of other membersas their agreement with the group’s course of action.8

Scholars have attributed many governmental ‘fiascos’ to the existence ofgroupthink in high-level policy-making groups.8 Modern examples of this phe-nomenon would include the American decisions to invade Cuba’s Bay of Pigsand to continue the Vietnam War during the Johnson administration. The disas-trous decision to launch the Challenger space shuttle in 1986 would also qualifyas an example of groupthink. More recently, the British government’s decisionto claim that mad cow disease could not cause a similar condition in humanswas probably rooted in groupthink.

You may recognise the symptoms of groupthink in groups to which youbelong. While there are no certain methods for eliminating it, there are some



safeguards which can be followed to minimise its impact. These safeguardsreflect the importance of the group leader’s role and his influence on groupthink.

1 The leader must assign the role of critical evaluator to members on arotating basis. Additionally, he must allow his position in group decisionsto be criticised.

2 Influential members should not pre-specify solutions or methods for reach-ing solutions. Thus, idea generation should be separated from idea evalua-tion.

3 The leader might have subgroups arrive at their own decisions separatelybefore polling the entire group on its decision.

4 At intervals, outside experts might provide guidance to the group.5 When competitive organisations are the focus of group decision-making,

sessions should be devoted to exploration of warning signals and possibleforms of retaliation.

6 A ‘second chance’ meeting should be held after the group has selectedits official position or made its decision. The purpose of this meeting isto provide a forum for expressing doubts which may have occurred tomembers.9

The suggestions for addressing groupthink noted above attempt to reduce theimpact of influential work group members on the group’s decision processes.Groupthink is often caused by leaders who are simultaneously autocratic andcharismatic. Such leaders may have strong preferences for a particular outcomeand you are sure to find groupthink where they exist. Many significant economic,political and military decisions have probably been made through decisionprocesses riddled by groupthink. Nonetheless, they have been good decisionswhich have stood the test of time. In many ways, time urgency may haveforced political and military leaders to put pressure on their task and commandgroups to render quick decisions. One can imagine the immense pressuresfor conformity in these pressing situations. When extraordinary circumstancesconfront extraordinary leaders, groupthink may be inevitable and necessary toavert a crisis.

6.3 Significant Aspects of Work Group Structure

Being a member of at least several groups, you probably recognise that theyseem to differ from one another. We have already noted that groups differ interms of their reasons for existing (formal or informal groups) and their lifespans (permanent versus project). Also, members vary as to their reasons forjoining or being attracted to particular work groups. While these organisationaland interpersonal characteristics of work groups are important, there is anothercategory of work group characteristics which influence the texture of workgroups. It is referred to as group structure and is defined as the arrangement ofroles or positions within the group. For our purposes, roles and positions areinterchangeable. We shall take a look at some of the common properties of workgroup structure.



Positional status refers to the rank of a position in a work group. It usuallyexpresses the amount of responsibility for setting policies, settling disputes,representing the group in other organisational matters and formulating goalsand work methods. Positional status is usually consistent with the placement ofthe position in the work group’s hierarchy of authority. Positional status differsfrom personal status which is the rank, standing or prestige of the individualin the work group. Positional and personal status are often reflected in formalstatus symbols allocated by the organisation. Table 6.4 shows some formal statussymbols in organisations.

Table 6.4 Examples of personal and position status in firms

Symbols of rank and position (titles) Director

Chief Executive Officer

Treasurer

Senior Engineering Fellow

Formal work relationships Managing partner

Attache to the president

Special assistant to the chief researcher

Pay and perquisites Expense account

Travel benefits (first class or corporate jet)

Reserved dining room and parkingpriviledges

Country club/health club memberships

Control of work schedule Personal work schedule

Day versus night work

Work space amenities Large office with library and fireplace

Windows overlooking a pleasant view

Private secretary to screen visitors

Group size relates to a number of important individual and group-leveloutcomes. As a work group increases in size, the range of abilities, talents andaptitudes of members for task accomplishment increases. Larger groups providemore opportunities for individuals to meet interesting colleagues yet also providemore opportunities for anonymity and dispersion of personal responsibility forgroup decisions. More specific effects of work group size are noted below.

Group size and participation. As group size increases, the opportunity forface-to-face contact and the duration of the contact both decrease. Thus, the timefor member participation decreases as work group size increases. Increases insize are likely to inhibit many members who are reluctant to voice their opinionsin large groups. Because of this, the implicit assumption of equal participationdoes not hold as work groups grow larger.

Group size and internal conflict. As work group size increases, membersoften exhibit 1) less agreement, 2) more dislike for each other, 3) less tensionand 4) greater release of tension.10 While opportunities for friendship formationincrease in larger work groups, the amount of time devoted to sustainingthese friendships also increases. As organisations grow, they must find ways topreserve the benefits of small work group membership for employees. If they are



not successful in this, turnover and absenteeism will grow because employeeswill be frustrated in satisfying their needs for belongingness and inclusion. Self-directed teams are important innovations which preserve the benefits of smallwork group membership.

Group size and performance. The question of ideal work group size is notan idle one. How big should the design group be in engineering? How manychemists should work on the polymer project? If we consider the nature ofprocess losses in work groups, along with group size and performance, wecan make some informed judgements about ideal work group size. Figure 6.2introduces the concepts you need to understand the relationship between workgroup size and performance.

2 3 4 5 6 7 8 9 10 11

Number of members

Gro

up

pe

rfo

rma

nce

0

Potential performance

Actual performance

Process losses

Mean actual

performance per

member

Figure 6.2 Group size, performance and process losses

The figure shows that the group’s potential performance increases with groupsize. Potential performance is defined as that level of performance which couldbe achieved under ideal conditions as a result of the combined skills, abilitiesand experiences of work group members. Naturally, as group size increases,it is more likely that a given member will possess the qualities necessaryto solve problems confronting the group. Process losses are any obstacles toachieving potential performance for a group. Examples of process losses wouldinclude groupthink, interpersonal conflict and membership turnover. Actualperformance is the difference between potential performance and process lossesexperienced in a work group.

Potential performance increases at a decreasing rate with respect to groupsize. Process losses do the opposite, and total actual performance increases ata decreasing rate relative to group size. While all of these effects are occurringrelative to group size, mean actual performance per group member decreaseswith size increases. This is sensible since co-ordination becomes more compli-cated as does the work group’s structure. Also, more of each member’s time(in large groups) may be siphoned off to solve or address process losses. Youwill encounter the principle of declining average member performance withincreasing group size when we discuss the concept of social loafing (see section6.5.2).



6.3.1 Guidelines for the Management of Work Group Size

Fortunately, research results and practical management experience agree onmatters concerning work group size.11 These observations are offered:

– Middle-sized groups (5 to 11 members) tend to make more accurate deci-sions than groups outside that size range.

– Small groups (2 to 5 members) are better able to achieve consensus thanlarge groups.

– Larger groups (11 or more members) generate more ideas, but as sizeincreases beyond 20 members, the number of ideas relative to the numberof members (mean actual performance per member in Figure 6.2) decreases.

– Groups of 4 to 5 members foster greater member satisfaction than middle-sized or large groups.

– Very small groups (2 to 3 members) can make members very anxious abouttheir high performance visibility.

6.4 From Statics to Dynamics: Work Group Development andDecision-Making

Work group behaviour is easier to understand if the stages of group developmentare isolated and analysed. Being able to recognise a work group’s stage ofdevelopment will allow you to adjust your managerial actions to encouragefurther development of the group or to hold it in a particular stage longer ifnecessary. Figure 6.3 shows a simple model of group development.12 Considerthe general properties of this model.

MAJOR ISSUES FOR EACH STAGE

Composition of the group

Smoothing entry into the group for all members

Creating purpose and a sense of urgency

Development of rules for handling conflict

Filling the leadership position (which may be empty)

Preventing groupthink and other process losses

Managing high cohesiveness

Sustaining a task focus

Expanding the task focus

Maintaining norms as membership changes

FORMING:

STORMING:

NORMING:

PERFORMING:

Stage 1Test and

Orientation

Stage 2Conflict andOrganisation

Stage 3Cohesion and

Informationexchange

Stage 4Interdependece and

Problem-solving

(NORMING) (PERFORMING)(STORMING)(FORMING)

Figure 6.3 Stages of work group development



6.4.1 Understanding Stages of Work Group Development

Work groups move through the stages at different speeds. Some groups reachstage 4 more quickly because members have considerable work group experienceand they understand the organisation’s expectations for group performance.Second, the boundaries between the stages are not always clear and each stagewill last until its major issues are resolved. Third, a work group can find itselfmoving backwards. This is true for stage 4 groups with new members or witha task which has changed in some way. We shall examine each stage in turn.

Forming

Forming is the group phase-in, during which members move from a personalfocus to a group focus. Members wrestle with 1) identifying the behaviours mostimportant to the group, 2) assessing the skills, abilities and experiences of mem-bers, 3) discussing the goals and motives of members and 4) assessing the degreeof commitment and involvement of members to the group. Members test eachother’s assumptions about hard work and co-operation. This clarifies members’expectations for specific positions (roles) in the group. In many cases (especiallyfor project groups), this stage may have leadership turbulence. Several peoplemay aspire to group leadership before a permanent leader is selected.

Storming

Interpersonal conflict emerges in stage 2. Members may become more assertivein their opinions about the group’s purposes, methods and norms because theyare accumulating more knowledge about the work group. Member dissatisfac-tion with the current leader may surface and the leader may be replaced. Thesedisagreements are stage 2 process losses and they are necessary to create a basisfor trust and collaboration.

If the work group is unable to develop member behaviours to support trustand collaboration, members will conclude that they can satisfy their personalneeds more effectively on their own rather than through group membership.This may create turnover and absenteeism in the work group. These outcomesare consistent with a failure to emerge from stage 2. Such failures mean groupsdo not become productive and both the organisation and the employees arehurt. The organisation suffers because resources were wasted in constructing agroup which did not become productive. Employees are hurt because they areless likely to see future work group membership as a pathway to the satisfactionof important personal needs.

Norming

As interpersonal conflict subsides and the work group’s normative structureemerges, it enters stage 3. In it, members are thoroughly aware of their involve-ment and commitment to the group. They believe the benefits of membershipoutweigh its costs. The leadership position is established and stable, and thegroup has a hierarchy of roles (structure) with expectations attached to each.Harmony and agreement are characteristics of a stage 3 work group. The out-comes may be so pervasive that groupthink occurs. Since members value theirpositions and membership highly, an external threat may trigger strong feelings



of solidarity. If the work group has good information transfer across its bound-ary, and it is thoroughly tied in to the organisation’s hierarchy and informationflows, then groupthink probably will not occur since the group’s leader is notfollowing a course leading to high insularity.

Performing

If a work group succeeds in reaching stage 4, then actual performance is closeto potential performance because the group is minimising its process losses.Stage 4 work groups exhibit collaboration which is the group’s willingness toconfront conflict both in interpersonal and task-related issues. Process lossesare minimised without diminishing the members’ experienced satisfaction withmembership. Collaboration sustains members’ involvement, motivation to con-tribute, acceptance of authority and active participation. Group members feelempowered and the group has the ability to resolve conflicts by collaborativemeans rather than by resorting to bargaining or negotiating. This in turn pre-vents the formation of coalitions and challenges to the structure of the group.

Stage 4 groups are mature groups because members are confident about theirpersonal abilities and willingly communicate their confidence in performance tothe work group. The mature work group quickly attacks evidence of process losswhich might erode performance. Indeed, a key difference between a stage 3 anda stage 4 work group is the ability of the stage 4 group to detect the emergenceof process losses in good time. In a stage 4 group, anyone can voice concernabout process losses. Groups in other stages rely on influential members (suchas the leader) to raise such issues. Therefore, voicing concerns about processlosses is less associated with status in stage 4 groups.

Can Stage 4 Work Groups Retain their Position Indefinitely?

Just as individuals cannot always be simultaneously highly satisfied with theirjobs and highly productive, work groups may slip from their stage 4 perches.Turnover, changes in group goals, new technologies, rising competitive pressuresand changes in leadership all conspire to push work groups out of stage 4. Allstage 4 groups must find mechanisms to remain flexible and adaptable. Partof a mature group’s resources must be devoted to socialising and training newmembers, changing ineffective norms, creating new positions requiring newbehaviours and scanning the external environment for changes which threatento expel the work group from stage 4.

Work groups may strive very hard to remain in stage 4. Having all stage 4groups may not be in the best interest of organisational renewal. Any organisa-tion attempting to ‘freeze’ all work groups in stage 4 is denying the inevitableforces of external change which can cause competitive advantage to migrate toother firms in the industry. A much more reasonable managerial perspective isto view the organisation’s work groups as moving slowly through an ‘evolution-ary cycle’ of development where a key task is keeping work groups flexible sothat they can quickly adjust to changes in company strategy designed to createor improve competitive advantage.



6.4.2 Work Group Risk-Taking and Creativity

Are individuals deciding alone or are groups more risk oriented about makingdecisions? The accumulated evidence suggests that groups are no more riskoriented than individuals making decisions alone.1 Researchers conclude thatgroups take risks or are cautious depending on how members value risk in par-ticular decisions. For example, if a new product development team is decidingto scrap a traditional product design, the chances are good that the group willbe very risk oriented. Product development personnel are supposed to supportnew and innovative product designs, so a ‘penchant for risk’ in such groupswould not be unusual. On the other hand, if a group of doctors make a decisionto request more diagnostic tests for a very sick patient, they will often choosethe medical intervention which is least invasive and most conservative. Physi-cians believe in the principle of ‘first do no harm’; therefore, their group-baseddecision is likely to be conservative. Table 6.5 shows the forces which influencerisk-taking in work group decision-making.

Table 6.5 Factors influencing risk-taking in group decisions

The work group is risk oriented if The work group is conservative if

1 The work group is expected to berisk-oriented by the rest of the organisationand the group members value risk.

Members do not value risk and theorganisation thinks the group should beconservative.

2 The decision has little to do withorganisational systems or personnel.

The decision involves human resources oremployees’ perceptions of the company.

3 The leader is risk oriented. The leader is averse to risk.

4 The group has a history of toleratingdeviance from group norms.

The group has a norm that values thestatus quo.

Closely related to the issue of work group risk-taking is work group creativity.Often groups are less creative than individuals working alone. Under someconditions groups seem to inhibit creativity. Table 6.6 shows the typical ways inwhich groups do this.

The list in Table 6.6 is rather long. To you it may seem to imply that there islittle hope for creativity in work groups. This is hardly the case. Managers haveseveral tools to encourage creativity.

6.4.3 Brainstorming, Nominal and Delphi Decision-Making in Groups

Brainstorming

This technique has been in existence for many years and it continues to proveuseful for the creative generation of alternatives in work groups.13 The funda-mental principle of brainstorming is the separation of idea generation from ideaevaluation. All groups tend to evaluate the first suggestion made by a mem-ber. Brainstorming simply delays such discussions. This is called the principleof deferred judgement.14 By employing this principle, the group can generatemany possible solutions, effects and outcomes without becoming bogged downin criticising suggestions. The steps for a typical brainstorming procedure arenoted below.



Table 6.6 Factors which contribute to low-group creativity

1 The group has no common goal or core focus.

2 No standard method for making decisions is followed.

3 The process of generating ideas is not separated from the evaluation of ideas.

4 Ideas are not evaluated on their own merits. They are evaluated in terms of whichgroup members suggested them.

5 Ideas do not become the property of the group once they are suggested.

6 Conclusions are an individual product instead of a group product.

7 The group does not perceive members’ time as a valuable and scarce resource.

8 Some members do not feel sufficiently at ease to participate and submit their ideas(they fear derision or reprisal).

9 Some members dominate or deflect the group from its stated purposes.

10 The group does not have access to higher managers who can review and approve workgroup output quickly.

11 The group places pressure on its members to make their behaviour conform to a lowstandard for creativity.

12 The group is critical of failures and blames members for failures which may have had acreative origin.

1 Assemble the work group and appoint a session leader (not necessarily themanager or supervisor, but perhaps someone with special knowledge of theproblem).

2 Explain the focus of the session. Define the purpose and/or problem (ideas,strategies, solutions, alternatives, etc.).

3 Set a time limit for the session.4 Select a recording method (flip chart, videotaping, blackboard, direct word-

processing input to a computer).5 Review the rules of brainstorming, noted below.

(a) Break down complex problems into problems specific enough to bebrainstormed. Instead of ‘How can we promote a new product?’, usethree separate problems: ‘How can we promote a new product 1) tothe retailer, 2) to the trade and 3) to the consumer?’

(b) Any suggestion or idea can be proposed by any member at any time.(c) Ideas must be generated as quickly as possible.(d) Use ideas already suggested to spawn new ones.(e) Criticisms or evaluations are not allowed during the ‘brainstorming

period’.(f) Lengthy explanations or discussions are to be postponed.(g) The more suggestions the better.(h) The session runs for the allotted time or until no more ideas are

forthcoming.(i) Idea evaluation is separate from and follows idea generation. The work

unit becomes responsible for taking the recommended action on thebest ideas and reporting results back to the brainstorming group.

(j) Do not use brainstorming as a substitute for individual thinking. It isa supplement.



Remember, brainstorming is a technique for generating ideas, not for eval-uating them. It generates lots of ideas quickly. Further, it does not requireaccountability so creativity is more abundant and less inhibited. It is particu-larly applicable in advertising, new product development, production processchanges and complex decisions about managerial information systems.

There are also variations on the brainstorming methodology shown above. Instop-and-go brainstorming, short periods of brainstorming (10 minutes or so)are interspersed with short periods of evaluation. With large groups, the Phillips66 technique can be used. Once the problem is clearly understood, small groupsof six brainstorm for six minutes. Then a member of each group reports eitherthe best ideas or all ideas to the larger group. Reverse brainstorming bringsfresh approaches by turning the problem around, for instance: ‘How could welower productivity? How could we decrease morale? What can we do to stiflecreativity?’

Nominal Group Technique (NGT)

This method structures the work group’s creative process to minimise verbalinteraction among members. The group, usually no larger than nine, follows ahighly structured procedure which is briefly described below.

1 The question under study is posted in front of the group whose memberssilently generate ideas in writing without looking at the work of others ordiscussing the question (5 to 10 minutes).

2 The leader goes around the table and asks each participant to read oneidea from his or her notes. This idea is recorded in some way (computer,flip-chart, video tape etc.) In a round-robin fashion, all participants presenttheir ideas for recording until all are shown.

3 Each idea recorded is discussed in the order it appeared. The leader readseach item and asks the participants if there are any questions or pointsneeding clarification.

4 Each member records the ideas on 3’×5’ cards and rank orders them secretlyfrom 1 to n. The mean average rankings are used as a basis for the group’sdecision. The NGT process can end here or the decision may be refinedthrough discussion and rewording.

5 The voting patterns can be analysed and reasons can be examined to see ifmore accurate decisions can be made.

6 A final vote is taken in the same way as in step 4. This vote closes thedecision loop so members experience closure to the NGT process.

The NGT has advantages over more common and less disciplined groupproblem-solving methods. First, idea generation is separated from idea evalu-ation. Second, balanced participation occurs and the effects of dominant indi-viduals on group decision-making are lessened. Third, it ensures the systematicmovement towards the aggregation of votes to determine a preferred outcome.Fourth, a group in any stage of development can use the NGT. It is time efficientand members find the process to be satisfying.

On the negative side, the NGT is highly formalised and its repeated use canlead to member perceptions of ‘ritualistic decision-making’. Thus, the creative



benefit of the NGT can be neutralised if the technique is used too often. Tosustain the effectiveness of NGT, the team or group leader must develop a normto encourage participation when it is appropriate. The leader who relies only onthe NGT as a proxy for team participation will be disappointed in the quality ofhis team’s decision making.

Second, groups with stable membership find the technique effective as well asnew groups or project groups. Lastly, the group’s formal leader must develop anorm which encourages a systematic approach to group creativity so as not tosuppress participation.

Delphi Technique

This method can be used to make group decisions when members cannotattend a meeting. It is a method for gathering systematically written judgementsfrom members using a set of sequentially modified questionnaires interspersedwith summaries of results from previous rounds of information gathering frommembers. The technique was developed by the Rand Corporation as a wayof forecasting future events of national and international importance.15 Thetechnique takes considerable time and effort to complete. In using it, membersof the group may not know the other group members and it requires a central co-ordinating mechanism to manage the alteration, transmission and summarisingof questionnaire data. The Delphi technique follows these steps.

1 Each group member independently and anonymously records comments,suggestions and solutions to the problem facing the group.

2 All the data generated in step 1 are sent to a centrally located individualwho is responsible for data compilation and reproduction.

3 Each member receives a copy of all written comments from other members.4 Members generate feedback on other members’ comments, and all second-

round feedback is written down and sent to the centrally-located individual.5 Steps 3 and 4 are repeated as many times as necessary to reach consensus.16

Are Delphi Groups Effective?

Evidence indicates that Delphi groups can be more effective than groups whichdo not follow a disciplined problem-solving procedure. It has been found thataverage performance was higher for Delphi groups than for undisciplined groupsboth working on a comparable problem-solving task.17 Delphi groups elimi-nate the effects of dominant personalities on group decision-making. They alsoeliminate the effects of perceived member status on group decision-making.Computer-based e-mail systems and the World Wide Web create obvious advan-tages to the use of Delphi groups. Lastly, Delphi groups are quite different fromnominal groups as Table 6.7 shows.

6.5 Practical Guidelines for Managing GroupsManagers must continually shift their emphasis between two tasks which influ-ence the effectiveness of group decision-making. Task activities are defined asthose group activities which channel member efforts to achieve the purposes



Table 6.7 How Delphi groups differ from nominal groups

Delphi groups are Nominal groups are

Composed of members who are unaware ofother group membersMade up of members who never meetface-to-faceReliant on a central processing unit whichcollects, collates and feeds back information

Composed of members who know each other

Designed to meet face-to-face

Designed to reach a decision more quickly

More likely to have status and dominanceeffects

of the group. When members define work methods, plan schedules or assessservice or product quality, the group is working on task activities. Mainten-ance activities are group functions which nurture and sustain the emotionalqualities in a task group. When group members focus on member satisfaction,well-being and the group’s cohesiveness, then maintenance activities are beingperformed. Table 6.8 lists typical situations which indicate the presence of taskor maintenance activities in work group decision-making.

Table 6.8 Situations characteristic of task activities and maintenance activities

Task activities are occurring when Maintenance activities are occurring when

The group is getting started and introducingideasThe group is diagnosing problems andsuggesting problem effectsThe group requests objective information toensure accuracy and attention to detailThe group is providing timely informationabout the group’s task to its membersThe group is spelling out relationshipsbetween the flow of work among grouppositionsMembers sum up group progress on ideas,activities, goals and solutions.Members co-ordinate their activities to ensuresteady progress to the group’s goalsThe leader reports the group’s progress tohigher managers

The group is creating a supportingcohesivenessThe group encourages agreement and praisesgroup membersMembers are discussing group norms andtheir effects on the group’s ability to achieveconsensusMembers are going along with participant-generated ideas to ensure memberinvolvement and commitmentMembers are discussing ways to attract newmembers and ensure their inclusion in groupworkThe leader advocates the group’s position tohigher managersAll group members discuss levels of status toensure member commitment to its goals

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

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



Em

ph

asis

on

task

an

d

ma

inte

na

nce

activitie

s

Task activities

Maintenance

activities

Stages of development

Forming Storming Norming Performing

Figure 6.4 Stages of development and the emphasis on task and maintenanceactivities in work groups

Effective management of work groups goes well beyond recognition of taskactivity and maintenance activity needs. Knowledge of the work group’s stageof development coupled with a willingness to use brainstorming, NGT and theDelphi technique can move groups beyond process losses and into stage 4. Thefollowing guidelines also help minimise process losses.

1 Define the work group’s task or problem carefully. Before you proceedwith idea generation, ensure that each member of the group understandsthe nature of the problem to be analysed.

2 Do not jump to idea evaluation before idea generation has created numer-ous alternatives. This is a process loss which can be avoided by using brain-storming or the NGT to generate ideas, solutions, effects and outcomes.

3 Avoid groupthink.Recognise that a norm about conformity can easilydevelop in cohesive groups which then suspend their capacity for criti-cal decision-making. Further, teach all group members how to recognise thesymptoms of groupthink.

4 Manage the norms of the group by making valued rewards contingenton high-quality group performance. This principle will reward individ-ual performance excellence which supports group norms about effort andperformance.

5 Make group-level rewards contingent on the group’s contribution to workunit successes. When rewards are tied to success for collaborative behav-iours, the normative structure of the group remains consistent with organi-sational goals and performance standards.

6.5.1 Managing Intergroup Behaviour and Performance

Intergroup behaviour occurs when two or more groups in an organisation haveinteraction requirements set by the organisation or its management. The effec-tiveness and performance of organisational groups depend on the extent towhich they meet the specified interaction requirements. Steers and Black argue



that there are three prevailing group interaction requirements: 1) interdepen-dence, 2) information flow and 3) integration.18 Interdependence requirementsrefer to the frequency and quality of interactions among groups. Due to task com-plexity and uncertainty, interactions among groups must be highly co-ordinatedand surrounded by safety procedures to prevent errors and communicationslapses. Extremely high interdependence requirements were evident in an Ameri-can military mission to extract an American F-16 pilot shot down over Bosnia.The mission required over 40 military aircraft from the United States Navy,Marines and Air Force. Two aircraft carriers were involved and the missionwas monitored by government officials in Washington, DC. Information flowrequirements refer to the amount, quality and timing of information necessaryto produce joint decisions by interacting groups. If the task(s) facing the groupsis unclear and complex (high task uncertainty) then information requirements(amount, quality and timing) rise rapidly. As the number of interacting groupsrises along with task uncertainty managers find rapidly escalating informationflow requirements. Integration requirements refer to the extent of collaboration,co-operation and structural unification among groups working towards com-mon goals.19 If integration requirements are low among organisational groupsthen they can become highly differentiated and they develop their own uniquemethods and forms of communication. Thus, specialists in one department maychide members of other departments for ‘speaking a foreign language’ becauseit becomes a barrier to good organisational communications. Again, integrationrequirements among co-operating groups generally rise along with increasingtask uncertainty.

The three elements described above raise interaction requirements among co-operating groups as task uncertainty and the number of interacting groups bothincrease. When companies shift from hierarchical control and decision-makingto the use of self-directed teams, the three elements described above are majorobstacles to creating an effective delayered, team-driven company. The risingcomplexity of intergroup relations challenges managements to find dependableways to control interactions among groups. Steers and Black suggest severalpathways to effective intergroup relations which are based on the level of taskcomplexity and task uncertainty.20

Rules and procedures. Common under conditions of low task uncertainty andlow interaction requirements is the elaboration of rules, regulations and proce-dures to ensure that co-operating groups are informed of tasks requiring jointaction. An example of this would be the requirement that the shipping depart-ment notify personnel in accounts receivable within one hour after shipping thatproducts are in transit.

Member exchange. To better understand the requirements and activities inone group, another organisational group may temporarily assign a member tothe group in question. Once the member is back in his original position, he canhelp the two interacting groups co-ordinate more effectively their joint work.Frequently job rotation programmes achieve this outcome while also ensuringhigher levels of cross-training among members of the company’s work-force.

Linking roles. By formally creating a position designed to oversee and co-ordinate the work of two or more groups the organisation can significantly



improve their intergroup performance. A brand manager who oversees and co-ordinates the work of marketing, production and sales to keep a strong marketfocus on a particular product or brand is a good example of a linking role.

Task-forces. A task-force is a group-based, temporary version of a linkingrole. When an organisation faces a temporary problem such as building anew production facility or launching a new manufacturing platform, a task-force is usually a highly useful mechanism to improve intergroup performancewith respect to the task at hand. A task-force is made up of individuals withcomplementary skills from various units which will be strongly affected by thesolution to the problem at hand. The act of creating a task-force and choosing itsmembers sends a strong signal throughout the organisation about the importanceof change and the status of organisational units before and after the change.

Decoupling. Because of a need for 1) fast decision-making or 2) organisa-tional security or because of severe intergroup conflict, it may be necessary toseparate groups physically or administratively. This action may achieve desiredperformance outcomes while greatly reducing interaction among two or moregroups. Setting up special product development teams in their own work areasand requiring them to report only to a given high-level manager is a goodexample of decoupling. Decoupling may be designed to be temporary so thatproduct designs are framed to a certain point before they are integrated withother product requirements. Thus, decoupling is used to prevent conflict amongproduct development teams in early product development stages. At later stages,the conflict is far less destructive because the development teams are required tofocus on integrating product features rather than competing for scarce productdevelopment resources.

In very complex organisations with multiple product divisions and far-flunginternational operations, all five methods to manage intergroup behaviour andperformance are used. Developing the skills of managers to use these methods isabsolutely essential in organisations with multiple, complex product lines. To theextent that product life and product development cycles shorten, organisationsmust apply more resources to the problems of ensuring improved intergroupbehaviour and performance if they hope to sustain competitive advantage.

6.5.2 Laggards in Groups: Spotting and Correcting Social Loafing

All managers have led teams or been members of teams having members whodo not perform their fair share of the group’s work. Some group members arepractitioners of the fine art of social loafing because they cause average membereffort and performance to decline as group size increases (see the argumentdeveloped to accompany Figure 6.2).21 As an effect on group performance,social loafing was documented in a study performed by Ringelmann who foundthat in a rope-pulling exercise, three people pulling together could achieve onlytwo and a half times the average individual rate. Eight pullers achieved lessthan four times the individual rate, and so on.

Several theoretical explanations have been offered for social loafing: 1) equityof effort (‘Everyone else is goofing off, why shouldn’t I?’); 2) loss of personalresponsibility (‘It’s a large group, so no one will miss me’); 3) reduced effort



caused by reward sharing (‘Everyone is paid the same, so why should I putin extra hours?’); 4) co-ordination complexity in larger groups (‘There are somany of us that we’re getting under each other’s feet’). In most organisationsthat extensively use groups we will find managers who try to reduce the socialloafing tendency. The recommendations to lower social loafing borrow heavilyfrom the concepts of job involvement, work group norms and the significance ofgroup goals. Here are some practical suggestions that you can follow to reducesocial loafing in groups that you manage:

1 Focus on the interesting and important aspects of the task to increase thelevel of job involvement of group members.

2 Assure group members that their individual contributions are identifiableand significant.

3 Tell group members that they should not tolerate inadequate effort orperformance from group members.

4 Tell them that they should expect to have their performance evaluated.5 Ensure that some portion of rewards received by group members is depen-

dent on their performance.

6.6 Decision-Making in Teams: Deciding on the Extent ofParticipation

Managers have long been perplexed by the problem of not knowing whento have employees participate in the decision-making process. Researchers atYale University have tried to address this problem by developing a decisionmodel which helps managers to choose the best level of employee participationin decision-making given a variety of situational determinants.22, 23 The modelthey developed describes five forms of decision-making which vary from beingautocratic and boss centred to being collaborative and group centred. The fiveforms of decision-making are:

The AI form. A manager makes a decision alone, using the informationcurrently available. This is the most authoritarian, boss-centred style of decision-making.

The AII form. A manager seeks information from subordinates or groupmembers and then makes a decision. Employees may or may not be aware ofthe problem before the manager takes a decision.

The CI form. A manager explains the problem to his subordinates in a one-to-one format. The manager takes a decision which may or may not reflect theideas of his subordinates.

The CII form. A manager explains the problem at hand to his subordinatesin a group format. The manager takes a decision which may or may not reflectthe ideas of his subordinates.

The GII form. A manager explains the problem to his subordinates in a groupformat. With the manager, the group makes a final decision.

The central principle to the model is that the decision-maker should select themethod that best fits the problem being solved. The key to using the normative



model is for the manager to match the correct decision-making style with thecharacteristics of the decision situation. Using the decision tree in Figure 6.5, it ispossible for a manager to select the correct decision style by answering a seriesof structured questions about the decision situation. The critical attributes of thequestions are: available time to make the decision, the importance of qualityin the decision, the importance of subordinate commitment to the decision andthe extent of information available to make the decision. The manager worksthrough the decision tree to the best decision style at the end of the bracket.

CO

Problem Attributes

Quality Requirement

Commitment Requirement

Leader's Information

Problem Structure

Commitment Probability

Goal Congruence

Subordinate Conflict

Subordinate Information

Manager's Questions

How important is the technical quality of this decision ?

How important is subordinate commitment to the decision?

Do you have sufficient information to make a high-quality decision?

Is the problem well structured?

If you were to make the decision by yourself, is it reasonably certain

that your subordinate(s) would be committed to the decision?

Do subordinates share the organizational goals to be attained insolving this problem?

Is conflict among subordinates over preferred solutions likely?

Do subordinates have sufficient information to make a high-quality

decision?

CR

LI

QR

ST

CP

GC

SI

CR

QRState theProblem

CR

LI ST

CP

GC

CO

SI

LI ST

CP

CP

CP

GC

GC

GC

CO

SI

HIGH

LOW

LOW

HIG

H

HIG

H

LO

W

YES

NO

YES

YESNO

NO

NO

NONO

NO

YES

YES

YES

YESYES

GII

AI

CII

CI

AII

CII

GII

CII

GII

AI

YES YES

YESYES

YES

YES YESNO

NO

NO

NO

NO

YES

NO

NO

NONO

Figure 6.5 The Vroom–Yetton–Jago normative decision modelSource: Reprinted from Victor H. Vroom and Arthur G. Jago, 1988. The New Leadership: Managing Participation inOrganizations, Englewood Cliffs, NJ: Prentice Hall. Copyright 1988 by V. H. Vroom and A. G. Jago. Used with permission ofthe authors.

Researchers use the decision tree in Figure 6.5 to help managers analyse thesituational qualities of a decision so that they choose the most appropriatelevel of participation among their subordinates. For instance, note that theheavy line in the figure indicates that a particular problem is best handled



with a ‘G’ group decision method. The model’s developers have found intheir research that managers who were trained to diagnose the key attributesof the decision situation were better able to select the appropriate level ofparticipation than managers who had not received the training. Research in theretail setting has shown that managers who have received training in the useof the normative decision model had higher-performing groups than managerswho did not receive the training.24 Additional research indicates that managerswho have strong conflict-management skills have more effective groups whenthey use more participative methods than those managers with weaker conflict-management skills.25

The normative decision model emphasises the importance of choosing the levelof participation which is most appropriate for the decision to be made. Practicallyspeaking, the model encourages the manager to evaluate the decision’s featuresand context before he selects the appropriate level of subordinate participation.In practical terms, given all of the decisions with the potential for participationtaken by managers every day, it is impossible for the manager to apply thenormative model in each instance. Nevertheless, there is a clear disciplineand value in applying those qualities and questions which shape the levelof employee participation in decision-making. Making explicit those decision-shaping qualities and questions is perhaps the most valuable contribution madeby the model.

6.7 Work Groups in Competition and Conflict

No discussion of work group behaviour would be complete without consideringthe significance of conflict and how to manage it in work groups. Consider thefollowing episode:

James was the senior design engineer in Leitnerlox Inc., one of six divisions ofthe Leitner Company founded by J. M. Leitner. He was a vocal advocate ofthe design capabilities of his 15 engineers who create new belting systems formoving lightweight products through customers’ manufacturing systems. Recently,J. M. (who developed the first interlocking plastic belting systems for industrialapplications) became concerned with the specifications for a new belting systemwhich James’ group had produced. J. M. felt the specifications were incorrect andthe engineers had used poor judgement in the selection of plastic for extruding theinterlocking plastic components for the new system.

James immediately came to the defence of his engineers and openly criticisedJ. M. He went to Roger Keyte, the Leitnerlox division general manager with hisexplanation and demanded that he support the Leitnerlox design group. Rogeragreed and took the case to Jay, J. M.’s son and chief operating officer of Leitner.Roger indicated that he had ‘the best damned engineers in the business and [he]didn’t appreciate J. M.’s meddling in the design unit’s affairs’. Jay responded with:‘J. M. built the entire business with his inventive genius and he can still designcircles around any of your engineers, including James.’ Roger listened to this andresponded abruptly with: ‘If you don’t think my engineers are competent then youmust think I’m not competent. If you want my resignation, you’ve got it.’ Jaythought for a moment and responded: ‘I didn’t ask for your resignation, but I wantJames terminated.’



6.7.1 Two Organisational Views on Conflict in Groups

The dilemma above illustrates how conflict can escalate quickly to produceoutcomes unforeseen by members of the organisation. Essentially, organisationsfall into two categories when it comes to managing conflict in and between workgroups: 1) conflict is always dysfunctional and unhealthy for the organisationand 2) conflict is a by-product of organisational life and it is unavoidable butmanageable. It is clear that the conflict noted in the example classifies theLeitner Company in the first category, especially when the conflict involvesfamily executives and non-family executives and professionals.

The first conflict view is called the traditional view and it encourages thesuppression of conflict. In other words, group and organisational norms emergewhich keep conflict under strict control. This outcome may be obtained bydefining areas of responsibility tightly to prevent jurisdictional disputes. Whendisputes do occur, they are handled quickly by the formal hierarchy. In otherwords, the dispute rises to a level in the hierarchy where a manager has sufficientlegitimate authority to insist on a solution. Solutions under the traditional viewoften become very similar because those engaged in the dispute often findthemselves dismissed or transferred to some other part of the organisation.

The contemporary view takes the position that conflict in and between groupscan be a useful deviation from the status quo. The idea is that if deviationcan be managed, then positive by-products can emerge. It also holds that thesuppression or avoidance of conflict is impossible and far too costly to meritserious managerial consideration. Indeed, managers working in organisationswith this view on conflict often become suspicious if too much harmony isevident! They reason that such organisational tranquillity indicates complacencyand perhaps there is insufficient examination of company goals, activities andpolicies.

When companies adopt the traditional view, conflict is usually experienced asdestructive and it produces negative results for the company and its employ-ees. The contemporary view recognises that conflict can be destructive andconstructive, sometimes in terms of the same issue. This view encourages thedevelopment of company systems to manage and channel conflict to valu-able organisational ends. As a general rule, conflict can have beneficial resultswhen the organisation practises employee empowerment and finds ways toinvolve employees in ‘core issues’ such as product and service quality, produc-tivity, employee management systems and grievance-handling procedures andjob security.

6.7.2 Managing Conflict within and between Groups

Conflict-management in organisations focuses on lowering the existing level ofconflict. The methods for managing conflict noted below are presented with theidea that conflict is currently at undesirable high levels. The methods to be cov-ered are: avoiding, accommodating, forcing, compromising and collaborating.

Avoiding

Any approach which avoids a major conflict confrontation is called avoidance.



Avoidance means the conflict is prevented from coming into the open. Avoid-ing conflict can occur by ignoring the conflict and refusing to deal with anyinformation or behaviour associated with the conflict within or between groups.

When Should Avoiding Be Adopted as a Strategy?

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

Accommodating

This refers to letting others have their way. This is the strategy of appeasementor self-sacrifice. Accommodation may be reasonable if you fear losing a friendor if you know that argument would trigger a structural solution to a conflict.This means either you or the other party could be transferred. A manager mayalso select this strategy when he realises that ‘winning this battle may meanlosing the war’.

When Should Accommodation Be Adopted as a Strategy?

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

Forcing

This refers to using power, coercion or pressure to impose a solution throughintimidation. Environmental disasters such as oil spills, nuclear reactor dangersand chemical fires may require instant decisions which leave no room for discus-sion or disagreement. When security services deal with terrorism and organisedthreats to public safety, crisis intervention units follow procedures which leavelittle room for alternative strategies.

When Do Executives Select the Forcing Alternative?

Not surprisingly, executives cite the following situational characteristics as deter-minants of the forcing strategy: 1) emergency conditions exist and decisive actionis vital, 2) the issue is extremely important and unpopular actions must be imple-mented, e.g., downsizing, restructuring, discipline, 3) when company welfare isat stake and the decision-maker knows he is right and 4) an organised oppositionwould take advantage of non-competitive behaviour.26



Compromising

This refers to negotiating to reach a mutually acceptable solution. This is thestandard approach for solving labour–management disputes. Compromisingtends to occur when the parties in conflict have about equal power, and a fixedamount of resources must be divided in some way. The process of compromisingis frequently punctuated by the efforts of both parties to distort information,make strong emotional appeals and attempt to argue for their positions in thecourt of public opinion if the conflict is a highly visible one.

Why Would Executives Select a Compromising Strategy?

Executives cite several reasons for using the compromise strategy: 1) the decision-maker believes his goals are important, but insisting on achieving them is notworth the potential disruption created by more assertive modes, 2) the opponenthas equal power and is committed to mutually exclusive goals, 3) a temporarysolution is sought for a complex issue, 4) excessive time pressure dictates expe-dient solutions and 5) as a back-up when collaboration is unsuccessful.26

Collaboration

This is the problem-solving approach where the needs of both parties are inte-grated to solve a problem permanently through mutual commitment to thesolution. Problem-solving by the parties involved in the conflict usually followsthese steps in reaching a collaborative solution.

1 Define the problem and share the facts (rather than make emotional appealsand distort facts).

2 State the problem in specific terms before searching for solutions.3 Once facts are collected, focus on them instead of focusing on the disagree-

ment.4 Conduct non-judgemental discussion of the facts and the problem.5 Collaborate on alternatives which lead to the best mutual solution rather

than those alternatives which lead to solutions favouring one party’s inter-ests.

6 Develop criteria for measuring the quality and acceptability of the proposedsolutions, agree on them, and present the solutions for criteria review beforeone is selected.

7 Define all agreements as tentative until all facets of the conflict have beenaddressed. Thus, there is no implementation of any agreement until bothparties are convinced they can support the solution.26

Summary Points

• A group is a collection of two or more employees who interact, perceivecommon interests or goals and are brought together to accomplish a mean-ingful organisational activity.



• Organisations have formal task or command groups and informal friendshipgroups. Generally speaking, informal groups emerge because formal groupscannot satisfy all their members’ needs.

• Project teams have specific purposes to be accomplished in short timeperiods. Once goals are accomplished, project teams are disbanded.

• People join groups and organisations because of interpersonal attraction cre-ated by proximity, physical attractiveness, attitude similarity, demographicsimilarity, group activities and group goals.

• Work group composition refers to the degree of similarity or differencebetween members’ personal qualities. When members share a number ofcharacteristics, the work group is said to be homogeneous. When membershave little in common, the group is heterogeneous.

• Cohesiveness is a property of groups which means that members value thebenefits of membership highly. Cohesiveness will be positively related toperformance if the work group’s performance norms agree with the per-formance norm of the organisation. Managers can influence cohesiveness bycontrolling composition, size, clarity of goals and activities and disturbances,creating a common enemy and using positive feedback about performance.

• Work group norms streamline the process for controlling member behaviour.Without norms, a group would have to deal with each example of behaviouras a discrete event.

• When work groups are cohesive and they have well-developed norms,conformity can be high. Conformity occurs when members consciouslyadjust their behaviour to the work group’s norms.

• If conformity and cohesiveness are extremely high, a work group mayexhibit groupthink. This is the suspension of critical thinking in the group.Groupthink symptoms are detectable and correctable. Groupthink need notalways result in bad decisions. Often a work group will exhibit groupthinkbut possess enough information to reach a correct decision.

• Positional status refers to the rank of a position in a work group’s hier-archy. This form of status attaches to the position and not its incumbent.Personal status is the rank or standing of the individual in the work group.Both positional status and personal status are reflected by status symbolsbestowed by the organisation.

• Work group size has predictable effects on member participation, satisfactionwith membership, process losses and average performance per member.

• Work group development proceeds through four stages: 1) forming, 2)storming, 3) norming and 4) performing. Each stage has identifiable issueswhich must be resolved before the group can progress to the next stage.

• Work groups cannot stay in stage 4 indefinitely. Turnover of member-ship and changes in the group’s task eventually dislodge the group fromthis stage. Managers must recognise and manage these forces to ensureorganisational renewal and transmission of organisational culture from onegeneration of employees to the next.

• Groups make risky decisions based on how members value risk and theorganisation’s expectations that given groups should be risk tolerant or riskaverse.



• Work group creativity can be low if the manager fails to follow a creativedecision process, does not separate idea generation from idea evaluation ingroup decision-making and does not teach the group how to take ownershipfor creative ideas.

• Brainstorming in work groups defers judgement about the quality of sugges-tions and focuses exclusively on generating as many suggestions as possiblein a set time period.

• The nominal group technique (NGT) formalises face-to-face interactions inwork groups to minimise the effects of status and to manage memberparticipation in decision-making. While the procedure is ritualistic, it canresult in better group decisions.

• The Delphi technique can be used for large-scale policy decisions whereanonymity of group members is a prerequisite for effective decision-making.While it is costly and time-consuming, the Delphi technique does producedecisions which are superior to those produced by conventional face-to-facedecision-making groups.

• The effective group leader must judge when task activities or maintenanceactivities are of greater concern to the group. The skills which facilitategroup relations in these two areas can be learned.

• Process losses can be minimised by: 1) careful definition of the group’stask, 2) separation of idea generation from idea evaluation, 3) avoidanceof groupthink, 4) making group rewards contingent on group performanceand 5) making group rewards contingent on group contributions to workunit successes.

• Managing intergroup behaviour and performance requires the manager toassess groups’ need for interdependence, information flow and integration.Depending on needs in these three areas, managers can choose among thefollowing to improve intergroup behaviour and performance: 1) rules andprocedures, 2) member exchange, 3) linking roles, 4) task-forces and 5)decoupling.

• Social loafing is the decline in average member performance in groupsof increasing size. Social loafing can be reduced if a manager focuses onmaintaining high job involvement, preserving group performance normsand reinforcing the importance of the group’s performance goals.

• The extent of group participation in decision-making can be determinedby diagnosing the group decision-making situation. The key considerationsin the diagnosis are: 1) the time pressure to make the decision; 2) theimportance of decision quality; 3) the importance of subordinates’ commit-ment to the decision; and 4) the extent to which information is available tomake the decision. The actual amount of group participation in decision-making varies from none (boss-centred decision-making) to considerable(full group-centred decision-making).

• When group conflict is viewed as a natural process which can be managedin the organisation, the contemporary view exists. If conflict is viewed asalways being destructive and injurious to harmony this is the traditionalview.



• Various methods for managing conflict exist. The manager can select fromthese strategies: 1) avoiding, 2) accommodating, 3) forcing, 4) compromisingand 5) collaborating. The selection of the method rests on the decision-maker’s analysis of the situation and his personal preferences for givenstrategies.

Review Questions


6.1 A group of design engineers formed to complete the reliability testing for anew industrial process is an example of a command group. T or F?

6.2 Informal groups emerge in the organisation when formal groups do not satisfyall the needs of their members. T or F?

6.3 Project team management relies heavily on a well-structured system to supportthe productivity of the teams. T or F?

6.4 In general, interpersonal attraction leads to heterogeneity in informal workgroups. T or F?

6.5 When members of a bank’s board of directors are asked by executive officersof other banks to join the board, interpersonal attractions based on social,economic, gender, race and perceived ability similarity are probably functioning.T or F?

6.6 Over time, stage 4 mature groups are likely to become more heterogeneous. Tor F?

6.7 Heterogeneity in work groups generally increases group problem-solving poten-tial, member satisfaction and conflict. T or F?

6.8 Cohesiveness in a work group emerges more quickly if the group is homoge-neous. T or F?

6.9 If a manager controls 1) work group size, 2) clarity of the group’s goals andactivities and 3) timing of positive feedback, then cohesiveness will rise. T or F?

6.10 The degree of agreement between the work group’s goals and the organisa-tion’s timing of group-based rewards determines the relationship between workgroup cohesiveness and performance. T or F?

6.11 Norms in a work group develop most quickly in the areas of members’ effortsand the group’s work activities and goals. T or F?

6.12 Groupthink may be occurring in a work group when it prevents outside expertsfrom introducing information into decision-making and the leader suppressesdissenters. T or F?



6.13 Project groups which are quickly formed and heterogeneous are less likely toexhibit groupthink than a permanent work group in stage 3 of development.T or F?

6.14 Work groups experiencing groupthink always make poor decisions. T or F?

6.15 Having the respect of your subordinates for your expertise in problem-solvingis an example of positional status. T or F?

6.16 When a work group adds two new members, it is generally true that averagemember participation will decline while average performance per member willrise. T or F?

6.17 Process losses are minimised in a heterogeneous work group which matchesmembers’ skills to the group’s task or goals. T or F?

6.18 Work group composition and maintenance of norms characterise the manage-ment problems of a stage 2 group. T or F?

6.19 In general, mature work groups quickly detect the presence of process lossesand require the leader to take prompt action to eliminate them. T or F?

6.20 If members of a command group value risk, the group has high positional statusand the organisation is conservative, then the group will make risky decisionsindefinitely. T or F?

6.21 Brainstorming is a successful method for achieving work group creativity becauseit overrides the group’s natural tendency to defer judgement on creative mem-bers’ suggestions. T or F?

6.22 Delphi groups are: 1) composed of members who do not know each other, 2)less likely to exhibit status and dominance effects than nominal groups and 3)not reliant on a centralised data processing function. T or F?

6.23 A stage 4 group discussing ways to attract new members would be engaged ina task activity. T or F?

6.24 The traditional view of conflict holds that organisational harmony may some-times stand in the way of creative work group problem-solving. T or F?

6.25 Forcing would be a good conflict-management strategy in a command groupif there were sufficient time to make the decision and members had unequalpower. T or F?


6.26 Participative decision-making tends to be associated with:

A higher levels of group member satisfaction.

B lower individual member productivity.

C less creativity among team members.

D more rapid decision-making.

E increased rivalry among team members.



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

A encourage members to rationalise the group’s decision.

B increase peer pressure to manipulate dissenting group members.

C re-examine the preferred solution even if consensus has been reached.

D criticise the competition or opposition.

E have the leader convince group members that mistakes are impossible tomake.

6.28 Being a project team leader, you recognise the value of achieving some ini-tial success at defining the nature of task problems confronting your team.Therefore, early in the process of achieving team goals you might:

A encourage high cohesiveness to build strong group integrity.

B use devil’s advocacy to prevent initial groupthink.

C minimise member diversity by selecting team members with much in com-mon.

D use brainstorming to develop a long list of unevaluated problem approaches.

E use the Delphi technique.

6.29 Social loafing is often:

A a deterrent to effective group relations among members and to groupperformance.

B a direct result of excessive cohesiveness in a group.

C a result of groupthink.

D a stimulant to increased group performance.

E a deterrent to potential group performance but not a deterrent to averageindividual member performance.

6.30 A group quality which can sometimes lead to either high or low group effec-tiveness is:

A high levels of interpersonal attraction.

B cohesiveness.

C participation in group decisions by members.

D risk avoidance by group members.

E members with uniformly high personal status.

6.31 The third stage of group formation involves:

A members trying to understand those behaviours which are most importantto the group.

B collaboration and minimisation of process losses.

C the development of trust and support among group members.

D members’ assessment of the degree of commitment and support requiredfor group membership.

E the stabilisation of group leadership and the determination of grouphierarchy.



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

A forming

B performing

C norming

D storming

E maturity

6.33 Group cohesiveness is negatively affected by:

A large group size, more than 15 members.

B interpersonal attraction.

C moderate external pressure in the form of competition among groups.

D group members with high personal and positional prestige.

E groupthink.

6.34 Which of the following is not a maintenance activity in a group?

A Smoothing conflicts.

B Following the ideas of other group members.

C Setting goals and assigning tasks to members.

D Helping other members express their feelings about group membership.

E Arranging for new members to be introduced to senior team members.

6.35 Generally speaking, effective, empowered problem-solving teams would takethe view of conflict.

A traditional

B short-term

C liberal

D contemporary

E internal


6.1 Describe the organisational conditions which would make the use of projectteams desirable. When using project teams, which management requirementsmust be specified?

6.2 Describe four factors which managers can manipulate to influence group cohe-siveness.

6.3 Does work group cohesiveness mean that the group will be productive relativeto organisational standards? Please explain your answer.

6.4 Describe groupthink. What are the characteristics of a work group that isexperiencing groupthink?

6.5 How do the problems facing a work group change as it moves through thefour stages of development?



6.6 Assuming a work group has members who value creativity and the group is inan organisation which expects it to be creative, which factors (process losses)can prevent the group from actually being creative?

6.7 Why is the deferral of judgement about creative suggestions in a work groupan important prerequisite for sustained creativity?

6.8 If a manager does not wish to use the brainstorming, NGT or Delphi methods,what should he do to keep his work group creative?

6.9 What diagnostic questions should be considered as a manager considers theproper level of team involvement in organisational decision-making?

6.10 As organisations move from centralised decision-making to decentraliseddecision-making centred in self-directed teams, what will have to be donein terms of team integration and interdependence?

Case Study 6.1: Assessing Work Group Creativity

Lexington Ltd develops and distributes managerial training materials for manu-facturing and service companies in the UK. The company was founded by EanClease ten years ago. The firm has grown steadily in domestic and export sales.Lexington had sales of £5.4 million in the last year. It projects a 10 per cent gainin domestic sales (about 80 per cent of the firm’s business) and a 7 per centgain in foreign sales for this year. The firm currently has 50 employees engagedin production and sales work. The ‘creative core’ of the business consists of sixemployees and Clease who develop all of the company’s video tape productsand allied training materials. Around the company they are known as ‘Ean’spatrol’.

Clease hand-picked the six employees five years ago. Their names, ages, andprofessional backgrounds are shown in Table 6.9.

Ean believes the group works well together, even though some members haveodd personal habits. For instance, Lydia prefers to wear her hair in a ‘neo-punk’style and it has occasionally been more than one colour at the same time. Wilson,on the other hand, is very conservative and prefers to wear a coat and tie at alltimes. The group maintains that Wilson wants Lydia to colour her hair ‘plaid’.Jensen prefers to work odd hours and he is frequently on the job Saturdays andSundays. However, he may not show up the next Monday and Tuesday. Andreaprefers a regular work schedule as does Abelson. These two work togetherquite well and they have designed some new formats for blending computer-generated animation with standard studio footage that is visually very excitingand inventive. According to Ean, Lisa evaluates all the creative products of thegroup ‘as if she were putting together a travel brochure’.

The group knows that they have a free rein to use equipment and developnew training products and video tapes as they see fit. They work closely withthe filming crew, since they must produce all the written scripts which representthe basis for the management topics dramatised in the video tapes. The freedomto be creative has led to all of the group becoming very conversant with all



Table 6.9 Ean’s patrol at Lexington Ltd

Name Age Professional background

Lydia Smith 28 She studied theatre arts but left college to work with a smalltheatre group in London for two years before coming toLexington four years ago. She was responsible for all set designand stage management.

James Wilson 32 Degree in romance languages from Heriot-Watt University.Worked as a management development specialist at Heriot-Watt’sEsmee Fairbairn Research Centre for five years. During that time,he became an expert in designing large-scale corporate trainingprogrammes offered by the research centre. Has been withLexington for four years.

Keith Abelson 35 Degree in computer assisted graphic design from the University ofBritish Columbia, Vancouver, Canada. He is a ‘wizard’ in creatinganimation effects with computer-assisted design. Ten years atLexington.

Lawrence Jensen 36 Seven years of experience in magazine layout and advertisingcopy-writing before joining Lexington eight years ago. He wonseveral industry awards for his advertising layout work with amedium-sized advertising agency in London.

Andrea Wight 26 Mathematics and literature major in college. Has worked atLexington for two years. Prior to that, worked for a smallconsulting firm specialising in designing software for controllingcomplex assembly movements for robotic devices.

Lisa Bronson 38 She and her husband owned and operated a successful travelagency. After they sold the business, she worked for three yearsas an executive in the London Tourism Council. She has worked atLexington for five years.

aspects of product and service development. They also know each other’s jobsquite well, so little development time is lost when someone is ill or on holiday.

The group has divided itself into development and production areas. Forinstance, Lydia, Andrea and Lawrence typically brainstorm new products whileJames and Keith sketch out the scripts and search for suitable filming locations.Lisa arranges shooting schedules and co-ordinates production work with Eanand the film crews. She also makes all local arrangements for the crews whenthey are filming at various corporate offices in London.

Keith and Andrea have been working hard on Ean and the rest of the groupto consider animating sections of older training films to give them a ‘newlook’. They argue that it would be much cheaper to do the upgrade on olderproducts than start from scratch with new ideas in the works. Some of Keithand Andrea’s demonstration footage is quite creative and Ean has consideredshowcasing their work at the next planning session with the vice-president ofproduction and filming.

The group has no set work schedule. They usually bring their lunches towork and they can often be found brainstorming new production ideas aroundthe lunch table. Everyone is included in these sessions, but it is not unusual fora member of the team to miss a lunch. No one gives this much thought sinceteam members often take care of personal business at midday.



It is hard to say if there is a formal leader in the group. Keith has ten years ofexperience with Lexington, but for any given project, someone else could easilytake the lead. The group seems to select leaders on the basis of project expertiserather than on seniority. They all look to Ean however as their ‘anchor or ballast’as he is sometimes called. He gladly assumes this role which also occasionallyrequires settling a dispute in the group. These disputes more often involve‘artistic licence’ than personality clashes. The rest of the employees tolerate theodd work schedules and strange demands for equipment made by Ean and hisgroup. Other employees seem to recognise that the ‘creative types’ are necessaryin spite of their odd work habits.

1 Using information from the module, what are the primary features of Ean’sgroup?

2 How does the group’s composition facilitate creativity? Do you agree withEan’s rationale for selecting members for his design group?

3 Isolate and describe three things that Ean has done to instil a strong creativeethic in his ‘patrol’.

Case Study 6.2: Team Productivity at A. E. Leeson’s Ltd.∗

Allister McPherson is the general manager of A. E. Leeson’s, a small UK-basedelectronic sub-component assembly facility. It is a part of a larger conglomeratewhich imports a variety of computer hardware and software. Reporting to Allis-ter are three key managers of the facility: a production manager who overseesthree work shifts; an office manager who oversees 15 specialists including twomarketing staff members; and a manager in charge of human resources andplant safety.

The production facility is designed for work teams. Team members havevery clear expectations about the extent of team authority to make production-related decisions. Members expect that management will let their teams maketheir own decisions about work scheduling and production planning. The teamsunderstand their work assignments and the members expect management toleave them alone so that they can get their jobs done. It is not unusual for ateam to refuse to follow the orders of a supervisor if members of a team feelthat he is impeding team performance or decision-making. Team members havebecome resentful if they conclude that a supervisor is using discipline unfairlyor is trying to force employees to obey the wishes of management.

An informal ‘tradition’ at the facility is ‘job-bidding’ which workers sometimesuse as a way to avoid supervisory authority. A worker ‘bids’ for a job which isunstaffed in the facility. Most often such actions are taken by employees to avoida difficult superior or to try to get a job with a better work schedule, e.g., movingfrom the night shift to the day work shift. Supervisors resent this system because

* Source: Adapted from R. Steers and J. Black, 1994. Organizational Behavior, 5th edn. New York: HarperCollins, 276–7.



they feel that they should have the right to choose their subordinates rather thanhaving a system which allows employees to circumvent their requirements.

As an informal job benefit, employees were allowed to use company toolsand materials for personal use. Employees have grown used to the fact that thecompany will provide hardware and software to them at cost and they havecome to expect the company to let them use tools for fixing personal equipmentand for home repairs. In turn, the company enjoyed a very low rate of pilferageand generally all company tools and equipment are returned in good shape.Production teams try to ensure that tools and equipment are always availablefor routine production work.

Allister has just learned that the company is sending $15m worth of newproduction equipment which he will be integrating into the assembly facility.Knowing that his production manager was retiring, he was not surprised tolearn that the company was sending Rudy Washington to fill the position. Rudyhad served with distinction in the Royal Navy during the Falklands War and hehad been highly regarded in two industrial positions before joining Leeson’s twoyears ago. Company management had reasoned that facility productivity andprofitability could rise significantly with new equipment and a new productionmanager who was familiar with all the latest management techniques.

Soon after his arrival, Rudy began to leave his mark on the facility and itsproduction practices. He concluded that the practice of allowing employees toborrow company tools for personal use was inappropriate and he stopped it. Hereasoned that a few unethical employees could steal the tools and resell thembecause the control process governing their use was extremely lax. He alsoreplaced the job-bidding system with a military-like seniority system. Managersand supervisors throughout the facility avidly supported the system, but ithas led to resentment and frustration among the facility’s production workers.Workers have been overheard saying ‘Rudy is still in the Navy and he thinks weare all new recruits’. Rudy’s position was that management’s authority shouldnot be questioned and workers had a duty to obey legitimate orders fromsupervisors.

Rudy’s management style was centred on making his rounds of the produc-tion facility on an hourly basis. During his first four months, he instituted manyproduction changes which reduced labour-hours for assembly and increasedproduct quality and dependability. During this period, five employees left andthey cited the termination of the job-bidding system for their decisions. Three ofthe resignations were from employees who had obtained excellent job perform-ance ratings on a regular basis.

The installation of the new equipment had gone smoothly, but it was clear thatemployees were unhappy. The common belief among production workers wasthat their increased productivity had generated more profits for the companybut no wage increases for them. As this opinion grew more widespread in thefacility, Rudy noticed that losses of company equipment and tools began to riseabove historical averages. He decided to install metal detectors and a system forrandom employee locker inspections to deter theft of company equipment andtools.

After a year on the job, Rudy was called back to company headquarters for



a month-long seminar on leadership and organisational quality improvement.During his absence, Allister decided not to fill his position with a temporaryproduction manager. Instead, he told all shift supervisors that they were eachresponsible for their shifts with no further direct supervision. Shortly afterRudy left, Allister learned from the third shift supervisor that night employeeswanted a slightly longer break at 3 a.m. because humid work conditions werecausing some employees who worked with ultra-clean production equipmentto experience drowsiness. In these jobs, if employees failed to concentrate theresult could be defective assemblies. Allister granted the request and he told thethree shift supervisors to use their own judgement to handle minor employeerequests. He later learned that several other changes had been made, but noneof Rudy’s major management decisions had been altered.

Two weeks later, employees complained loudly about the company’s policyof mandatory overtime to meet production output requirements. Demand forsubassemblies had been so robust that workers were regularly working 15–18overtime hours each week. Allister considered the problem and announced thatif the work shifts could boost production by 15 per cent, then he would suspendthe mandatory overtime requirement. Within two days, production rose to therequired level and Allister kept his promise. Much to his surprise, the companyreceived several large orders which once again put his facility under a back-order requirement and he reluctantly had to reactivate the mandatory overtimerule. Within a week the work-force had eliminated the back-order problem andAllister ended the mandatory overtime rule.

A third work-force matter arose concerning the metal detectors and randomemployee locker searches. Several informal employee leaders charged that therules implied that employees were not trustworthy. They also complained that‘The policies were unjust and that the majority of honest workers should nothave to submit to these humiliations just to root out a few bad apples.’

Allister agreed and he proposed a ‘four-week trial period’ in which thedetectors and searchers would be suspended while tool and equipment losseswould be closely monitored. The workers’ advocates accepted this offer as arealistic compromise.

Two days before Rudy’s return to his position, Allister was studying hisproduction reports and he was surprised to notice that production was up 20per cent and product defect rates had fallen five per cent below the averagesfor the last six months. In effect, production output, product quality and work-force satisfaction had increased without the presence of a production manager.Allister knew that he faced a dilemma. He could report these findings tocorporate officials and he could make a strong case for eliminating the productionmanager’s position. This would cost Rudy his job and Allister was genuinelyconcerned by this because he considered Rudy to be his friend. Or he couldshow Rudy these results and work with him to change his management style.He knew this would be very hard to do because of Rudy’s strongly held beliefsabout effective management.

1 Why was production output up 20 per cent and product defect rates downfive per cent?



2 Once Rudy returns, what should Allister tell him and what actions shouldhe take with respect to Rudy’s position and management style?

References

1 Shaw, M. (1981). Group Dynamics, 2nd edn. New York: McGraw-Hill.

2 Dunham, R. (1984) Organizational Behavior. Homewood, IL: Irwin.

3 Peters, T. and Waterman, B. (1982) In Search of Excellence. New York: Harper & Row.

4 Senn, D. (1971) ‘Attraction as a Function of Similarity–Dissimilarity in Task Perform-ance’, Journal of Personality and Social Psychology 18: 120–3.

5 Collins, E. and Guetzhow, H. (1964) The Social Psychology of Group Processes in decision-making. New York: Wiley.

6 Dailey, R. (1988) Understanding People in Organizations. St. Paul, MN: West.

7 Feldman, D. (1984) ‘The Development and Enforcement of Group Norms’, Academy ofManagement Review 9: 47–53.

8 Janis, I. (1982) Groupthink, 2nd edn. New York: Houghton-Mifflin.

9 Schweiger, D., Sandberg, W. and Ragan, J. (1986) ‘Group Approaches for ImprovingStrategic decision-making: A Comparative Analysis of Dialectical Inquiry’, Academy ofManagement Journal, 29: 51–71.

10 O’Dell, J. (1968) ‘Group Size and Emotional Interaction’, Journal of Personality andSocial Psychology. 8: 75–8.

11 Hampton, D., Summer, C. and Webber, R. (1982) Organizational Behavior and the Practiceof Management, 4th edn. Glenview, IL: Scott-Foresman.

12 Tuckman, B. (1965) ‘Developmental Sequence in Small Groups’, Psychological Bulletin63: 384–99.

13 Osborne, A. (1941) Applied Imagination: Principles and Procedures for Creative Thinking.New York: N. M. Scribner.

14 Basadur, M. and Finkbeiner, C. (1985) ‘Measuring Preference for Ideation in CreativeProblem Solving Training’, Journal of Applied Behavioral Science 21: 42–3.

15 Dalkey, N. (1967) Delphi. Santa Monica, CA: Rand Corp.

16 Dalkey, N. (1969) The Delphi Method: An Experimental Study of Group Opinion. SantaMonica, CA: Rand Corp.

17 Steiner, I. (1972) Group Process and Productivity. New York: Academic Press.

18 Steers, R. and Black, J. (1994) Organizational Behavior, 5th edn. New York: HarperCollins, 264–71.

19 Steers, R. and Black, J. (1994) op. cit., 267.

20 Steers, R. and Black, J. (1994) op. cit., 268–71.

21 Steers, R. and Black, J. (1994) op. cit., 276–7.

22 Vroom, V., Ross, R. and Ross, T. (1989) ‘Who Wants Participative Management?’, Groupand Organization Studies 14, 422–45.



23 Vroom, V. and Jago, A. (1988) The New Leadership: Managing Participation in Organiza-tions. Englewood Cliffs, NJ: Prentice Hall.

24 Vroom, V. (1973) ‘A New Look in Managerial Decision-Making’, Organizational Dynam-ics (Spring): 66–80.

25 Crouch, A. and Yetton, P. (1987) ‘Manager Behavior, Leadership Style and SubordinatePerformance: An Empirical Extension of the Vroom-Yetton Conflict Rule’, Organiza-tional Behavior and Human Decision Processes 39, 384–96.

26 Thomas, K. (1977) ‘Toward Multidimensional Values in Teaching: The Example ofConflict Behavior’, Academy of Management Review 2: 23–35.


Module 7

The Influence Processes inOrganisations: Power, Politics,Leadership and Entrepreneurship

Contents

7.1 An Example of Power 7/27.1.1 The Meaning of Power, Authority and Influence 7/37.1.2 Sources of Power 7/47.1.3 Using Power Ethically 7/57.1.4 How Employees Obtain Power 7/67.1.5 How Subunits Obtain Power 7/8

7.2 Uses and Abuses of Power: Playing Politics 7/107.2.1 How Managers Play Politics 7/117.2.2 Looking Upward: Managing the Boss 7/12

7.3 Leadership: A Conundrum of Theory 7/147.3.1 Are Leaders Different from Managers? 7/147.3.2 Understanding the Roles of the Manager 7/147.3.3 Coming to Grips with the Problem of Leadership 7/167.3.4 Research on Leadership Traits 7/167.3.5 The Behavioural School of Leadership 7/177.3.6 Situational Leadership Theories 7/197.3.7 Fiedler’s Contingency Theory 7/197.3.8 House’s Path-Goal Theory 7/227.3.9 Leader Reward and Punishment Behaviour: OB Mod Revisited 7/24

7.4 The New Age of Entrepreneurs 7/267.4.1 How Entrepreneurs Differ from Small Business Owners and

Administrators7/26

7.4.2 Encouraging Entrepreneurial Behaviour In-House 7/277.4.3 How Organisations Encourage Entrepreneurial Employees and

Innovation7/29

Summary Points 7/31


Case Study 7.1: Lenton Industries 7/36

Case Study 7.2: Looking for Mrs Good Cookie 7/40


Module 7 / The Influence Processes in Organisations: Power, Politics, Leadership and Entrepreneurship

Learning Objectives


• Distinguish among power, authority and influence.• Differentiate various sources of interpersonal power used by managers in

the work setting.• Explain the various methods used by employees to gain power.• Understand how organisational subunits come to be powerful.• Characterise the conditions which make political behaviour in the organisa-

tion more likely.• Describe examples of how managers play politics.• Describe effective methods for upward management.• Differentiate leadership behaviour from managerial behaviour.• Describe current leadership research initiatives and how they differ.• Develop an analysis of leaders’ consideration and initiating structure

behaviour.• Contrast situational theories of leadership.• Recognise the importance of effective leader reward and punishment

behaviours.• Explain how characteristics of subordinates, tasks and the organisation can

function as neutralisers and substitutes for leadership.• Characterise the ‘entrepreneurial profile’.• Contrast entrepreneurial behaviour and administrative behaviour.• Develop an analysis of your organisation’s ability to encourage entrepre-

neurship.• Diagnose your own ability to be an entrepreneur.

This module addresses three issues important to managers and students oforganisational behaviour. First, we will define the important concept of powerin organisations. We will examine the bases for interpersonal power and howindividuals and organisational subunits obtain power. Next, we’ll explore organ-isational politics and we will see how individuals and subunits manipulate thepolitical system. Our next topic is leadership. We will define it, differentiateit from management and trace its development as a core concept in the fieldsof organisational behaviour and management. The module concludes with adiscussion of entrepreneurship in organisations.

7.1 An Example of PowerThe chancellor of the state-supported vocational training school was hand-pickedby the previous director of educational administration. The chancellor had hiredhis family members, put his secretary’s husband on the payroll and made otherdecisions which violated his public trust to run the institution in the most cost-effective manner with employees who were the best qualified for their jobs. Thedirector of educational administration knew he had to go. The local newspaper



had run several front page articles about corruption at the school. Local politicalleaders were calling for a ‘full-scale audit’ and talented faculty were leavingthe institution. The new director of educational administration dealt with thesituation quickly. He announced to the media that the vocational training schoolwas cut out of next year’s budget. Students were in an uproar, faculty wereoutraged and the local community was concerned. Students and faculty held apublic debate where the chancellor defended his record. The press covered theevent in considerable detail. In two days the chancellor had resigned and anacting chancellor was on the job with the budget restored.

This example highlights power. People find power and politics to have conno-tations of manipulation, loss of self-determination and excessive control. Mostmanagers and experts agree that power and politics are natural features oflife in organisations. They are simply the individual, group and organisationalexpression of human nature and motivation in organisations.

7.1.1 The Meaning of Power, Authority and Influence

Power is the ability to influence someone else. It is the capacity to modifyemployee behaviour in a desired manner while being able to avoid having one’sown behaviour modified in undesirable ways.1 A person, work unit or organisa-tion has the capacity to control others and to avoid being controlled. Power hasseveral characteristics. First, it can only be wielded in a relationship which otherpeople depend upon in some way. Power has no meaning outside the context ofhuman relationships. Second, the word ability implies that individuals can learnto use power effectively. Third, power can flow in any direction in an organ-isation. The hierarchy often represents the vertical differentiation of power. Inother instances, one department is perceived to be more powerful than othersbecause the last three chief executive officers began their careers there. Anotherexample is the disgruntled employee who becomes a whistle-blower and gainssignificant power as a result of his charges.

Authority is the right to order or ask others to do what you want them todo. The extent of one’s authority is defined by one’s level in the organisation’svertical hierarchy. Authority over subordinates may include the rights to 1)set goals, 2) evaluate performance and 3) assign overtime work. Authority isdownward influence which flows from the position occupied by the employee.Authority is granted by the organisation, while power may have multiple origins.

Influence is the process of affecting the thoughts, feelings and behaviour ofothers. The three concepts can all fall within the employee’s zone of indifferencewhich is the range in which the employee perceives influence attempts aslegitimate and acts on them without a great deal of evaluation or thought. Ifthe employee perceives an influence attempt as illegitimate, only the exercise ofthe manager’s power can expand the zone. Authority is a less useful method toexpand the zone of indifference because it is a right.



7.1.2 Sources of Power

Researchers and managers have been interested in the sources of interpersonalpower for some time.2 Table 7.1 illustrates examples of each source of interper-sonal power; the rest of this section describes their forms.

Table 7.1 Sources of interpersonal power and an example of each

Source of power Work example

Reward Telling a subordinate that he has been very effective in productivityenhancement during a formal performance review.

Coercive Warning a colleague that you will go to your superior if he does not stoptrading on insider information.

Legitimate Transferring an employee to an overseas assignment.

Referent Emulating a senior design engineer who is widely respected throughoutthe company.

Expert Including a design engineer in all product review meetings because of hisexperience in design work.

Each source of interpersonal power noted in Table 7.1 is expressed in adependence relationship. When you have control over what others want, theyare dependent on you and you therefore have power over them. Likewise, whenyou are dependent on others, they have power over you. As we move throughthe descriptions of the types of interpersonal power, remember that they 1) onlyhave meaning in terms of interpersonal relations and 2) are always expressed independence relationships.

Reward power is the capacity to exert influence by providing positive out-comes and preventing negative outcomes. It is often used to back up legitimatepower because managers and supervisors are given the authority to recommendpay rises, promotions and transfers, and to do performance evaluations. Man-agerial reward power is expressed through delegating authority, praising andrecognising performance and giving performance feedback. Making these typesof rewards or outcomes available to subordinates creates more opportunities forthem to satisfy higher-order needs (presuming subordinates value such rewards).

Coercive power is the capacity to exert influence by the use of punishmentand threat. Again, it often supports legitimate power. Managers can assignundesirable tasks, order transfers and give negative performance feedback. Thisform of power can be wielded in interesting ways. Consider the following:

Many organisations have special ways to deal with troublesome employees. Forinstance, an extremely effective productivity specialist in hospital work was trans-ferred from that job to director of food service operations. Apparently, upperhospital management felt the specialist was ‘getting too good’ at his job and uncov-ering too many examples of ineffective department management which wouldsooner or later tarnish their management reputations. The solution: put the highlycompetent specialist in a ‘backwater’ department where he can do less damage.

Legitimate power is the capacity to direct the behaviour of others due to one’sposition in the organisational hierarchy. Subordinates accept their duty to obeybecause their superiors have the right to give them orders. Not all organisations



place the same emphasis on reinforcing legitimate power. Military organisationshave various uniforms, rituals and procedures designed to strongly reinforcelegitimate power. New product design groups in high tech firms probablywould ignore these expressions of legitimate power.

Referent power is based on the extent to which the power-holder is well likedand admired by others. Successful entrepreneurs, politicians, entertainers andstatesmen all possess referent power to high degrees. People identify with suchcharismatic individuals and they pay particular attention to the behaviours andattitudes expressed by them. Referent power is important in interpersonal rela-tions because it is based on interpersonal attraction and is much more personalthan either reward or coercive power. Second, anyone in an organisation cangain referent power. It attaches to the person and not to his position.

Expert power represents power gained through the possession of specialisedexpertise which is valued by the organisation. It is often expressed through thecontrol of information in a specialised area which is critical to organisationalsuccess. Expert power is acquired through the ability to solve key organisationalproblems. It too is like referent power in that it attaches to the person and notto the position held by the power-holder.

A variation on expert power is making yourself or your work group irreplace-able. Consider this:

In a French tobacco plant, maintenance workers made themselves indispensableby keeping all maintenance procedures and techniques secret. New maintenanceemployees were trained by word of mouth through long apprentice programmes.No one in production or management understood the complex production equip-ment, so the maintenance employees were able to keep a monopoly on maintenanceknowledge. Thus, they retained tremendous power to control operations in theplant.3

7.1.3 Using Power Ethically

Managers are responsible for using the five sources of interpersonal power inan ethical manner in their work with employees, customers and colleagues. Forinstance, coercive power must be used carefully. Any punishment should beused consistently, uniformly and privately. Communicating well and respectingsubordinates is the ethical starting point in the use of the five types of interper-sonal power. Before a manager exercises his sources of interpersonal power, heshould consider three questions:4

1 Does the behaviour produce a good outcome for all internal and externalstakeholders? The manager’s exercise of power should create the greatestgood for the greatest number of people.

2 Does the behaviour respect the rights of all stakeholders? The free speech,and due process of stakeholders should not be violated.

3 Does the behaviour treat all stakeholders equitably and fairly? The exer-cise of power should preserve distributive and procedural fairness in theorganisation (see Module 3). Exercises of power should not arbitrarily benefitone party at the expense of another.



7.1.4 How Employees Obtain Power

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

Create obligation in others

Identify with powerful people

Give excellent performance

Limit access to information

Control supplies and budgets

Develop a network

Reorganise the job

Take risks, be creative

Be a knowledge worker

Manipulate rules

Control personnel decisions

Control financial resources

Manage your boss

GAINING MORE POWER

Build an image of success

Figure 7.1 How employees gain power

Building an image of success refers to designing and creating a good impres-sion which projects competence and organisational commitment. Image-buildingcan be done by drawing attention to one’s successes, being enthusiastic aboutthe organisation, placing value on the organisation’s status symbols and vol-unteering to act on behalf of the organisation. Having a good image in thecompany can be aided by practising ‘good citizenship behaviours’.

Creating obligation in others refers to the quid pro quo of doing favoursfor others, especially those who may be in a position to help you later. Theexchanging of votes for favours in the political arena testifies to the popularityof this strategy.

Identifying with powerful people refers to finding a mentor in the organisa-tion. This is an individual in a powerful position with the influence to positivelyaffect the employee’s career advancement. The employee in question has theopportunity to understand the mentor’s perspectives on the organisation and itspractices. This prevents the employee from making mistakes which could slowdown his career progress. Most mentor–protege relationships slowly declinein value to both parties, especially as the protege gains more organisationalexperience.

Giving excellent performance refers to striving hard to meet the performanceexpectations of the organisation. This can mean volunteering for difficult organ-isational assignments and defending the reputation of the organisation. Beingan excellent performer often means extending one’s efforts in organisational



areas which are not covered by the organisation’s formal performance appraisaldimensions.

Limiting access to information is one way to control scarce resources. Whenyou are able to do this, you are controlling something that is of value to others.An employment recruiter who has specific knowledge of the qualifications ofapplicants has great power relative to the applicant and the director of humanresources. If you can control the flow of timely and accurate information, yougain power in the management decision-making process.

Controlling supplies and budgets is a way to gain power since organisationstry to create economies of scale by concentrating the purchasing of supplies incentralised departments. Departments must then order their supplies throughthat department. To the extent that the supplies are critical, the departmentmanager will gain power. Similarly, control over budgets bestows considerablepower on the manager.

Developing a network refers to building a good support system which keepsyou informed about important matters in the organisation. Nurturing and sus-taining old working relationships and not forgetting about those people youworked with on special projects are examples of network-building. Demonstrat-ing loyalty to superiors and making friends in high places are examples ofnetwork-building. Network-building and creating obligations for others are twocomplementary strategies for gaining power.

Reorganising the job refers to taking on new responsibilities, adding objec-tives to one’s work and creating new tasks. This is a strategy of ‘job expansion’to absorb responsibilities not covered by other employees. It integrates witheffective upward management.

Taking risks and being creative refers to applying principles of entrepre-neurship to the job. If a work unit or team places high value on risk-takingand the organisation expects it from the work group, then an employee is onsolid ground if he decides to take calculated risks. Employees should ensurethat the risk is data based and objective to the extent that both are possible.If an employee must act on guesswork, it should be tested on several trustedcolleagues first.

Being a knowledge worker refers to acquiring wide expertise to solve agiven class of organisational problems. The most significant problems usuallyinvolve external contingencies which generate environmental uncertainty for theorganisation. Specialised expertise in marketing, crisis-management (controllinghostile take-overs, for instance) and international operations, and knowledge ofcapital markets, can significantly boost an employee’s power.

Manipulating rules refers to sticking closely to company policies when itis to one’s advantage, and trying to change rules and procedures when thatwould further your acquisition of power. Some jobs offer ample opportunitiesto gain power through rule manipulation. Staff lawyers and internal auditorsbecome powerful because they have the job of writing, revising and controllingprocedures.

Controlling personnel decisions does not simply mean hiring and firing.Power can be increased by making recommendations about which employeesneed further training, who should be transferred, who should be promoted and



who handles recruiting for the organisation. In organisations where knowledgeobsolescence is a threat to product quality and innovation, employee trainingand recruiting become critical competitive advantages. The individuals whodesign the training and select the employees who receive specialised traininggain power.

Controlling financial resources is perhaps the most powerful means to gainand keep power. While access to this method is hierarchically based, exclusivecontrol over financial resources is not concentrated completely at the top ofthe organisation. Successful use of the other power-acquisition strategies cantrigger the delegation of some control over financial resources to the job-holder.For example, project, product or brand managers often obtain authority for thecontrol of financial resources relative to their projects or products. The samelogic would apply to important cross-functional teams and self-directed teamsthat create product innovations through customer research and focus groups.

Managing your boss is a final strategy for gaining power. It may soundunlikely for the simple reason that most subordinates seriously underestimatetheir influence on their superiors. This comes from several faulty assumptions:1) the boss is omniscient, 2) the boss has all the information necessary to makedecisions and 3) the boss has sufficient time to make all decisions. Subordinateswho effectively manage their bosses tend to: 1) identify the boss’s preferreddecision style, 2) identify the boss’s preferred level of formalisation in dealingwith subordinates and 3) periodically clarify the boss’s goals and objectives.Managing your boss is a useful tool for gaining power. It is also a goodtechnique for keeping control of events that may be strongly political in theorganisation. We shall return to the subject of managing your boss when wediscuss organisational politics.

7.1.5 How Subunits Obtain Power

So far our discussion has focused on how individuals acquire power. Work unitsand organisational departments also attempt to gain power. We are certainlyaware of power differences between work units in terms of 1) number ofemployees, 2) size of budgets, 3) quality of facilities and 4) impact on decisions.How did the work units obtain these outcomes? The answer lies in their abilityto control strategic management outcomes. This means that the work performedin other units depends on activities, goals and performance of the departmentsin question. Work cannot proceed in some departments until the strategicallypowerful department 1) grants permission, 2) provides resources, 3) completesits work or 4) provides critical information.5 Once again, you can see thesignificance of dependence relationships. Let’s examine the conditions whichcontribute to a department’s abilities to control strategic management outcomesand to accumulate power.

Scarcity

Variation in subunit power is magnified under conditions of resource scarcity.When an organisation has extensive slack resources, subunits seldom competefor power since there is abundant budget money, office space, support staff,



etc. If sales slow, products become obsolete or competitors become much morecost-efficient, slack resources evaporate and subunits must compete to avoidreductions in budgets and downsizing. Competition for scarce resources neednot be limited to organisational subunits. When Pennzoil Co. won a $3bnjudgement against the Texaco Corporation and it made Pennzoil the most cash-rich oil company in America, Texaco barely avoided bankruptcy. Pennzoil busilymade a series of corporate purchases while Texaco retrenched to the core areasof its business. As an aside, the employees of Pennzoil presented the outgoingchief executive officer with a rug which had a fractured Texaco star in its middle.The rug symbolised what Pennzoil did to Texaco.

Uncertainty

Organisations attempt to limit or remove uncertainty whenever possible.Advanced market testing before product launches and strategic planning areexamples of the way resources are expended to reduce uncertainty. Organisa-tional crises create upheavals which disturb operations and paralyse effectivedecision-making. It stands to reason that those subunits which help the organi-sation remove or reduce uncertainty are going to be very powerful. Such unitsprotect other units from the unknown. The effect is most noticeable in thoseorganisational units which are boundary spanners. Boundary spanner units tiethe rest of the organisation to its external environment. Typical boundary span-ning units are 1) marketing and sales, 2) R&D or new product development and3) legal services.

Centrality

Subunits performing activities which are ‘on the critical path’ of work flow willacquire more power than subunits off the critical path. This is the principle ofcentrality and it is possessed by those subunits involved in the ‘core aspects’ orthe ‘basics’ of the organisation’s work. Centrality can take several forms. First,the subunit can be at the centre of authorisation for expenses and payments.Accounting departments fit this description since they handle accounts payablefor subunits and process transfers of raw materials and set transfer prices if theorganisation is global or multi-national or set up domestically as interdependentprofit/cost centres. Second, centrality can take the form of subunit influenceon the quantity or quality of the organisation’s product or services. Companiesmaking products that must have extremely high reliability (e.g., medical test-ing equipment or pharmaceutical products) must have quality control subunitswhich have the responsibility of maintaining very high product standards. Thequality control specialists from such departments have the power to suspendproduction operations or to initiate inspections at a moment’s notice. The centralimportance of such subunit is made obvious when the organisation experiencesa crisis triggered by product, process or service failure.

Absence of Substitutes

If a subunit is the only one capable of performing a service or producing aproduct for the organisation, then its centrality increases because there are nosubstitute sources of services or products. The development and installation



of e-mail systems in organisations have diminished the significance of spe-cialised organisational communication units. Video conferencing and computernetworking make all communications easy to decentralise. In turn, it is nowmuch easier for production and service data to be collected, analysed and dis-tributed to organisational units on a real-time basis. Those units that collectedand processed this information prior to the computer invasion have since lostpower.

7.2 Uses and Abuses of Power: Playing PoliticsOrganisational politics refers to the management of influence to obtain endsnot sanctioned by the organisation or to obtain sanctioned ends through non-sanctioned (illegal) means.6 The key point in the definition is legitimacy ofoutcomes and the methods used to obtain them. Figure 7.2 shows a matrix ofthe combinations of outcomes and methods that represent organisational politics.As you evaluate the four combinations of methods and outcomes, consider howeach combination would create different answers to the ethical use of powerquestions in section 7.1.3.

Non-political work that isefficient, productive andeffective

Ignoring the chain of commandto gain company support fora product innovation

Whistle-blowing to expose theftof company equipment or theinappropriate use of companyfunds

Degrading a colleague who isa competitor for a higher-leveljob opening

Political results

Acceptable results Unacceptable results

Managementapproves

Managementdisapproves

Figure 7.2 A taxonomy of political behavior in firms

1 Approved methods and approved outcomes. Here power is used to achievesanctioned outcomes. For example, if product development agrees to speedup the production of a prototype because marketing has learned that acompetitor is ahead in its product development activity, then approvedmethods and outcomes are being observed. No political activity is occurringin this situation and legitimate outcomes are being pursued by the subunitsin question. This condition would provide satisfactory answers to the threequestions shown in section 7.1.3.

2 Approved methods and unapproved outcomes. In this case, the organisa-tion’s rules are followed to achieve organisationally undesirable outcomes.Suppose a manager covers up the drug addiction of a subordinate by giv-ing him an overseas assignment. The assignment may be authorised, butcovering up performance problems caused by drug addiction is not.



3 Unapproved methods and approved outcomes. This represents the pursuitof valued outcomes by using questionable methods. Such political behav-iour often occurs when resources are scarce and the subunit’s success isthreatened. For instance, a production unit might hoard supplies, or orderexcessive amounts of raw materials, to ensure steady production operations.No one would question the importance of steady production, but if it is atthe expense of tying up cash in excess pre-production inventories, then themethods are clearly questionable.

4 Unapproved methods and unapproved outcomes. This situation is the mostflagrant form of political activity in organisations. Its users must becomeskilful in mastering the art of covering their tracks. For instance, the insidetrader shifts funds in his personal portfolio to purchase stock in a companywhich is the target of a secret take-over bid. To cover his tracks, he mustfind a way to ‘park’ money to be used to buy shares in the company that isthe target of the take-over. Parking the funds creates a ‘smokescreen’ whichconceals the inside trader’s real motives and goals. The trader’s methodsand the profits he obtained would be frowned on by both his employer andthe relevant government regulatory agency.

7.2.1 How Managers Play Politics

Managers engage in political behaviour to: 1) create organisational change bywhistle-blowing, 2) defeat rivals by creating line versus staff conflict, 3) buildpower bases through sponsorship and coalition-building and 4) resist authoritythrough insurgency.7 A brief description of these political strategies follows.

Whistle-blowing behaviour occurs when an individual believes the organisa-tion is violating his instrumental or terminal values, or the law. Thus, whistle-blowing means that the individual informs a reporter, police officer, governmentofficial or other influential individual about an assumed injustice, irresponsibleorganisational action or violation of the law. The behaviour bypasses the organ-isation’s hierarchy of authority. High-level managers are usually infuriated ifthey learn about the whistle-blowing.

Whistle-blowers usually have high ethical standards. They can come fromany level or occupation in the company. Whistle-blowers must be treated fairlyand not be brushed off and treated like troublesome or abrasive employees. Inmany cases, they have the interests of the company in mind believing that anorganisational crisis will occur if particular practices are not stopped or changed.(See Case Study 1.2 on General Electric at the end of Module 1.)

Line versus staff conflictrefers to the inherent disputes which must arisewhen staff units are created in the organisation. Staff experts have specialisedknowledge which can greatly improve the quality of line management decisions.Line managers fear the encroachment of staff experts in their line authority. Bothline and staff personnel practise 1) withholding information, 2) gaining accessto powerful executives, 3) building better images and 4) increasing centrality.The line versus staff clash must be controlled lest it disrupt goals and companyeffectiveness.

Sponsorship and coalition-building are forms of counter-insurgency used byindividuals to gain the favour of powerful individuals. The employee attaches



himself to someone (or to a group) which is gaining power in the organisation.The only rules governing this political behaviour are: 1) stay personally loyal tothe sponsor or department, 2) follow the orders of the sponsor, 3) stay in thebackground to let the sponsor have all the credit and 4) show gratitude. Thesebehaviours allow the protege to gain political power through the interpersonalpower bases of his sponsor or mentor. Thus, the protege is able to ‘tap into’ thementor’s power bases and move up the hierarchy more quickly.

Insurgency or resisting authority takes many forms in organisations. It isoften characterised by ‘following the letter of the law’, or interpreting andenforcing policies in a manner unintended by management. Insurgency is hardto document and correct. Its widespread practice indicates a deterioration oforganisational culture which should disturb management and lead to the con-structive examination of possible internal causes for such behaviour. An exam-ple of insurgency was the Eastern Airline machinists’ and maintenance workers’campaign to discredit Eastern’s aircraft maintenance practices by filing com-plaints with the US National Transportation Safety Board. The campaign ledquickly to the grounding of 40 per cent of Eastern’s planes. Frank Lorenzo, thepresident of Texas Air (Eastern’s parent corporation), mounted a campaign toattack Eastern’s maintenance employees, but the attacks led to the bankruptcyof Eastern. This example illustrates insurgency which dominates labour man-agement relations in several US industries.

7.2.2 Looking Upward: Managing the Boss

No relationship in the organisation is more political than the one betweensuperior and subordinate. All employees would confirm the political nature oftheir relationship to their boss, but they would find little that has been writtenon the subject of politics in the superior–subordinate relationship. Keepingthis relationship in good working order is crucial to subordinates because theirsuperiors are their links to the rest of the organisation. The superior–subordinaterelationship rests on mutual dependence and in many ways the boss’s careeris strongly linked to his subordinate’s career at various times. Subordinatesoften fail to recognise their significance in the superior–subordinate relationshipand they meekly leave the management of the relationship to their superiors.Subordinates who fail to understand and to manage the superior–subordinaterelationship often make two faulty assumptions about the relationship:

1 The boss is omniscient and knows, in advance, all of the possible alternativesfor solving various performance problems in the unit. Employees who adoptthis assumption unknowingly limit their options to aid the unit throughparticipative decision-making.

2 The boss has all the information to make a decision. Related to the firstassumption, this one also casts the boss in the role of omnipotent decision-taker.

To be more effective in managing upward, the subordinate can take someproven steps to understand his boss as much as possible. These steps are shownin Table 7.2.



Table 7.2 Strengthening your work relationship with your boss

1 Take time to understand your boss’s goals, objectives, job pressures, strengths andweaknesses and leadership style.

2 Realistically assess your own strengths and weaknesses, preferred decision-making style,comfort level with authority and your need for achievement.

3 Base your work relationship with your boss on:

a) both of your needs and styles; b) well-understood expectations; c) keeping your bossinformed, d) dependability and honesty, e) documented performance and f) selective useof your boss’s time and resources.

The first step stresses your understanding of your boss and his decision-making context so that you are able to avoid emotion in your work relationship.The better you know your boss, the more professional you can be. This willbase your relationship with your boss on a strong, professional and performancefooting. The second step in the table highlights the importance of honest self-appraisal as a basis for effective upward management. If you strongly prefer towait for your boss to make decisions because you believe it is his job to makethem and it is your responsibility to carry them out, then you should concludethat you prefer to defer to authority figures. This self-knowledge does not meanthat you cannot effectively manage your relationship with your boss. Instead, itsimply suggests a particular style of upward management.

Once you have tried to understand your boss, his decision-making contextand your personal style in the relationship, you should then work to establisha professional and effective work relationship (step 3). The elements in step 3suggest the wisdom of maintaining open communication with the boss and beingdependable. If you feel uninformed about unit goals or performance standardsand you believe in the virtue of step 3, then you are compelled to discuss withyour boss his expectations for unit goals and performance standards. Such anaction may be particularly worrisome for the new employee, or for the employeewho has been recently transferred into a work unit. While co-workers may bean important source of information about unit goals and performance standards,they cannot actually speak on these issues as authoritatively as your boss. So,rather than labour in the darkness of task uncertainty, shed some light on goalsand performance standards by checking the clarity of your understanding ofthem with the boss.

When working with action-oriented superiors who routinely delegate tasks,an effective subordinate knows not to waste the boss’s time or resources whenhe encounters a performance ‘road block’. In such circumstances, an effectiveemployee studies the problem and frames the pros and cons for various actions.Once he has carefully framed those decisions, it is time to see the boss. Mostmanagers who are interested in developing their subordinates’ skills throughdelegation of authority will help a subordinate choose the best course of action.The key to this example is approaching the boss with alternatives which havebeen thoroughly thought through. Simply asking the boss what should be doneis a classic mistake made by employees who do not manage upward. Worseyet, such mistakes are strong evidence to the manager that his effort to delegateauthority to a subordinate may have been a mistake.



7.3 Leadership: A Conundrum of TheoryLeadership is the most researched topic in organisational behaviour. In spite ofthis, a comprehensive theory of leadership is elusive. At present, there are anumber of theories which give partial answers to complex leadership questions.Our first task in charting a path through competing leadership theories is todistinguish the concept from management. Leadership is the power of one indi-vidual to guide the actions of another. Leaders are individuals who advocatechange and who try new approaches to problems. Leadership is often concep-tualised as a set of behaviours or a product of the interaction of the leader’spersonality and the demands of the leadership situation. This view leads tocontingency theories of leadership, about which we will have more to say.

7.3.1 Are Leaders Different from Managers?

Absolutely! But they can both be the same person. A manager is a personwho performs the specific functions of the manager and who holds a formaltitle or fills a formal role in the organisation. The manager is responsible forthe performance and productivity of one or more subordinates in a particularorganisational subunit. We often think of managers as advocates for the statusquo and for stability. As we noted, a leader resists the status quo and proposeschanges. Leaders are also able to influence others to pursue their goals. Thus,the study of leadership is much broader than the study of management.

7.3.2 Understanding the Roles of the Manager

Mintzberg has developed a formulation which analyses the manager’s job interms of roles.8 He based his managerial role classification system on detailedanalyses of how managers spend their time. He identified 10 roles which man-agers fill in their jobs. The 10 roles are shown in Table 7.3. They cluster intothree broad categories which are discussed below.

Interpersonal roles connect managerial behaviours that establish workingrelationships. The informational roles are those which allow the manager to col-lect and distribute information. The decisional roles include those behavioursused to set, implement and monitor progress towards goals. Managers oftensequence their roles to build working relationships based on mutual trust andhigh performance expectations. Managers often get to know their subordinatesand become involved with other departments (interpersonal roles). Networkingallows the manager to gather information and function as the spokesperson forthe work unit (informational roles). Finally, stable interpersonal relationships andgood information lead to decision-making, goal-setting and resource-allocationdecisions (decisional roles). Sometimes managers erroneously sequence theirmanagerial roles. They initiate their decisional roles before they have sufficientinformation and have established dependable interpersonal working relation-ships.

Other research on managers has focused on how managers spend their time.8

Although the allocation of time varies with managerial level, approximately48 per cent of managerial time is spent with subordinates, seven per cent with



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

Interpersonal relationship maintenance

Figurehead/chief Testifies in court and at regulatory hearings

Cuts ribbons and opens new offices/facilities

Leader/encourager Gives pep talks and holds open meetings with workers and staff

Passes out awards and honours

Hires and fires

Liaison/linking pin Presides over industry trade group or professionalsociety/certification group

Informational (generation and transmission of data and knowledge)

Monitor/surveyor Reads industry reports and meets with vendors

Distributor Holds meetings, writes memos and sends e-mail

Advocate/spinmeister Makes speeches, meets with the press, grants interviews

Decisional (deciding and controlling)

Creator/entrepreneur Scans and detects new ideas/product innovations/ industry trends

Crisis controller Acts quickly in a dilemma and makes decisions to limit perceiveddamage

Resources distributor Sets and manages the budget in relation to the firm’s strategicplan

Mediator/negotiator Solves work stoppages/grievances and disputes with vendors anddistributors

superiors and 44 per cent with peers and outsiders. Other research indicates thatmanagers spend very little time alone performing solitary tasks.9 Any manager’sdaily routine includes frequent interruptions by many different people whowant to talk about varied topics and contains considerable non-work-relatedinformation. These interruptions are precisely what keeps them involved inthe organisation and able to fulfil their managerial roles. Unfortunately, manymanagers report that they view interruptions as complicating their ‘real jobs’.One thoughtful manager expressed it this way: Being a manager is the mostfrustrating, infuriating and demanding job anyone could ask for. You don’t gettime to yourself, and you’re constantly ‘on call’. You always have to watch outfor everyone else. For these reasons, I wouldn’t do anything else.10

Effect of Downsizing and the Use of Self-Directed Teams on Certain Managerial Roles

The related trends of downsizing and use of self-directed teams have profoundlyaltered the emphasis on managerial roles in organisations. In fully delayeredand decentralised organisations that use self-directed teams, the managerialroles of figurehead, leader and spokesperson have nearly vanished from day-to-day operations. Self-directed teams have simply taken over these functionsonce performed by middle managers. Those scarce, middle managers who stillremain in the delayered organisation more often find themselves disseminatinginformation, allocating resources among teams and intervening in disturbancesthat might threaten inter-team relations. Self-directed teams are likely to performfeatures of the entrepreneur role and they scan for performance information ona real-time basis.



7.3.3 Coming to Grips with the Problem of Leadership

Leadership research and writing advances on three strongly related fronts.Organisational scholars and management experts believe that the leader himselfhas some influence on the outcomes of work and the success of the organisation.This is research front number one and it is called the trait approach to lead-ership. Still other scholars and experts stress the importance of the constancyand predictability of the leader’s behaviour across leadership situations. This isthe behavioural approach to leadership, or front number two. The integrativeapproach to leadership is front number three. In it the leader’s traits and behav-iour are considered in terms of the situation that he confronts. It is called thesituational approach to leadership.

7.3.4 Research on Leadership Traits

Throughout history, social observers have been fascinated with examples of suc-cessful leadership, regardless of its good, bad or indifferent social consequences.The implicit assumption was made that those individuals who became promi-nent leaders possessed a set of special traits which allowed them to rise abovethe masses and distinguish themselves as leaders. This assumption is at the coreof the trait approach to leadership.

Leader traits are used here to refer to personal characteristics which includephysical characteristics, social background, intellectual abilities, features of per-sonality, work orientation and interpersonal skills. During and after World WarII, there was a great deal of interest in identifying individuals who could beeffective leaders. Studies were conducted which produced ‘personality’ testsused to identify individuals with leadership potential. Test results were usedby the Allies to assign individuals to various military schools which preparedthem for military assignments as officers. After the war, business organisationspicked up the ‘trait gauntlet’ and conducted parallel studies to differentiate thetraits of leaders and followers. A summary of traits which have been linked toleadership effectiveness is presented in Table 7.4.

Table 7.4 Examples of leadership traits

Physicality Social pedigree Mental characteristics

Energy level Economic and social status Intelligence

Height Alma mater and college degree Judgment

Attractiveness Job mobility Verbal fluency

Weight Public service Abstact reasoning ability

Personality Work orientation Social skills/abilities

Dominance Achievement need Co-operativeness

Aggressiveness Initiative Likeability

Self-confidence Desire for responsibility/promotion People skills

Creativity Diplomacy

Stress tolerance Supportiveness



The results of trait studies have been quite disappointing. Hundreds of studiessuggest that many traits are weakly or not related to leadership emergence orsuccess. In studying the effectiveness of established leaders, Bennis and Nanusoffer a broader set of traits which may stand up better than those in Table 7.4They are logical thinking, persistence, empowerment and self-control.11

Logical thinking traits refers to: 1) putting ideas into simpler form, 2) per-suading others and 3) explaining things in unique ways.

Persistence traits refers to 1) treating setbacks as small mistakes, 2) workinglong hours and 3) trying to succeed against formidable odds.

Empowerment traits highlight 1) getting people excited about goals, 2) beingenergetic and enthusiastic and 3) making subordinates believe they can achieveexcellence.

Self-control traits involve 1) working under heavy pressure, 2) remainingeven-tempered and 3) resisting intimidation by powerful people.

Difficulties in the trait approach to leadership. The first of many problemscentres on the question ‘Do great leaders make great situations, or do greatsituations make great leaders?’ From the leader trait angle this means: ‘Dodominant individuals become leaders or do they become more dominant afterthey have successfully occupied a leadership position?’ If the first questionapplies, then it makes sense to select individuals for leadership positions withthe dominance trait. If the second applies, then selection based on the trait ismeaningless. Unfortunately, the trait approach does not answer this question.

A crucial weakness of the trait approach is its failure to take into accountthe situation in which leadership occurs. Leadership is an influence processand it cannot occur outside the context of interpersonal relations. Neglectingto consider interpersonal situational parameters explains the weak connectionbetween the traits of leaders and the effectiveness of the work units they lead.Leader traits are more closely related to who gets promoted than who is aneffective leader.

7.3.5 The Behavioural School of Leadership

Experts who favour the behavioural approach to leadership stress that the keyto understanding leadership effectiveness lies not in asking which traits leadershave but in focusing on those leader behaviours which influence subordinateperformance and satisfaction. These experts have refined this question to: ‘Isthere a dominant or preferred leadership style which is more effective than otherstyles?’

Researchers at Ohio State University give a strong ‘yes’ answer to the questionabove. To date, Ohio State has conducted the most comprehensive research onleadership styles. In numerous studies researchers asked leaders and managersto complete a survey entitled the Leader Behaviour Questionnaire while the sub-ordinates of managers and leaders completed the Leader Behaviour DescriptionQuestionnaire. Separate statistical analyses of each set of data yield a commonconclusion about leadership style. There are two fundamental leader behaviours:initiating structure and consideration.



Initiating structure refers to leader behaviours which focus on group goalattainment by stressing: 1) work procedures, 2) planning, assigning tasks, 3)clarifying work roles, 4) supervising subordinates and 5) asking for results.

Consideration refers to those leader behaviours which exhibit 1) approacha-bility, 2) supportiveness, 3) maintenance of high morale in the work group, 4)concern for group welfare and 5) maintenance of a collaborative work atmo-sphere. Consideration focuses on self-esteem issues and the cohesiveness of thework group. Consideration behaviours are intended to achieve a good socio-emotional work atmosphere.

An important conclusion from the Ohio State University studies is the ideathat a leader could be high, average or low on both dimensions at the sametime. This means that the two dimensions are compatible. This immediately ledto the formulation of a ‘one-best’ leadership style which is said to appear in theleader who can exhibit high consideration and high initiating structure.

When Do Consideration and Initiating Structure Matter?

The Ohio State University work has spawned work that tries to explain howthese two behaviours influenced group satisfaction and performance. A num-ber of conclusions have emerged about the leader’s behaviour and the groupoutcomes of performance and member satisfaction.

1 When subordinates are experiencing time pressure, job ambiguity or exter-nal threat, satisfaction and performance increase under initiating structureleader behaviour.

2 If the group’s task is perceived to be interesting and challenging by groupmembers, then the need for consideration and initiating structure is reduced.

3 When the group’s goals and task are certain, consideration promotes satis-faction and initiating structure can cause dissatisfaction. Thus, under con-ditions of high task clarity, initiating structure becomes unnecessary andintrusive.

4 If subordinates lack job performance knowledge or their jobs are vague,consideration has less relationship with satisfaction and performance thaninitiating structure.

Other Leadership Style Theories of Current Importance

Predating the Ohio State University studies is the writing of Kurt Lewin onleadership styles. Lewin believed that the leader’s style was invariate, thereforehe proposed that the leadership situation was irrelevant because a leader simplyapproached each situation with the same style. He described three leadershipstyles which were: 1) autocratic style: in its expression the leader is strong,directive, controlling, enforcing of regulations and focused on outcomes; 2)democratic style: in its expression the leader is collaborative, interactive, collegialand responsive to subordinates’ needs and 3) laissez-faire style: in its expressionthe leader is unwilling to accept the responsibilities of the situation, or abdicatesthe position.12



Evaluating the Leader Behavioural Style Approach

The analysis of leader behaviour makes some improvements over the traitapproach because it proposes that behaviour is observable whereas traits mustbe inferred. It also focuses on what leaders do instead of what leaders arelike, as the trait approach does. Since it suggests that leaders can learn how tosuccessfully practise the two principal leader behaviours, it therefore bolstersthe organisation’s attempts to train and to develop leaders. In short, it advancesthe proposition that leader behaviours can be learned, and through sharedexperience, they can be transferred from one person to another. Somewhat over-enthusiastically it suggests that there is an ‘ideal’ leader who adroitly balancesconsideration and initiating structure behaviour.

The behavioural approach is not without its problems, however. First, itis not known if leader behaviours cause the outcomes of group performanceand satisfaction or conversely, they are the effects of subordinates’ behaviourswhich reinforce initiating structure or consideration behaviours in leaders. Thebehavioural approach does not address the fundamental issue of leadership asa cause or an effect. For instance, if a highly skilled soccer team wins the leaguechampionship, their success and skill may bring out consideration behaviourin the coach. The point here is that the behavioural styles theory still suffersbecause it does not address the leadership situation.

7.3.6 Situational Leadership Theories

Researchers have attempted to blend aspects of the trait and behavioural theoriesof leadership with specific aspects in the situation that the leader faces. Thesetheories are more complicated than trait or behavioural theories but they showmore promise for explaining the leadership phenomenon because they are moreinclusive. Let us begin with Fiedler’s contingency theory.13

7.3.7 Fiedler’s Contingency Theory

Fiedler’s contingency theory of leadership proposes that leader behaviour inter-acts with the favourableness of the situation to determine the level of groupeffectiveness. Some situations are more or less favourable and they require dif-ferent leader behaviours. The theory requires the assessment of the leader’sstyle by measuring the leader’s orientation to his least preferred co-worker(LPC). This is projective measurement technique which asks the respondent tothink of someone with whom he had recent difficulty working; i.e., his leastpreferred co-worker. It was developed by Fiedler and it contains 16 bipolarscales like the examples in Table 7.5.

Leaders who describe their least-preferred co-worker in warm and acceptingterms (high LPC leaders) are called relationship oriented. The high LPC leaderreasons as follows: ‘I found this individual hard to work with, but he still hasmany worthwhile qualities. I simply had trouble working with him.’ The lowLPC leader is said to be task oriented and he believes the poor performer (least-preferred co-worker) has few redeeming qualities. Thus, the low LPC leaderreasons: ‘The guy is a poor performer and he’s dull, boring and uncreative.’



Table 7.5

PLEASANT 8:7:6:5:4:3:2:1 UNPLEASANT

FRIENDLY 8:7:6:5:4:3:2:1 UNFRIENDLY

WARM 8:7:6:5:4:3:2:1 COLD

DISTANT 8:7:6:5:4:3:2:1 CLOSE

GLOOMY 8:7:6:5:4:3:2:1 HARMONIOUS

RELAXED 8:7:6:5:4:3:2:1 TENSE

BORING 8:7:6:5:4:3:2:1 INTERESTING

SINCERE 8:7:6:5:4:3:2:1 INSINCERE

Thus, the task-oriented leader describes his least-preferred co-worker in rejectingterms. Fiedler argues that the LPC score taps a personality trait called theleader’s motivational pattern. High LPC leaders are motivated to maintain goodinterpersonal relations with subordinates. The task-oriented leader is motivatedto get on with the job and achieve goals.

Situational favourableness is composed of three constructs. The most impor-tant component of the situation is relations between leader and members. Thisdimension refers to the quality of work group atmosphere which results inloyalty, supportive relations and trust between the leader and his subordi-nates. When these qualities are absent, insubordination, sabotage, absenteeism,grievances and work slowdowns may result. Task structure refers to the clarityof the group’s work and the extent to which members understand the goals ofthe group’s work. When these conditions exist, the influence process is easierbecause the leader can formulate clear performance measures which subordi-nates can understand. If the task is unstructured, the leader may be less able tospecify performance measurement and the group may be unconvinced that the‘leader’s way’ is better than their way. Position power is the leader’s legitimateauthority to tell others what to do. The more position power held by the leader,the more favourable the situation.

The Contingency Model in Action

We are now in a position to answer the question: ‘Under what conditions isone leadership orientation more effective than another?’ Figure 7.3 presentsFiedler’s full contingency theory of leadership to help answer the question.Figure 7.3 indicates that the task-oriented leader is most effective when thesituation is highly favourable (I, II or III) or highly unfavourable (VII or VIII).The relations-oriented leader is most effective when the situation is moderatelyfavourable or unfavourable (IV, V or VI). Fiedler explains these results in thefollowing way. When the leadership situation is highly favourable, it is not stressinducing, therefore it is possible for the task-oriented leader (low LPC score) tobehave in a relations-oriented manner. However, when the work group facesa crisis in performance and the situation is therefore highly unfavourable, thework group needs strong, focused leadership (at which the task-oriented leaderexcels). In the middle positions which vary from slightly favourable to slightlyunfavourable the leader is faced with shoring up leader–member relations whichis the strength of the relations-oriented, high LPC leader.

The theory stresses that the leader’s orientation cannot be easily changed.



Structured StructuredUnstructured Unstructured

Strong StrongStrong StrongWeak WeakWeak Weak

TASK RELATIONSHIP TASK

I II III IV V VI VII VIII

High Low

Situation favourableness

Task structure

Position power

MOST EFFECTIVE LEADER ORIENTATION

Good Poor

Leader-memberrelations

Figure 7.3 Fiedler’s contingency theory of leader effectiveness

Thus, the organisation must match the leader to the situation’s favourabil-ity. Fiedler says it makes most sense to diagnose the leadership situation andsee if there is a good match between the leader’s orientation and situationalfavourability. Fiedler argues against trying to train leaders to exhibit differentbehaviours. He thinks organisations should match the leader’s orientation to thedemands of the leadership situation. However, it would be cumbersome indeedfor organisations to be continually assessing the fit between the orientations ofleaders and the situations they face. Fiedler has offered several suggestions toalter the leader’s situational control to improve the fit between his motivationalpattern and situational favourability. They are shown in Table 7.6.

Table 7.6 How leaders can change the situation that they face

Tinkering with relationships at work

1 Spend more or less time with subordinates including lunch and after-hours socialising

2 Request certain people for group membership or assignments

3 Volunteer to supervise or work with troublesome group members

4 Transfer certain group members

5 Get additional rewards to improve morale

6 Listen to employees’ concerns and offer personal advice

Modifying task structure

1 Give the group creative challenges with no constraints on methods

2 Provide more standardised assignments

3 Divide the work into smaller, more specialised units

Modifying position power

1 Rely on discipline to constrain troublesome team members

2 Require that all information and group decisions are reviewed by upper management

3 Delegate more authority to group members (empowerment)



7.3.8 House’s Path-Goal Theory

The path-goal theory is concerned with the situations which cause various leaderbehaviours to be most effective.14 House believes the leader’s main job is theclarification of pathways between subordinates’ performance and the rewardsthey value. The rewards which subordinates value are such things as promotions,pay increases, more challenging work, time off with pay and recognition. Whensubordinates obtain these rewards, they become more satisfied and are morewilling to exert effort and to accept leadership influence. This formulationhighlights how the path-goal theory got its name and it also points out whythe theory is a transactional theory of leadership. A transactional theory ofleadership specifies how a leader exchanges rewards for performance and effortfrom subordinates.

In the path-goal theory, the leader’s job is clearing pathways between employeeeffort and performance and between employee performance and rewards. Thus,leaders must be flexible enough to practise a number of behaviours which movesubordinates along the sequence of effort-to-performance and performance-to-reward. The behaviours which the leader must develop are described below:

1 Directive behaviours. These are behaviours such as work planning, settingperformance standards, clarifying work expectations and giving instructions.

2 Supportive behaviours. Leader behaviours which are friendly, supportive,caring and considerate.

3 Participative behaviours. Using subordinate’s ideas in problem-solving.4 Achievement-oriented behaviours. Setting goals for subordinates and

expecting them to achieve them.

The path-goal theory focuses on two aspects of the leadership situation. First,it looks at the subordinates’ task abilities and need for achievement. Second,it looks at the environmental factors of task clarity, routineness and challenge.The idea behind the model is that the leader must match his behaviour tothe interplay of subordinate characteristics and environmental factors. Severalcombinations of the situational factors and the best leader behaviour are notedbelow.

1 Subordinates with a strong achievement drive will work well under achieve-ment oriented leader behaviour that effectively rewards individual employeecontributions to unit performance.

2 Subordinates who prefer high work structure will perform best underdirective leader behaviour that gives performance feedback to keep theminformed of their work progress.

3 When subordinates question their task abilities, they will respond best todirective leadership. However, they will find this behaviour irritating ifthey have high ability to perform the task well and there is time pressureto complete it.

4 If tasks are clear and work procedures are routine, any leader behaviourmay be seen as intrusive and redundant, especially when subordinates arehighly professional and competent.



5 If tasks are challenging and ambiguous, subordinates will exhibit moresatisfaction and leader acceptance if the leader combines directive andparticipative behaviours.

Does Leadership Matter in all Cases?

The list above indicates that various combinations of subordinate and task char-acteristics require different leader behaviours if subordinates are to work hard,accept the leader’s influence and be satisfied with work. Some of the combina-tions hint at the fact that the leader’s behaviour may be less important relative tosubordinate acceptance, effort and satisfaction in some situations than in others.Researchers in organisational behaviour have argued that certain subordinate,task and organisational characteristics can be neutralisers of leadership. Thismeans that certain features of the leadership situation reduce the number ofopportunities for the leader to exert influence. Consider these two situations:

Aaron is a university research scientist with a scientific grant which frees himfrom teaching duties. For two years he has conducted basic research on materialspossessing superconductive properties. His grant covers all of his living expensesplus a six-month leave of absence to work with scientists conducting similarresearch at Lucent Technologies.

Sidney is a chartered public accountant who hopes to become a partner in thepractice. He works closely with his peers and the managing partner. He wants tobe assigned to a major audit for a new client so that he can gain the attention ofhis superior. His boss has the authority to give him an early promotion to seniorauditor.

Sidney’s boss is in a much stronger position to exert successful influence thanAaron’s department head at the university. Aaron’s scientific expertise and externalfinancial support are bound to make him less responsive to the short-term rewardsin the department.

Neutralisers for leadership can become substitutes for leadership. Neutralisersfor leadership reduce the effectiveness of influence attempts while substitutesreduce the necessity for leadership. Consider these situations:

The members of the new product development team had worked together for fouryears. During that time they have created seven new products which had earned£150m. The group is highly cohesive and members understand and accept theirroles in the team.

Employees in purchasing and manufacturing continued to have trouble with theMRPII integrated inventory and production management system. Manufacturingcomplained about continued out-of-stock problems, and purchasing was troubledby incorrect summaries of inventory levels.

It is clear that leadership is much more necessary in the second situationdue to poor co-ordination and conflict between manufacturing and purchasing.The new product development team has an excellent work atmosphere, stablemembership, evidence of success and effective work relationships. The teamhas evolved its own governance mechanisms which create powerful substitutesfor leadership. Table 7.7 shows the various categories of leadership neutralisers.



Table 7.7 Substitutes for leadership and control in work relationships

Substitutes Neutralisers ofrelationship orientation

Neutralisers oftask orientation

Qualities of subordinates

Ability, expertise, knowledge yes

Professional certifications and licenses yes yes

Indifference to rewards yes yes

Jobs’ features

Routine methods and clear goals yes

Provides own feedback yes

Intrinsically satisfying and involving yes yes

Firm’s features

Formal, inflexible work rules yes

Cohesive self-directed teams yes yes

E-mail and intranets yes yes

Spatial separations yes yes

Please note by referring to the examples that neutralisers can convert to substi-tutes for leadership. In Aaron’s case, his expertise and research grant neutralisedhis department head’s influence. This was not the case for Sidney. In the case ofthe new product development team, the characteristics and success of the teamfunctioned as substitutes for leadership. In the situation of the MRPII systeminstallation, formal leadership was needed and perhaps overdue.

7.3.9 Leader Reward and Punishment Behaviour: OB Mod Revisited

So far, the leadership theories put forth in Module 7 have not been tied to theprinciples of OB Mod in Module 2. OB Mod casts the leader as a managerof contingencies of reinforcement. Research on leader rewarding and punishingbehaviour has confirmed four primary, behavioural dimensions:

1 Performance-contingent reward behaviour. The extent to which a leaderuses positive reinforcers, such as praise, recognition and affirmation ofsuccessful performance, contingent on high subordinate effectiveness on thejob.

2 Contingent punishment behaviour. The extent to which a leader usesdiscipline and punitive outcomes, such as reprimands and disapproval,contingent on ineffective subordinate performance on the job.

3 Non-contingent reward behaviour. The extent to which a leader rewards asubordinate, regardless of how well the subordinate performs on the job.

4 Non-contingent punishment behaviour. The extent to which a leader usespunitive means and reprimands, regardless of how well a subordinateperforms.15

Studies of performance-contingent leader reward behaviour confirm that it isassociated with higher levels of subordinate job performance and satisfaction.



Results for contingent punishment and reprimanding leader behaviour are mixedin terms of their effects on subordinates’ job performance and satisfaction.However, non-contingent punishment leader behaviour has a strong, negativeeffect on subordinates’ job performance and satisfaction. Subordinates resentpunishment and discipline that are discretionary or arbitrary on the leader’spart.15

The careful reader will also note that the leader’s use of rewards and punishersis magnified by the effects of equity comparisons made by employees. We saw, inModule 3, that equity is based on social comparisons made by employees in worksettings. If employees judge the leader’s contingent reward and punishmentbehaviours to be strongly connected to performance, then their (the employees’)equity comparisons will strengthen perceptions of leader fairness in the worksetting. However, if they see leaders who distribute rewards and punishers ina highly personalised way (non-contingent behaviour), then their perceptionsof leader fairness will drop dramatically. The resulting decline in employees’morale and job performance will be sharp and long-lasting. If such employeeshave job mobility, then they may quit or transfer to restore the balance in theirequity comparisons. Again, if such employees are somehow locked into theirjobs due to limited job mobility or financial considerations (pay and benefitswhich would be hard to duplicate elsewhere), then they will still try to restorefairness to their equity comparisons by discounting the importance of their jobsand by cutting back on their effort levels.

Given the magnifying effects of employees’ equity comparisons on the leader’sreward and punishment behaviour noted above, the prudent manager mustmake a special effort to practise the principles noted below in his use of rewardsand punishers. These recommendations match those suggested in Module 3 forthe use of punishment.

1 For significant financial and non-financial rewards, ensure that their dis-tribution to employees is based only on measurable and well-understoodindividual and group-based performance standards.

2 To enhance the power of financial and non-financial performance-basedrewards, use recognition and acknowledgement of organisational gratitudefor exemplary individuals and groups.

3 Create as much variety in financial and non-financial rewards as possible.Avoid confusion among employees concerning how individual and groupperformance is measured and rewarded.

4 Generally avoid the use of punishment except in cases of organisationallegal liability such as non-compliance with stated contracts; employee andcustomer safety; employee ethics violations such as sabotage or productespionage; continuous product and service defects which are traceable toindividuals and work groups; and deliberate violations of organisationalpolicies by individuals or their work groups.

5 Avoid delays in the administration of both performance-contingent rewardsand punishers.

6 Avoid personal biases in giving rewards and punishers.7 Administer punishers to individuals or work groups in private.



7.4 The New Age of EntrepreneursEntrepreneurship is the creation of wealth by assuming risk through equity, time,or career commitment to add value to a product or service. When this activityis performed in a large organisation, it is often called intrapreneurship. PeterDrucker suggests that much of the conventional wisdom about entrepreneurshipis wrong. To Drucker, entrepreneurship is a discipline which can be learned andit is characterised more by hard work than by romanticism.16 A crucial feature ofentrepreneurial behaviour is a ‘bias for action’, especially in creating innovativeactivities aimed at profit enhancement. Despite the growing systematisation ofinformation about entrepreneurial behaviour, there are still a number of mythsabout entrepreneurs.17

1 Entrepreneurs are doers, not thinkers. It is clear from the histories ofsuccessful entrepreneurs that they assume risk based on careful planningand analysis. They assume risk, but only after they have reduced thechances of failure by thinking through their actions in some detail.

2 Entrepreneurs are born and not made. Considerable evidence indicatesthat entrepreneurial traits are acquired and not inherited. This supportsDrucker’s contention that entrepreneurial skills can be taught and learned.

3 All you need is money. Having commitment to a good idea is much moreimportant than having instant capital. If business starts required minimumlevels of capitalisation to succeed, then few entrepreneurships would get offthe ground. Being single minded is much more important than being richwhen it comes to starting a business.

4 All you need is luck. If you subscribe to this view, you must also believethat entrepreneurial skills are irrelevant. Individuals who believe in luckwill not be successful entrepreneurs because they deny the importanceof hard work and tenacity in making a business succeed. Virtually allsuccessful entrepreneurs state that hard work and urgency were much moreinstrumental in their success than luck.

5 The myth of the entrepreneurial profile. There are no checklists whichsimplify the traits of the successful entrepreneur. These checklists are uselessoversimplifications of a complex pattern of human behaviour. The ‘profileapproach’ to entrepreneurship suffers from the same problems as the traitapproach to leadership. You can only partially understand a phenomenonif it is removed from its context.

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

7.4.1 How Entrepreneurs Differ from Small Business Owners andAdministrators

Researchers have tried to identify qualities that distinguish the entrepreneurfrom small business owners, managers and administrators. Sexton and Bowman-Upton argue that dissatisfaction with the status quo and the ability to recognisean opportunity, exploit it and make a business grow set the entrepreneur apart



Table 7.8 The entrepreneurial profile

Entrepreneur’s characteristic What the entrepreneur believes

1 Is tenacious and makes sacrifices You must make sacrifices in your family life andstandard of living to start a business.

2 Pursues achievements You must have a strong desire to succeed even in theface of several failures.

3 Is directive Have a clear vision of your goal and be able to explainit to others.

4 Assumes personal responsibility You should seek situations where you can assumeresponsibility for success or failure.

5 Solves problems Turn problems over until you get the best solution orresult.

6 Appreciates novelty Catch things that others miss.

7 Has an internal locus of control Believe that your outcomes are a control matter ofyour efforts.

8 Tolerates ambiguity Be productive and focused in the face of substantialuncertainty.

9 Takes calculated risks Lower your risk by developing a thorough businessplan.

10 Handles failure Failure is temporary.

from the small business owner or the manager in a large corporation.19 Theythink of entrepreneurship as a process of opportunity recognition followedby a plan to exploit the opportunity. Thus, entrepreneurs and small businessowners both start off the same way. However, a successful entrepreneur createsa business that soon outgrows the small business classification. Individuals’beliefs about business opportunity detection and exploitation are not confinedto only those individuals who start businesses. Entrepreneurs can be found inall organisational settings. In contrast to the perspective advanced in section7.4, Sexton and Bowman-Upton argue that terms such as intrapreneurs aremeaningless, because they create an artificial category based on organisationalaffiliation to describe a group of people who are really just entrepreneurs.20

They argue that the defining characteristics of entrepreneurs are the abilitiesto detect business opportunities and to exploit those opportunities to create arapidly growing enterprise. Table 7.9 contrasts further the differences betweenentrepreneurial behaviour and the behaviour of administrators in public andprivate organisations.

7.4.2 Encouraging Entrepreneurial Behaviour In-House

Large companies are encouraging and rewarding employees who prevail againstthe forces of bureaucracy to become entrepreneurs. This happens when theorganisation is well established and cannot react quickly to rapid market andtechnological change. Let us consider four companies which meet the challengeand overcome traditional internal, organisational obstacles to entrepreneurship.

1 Minnesota Mining and Manufacturing. Arthur Fry, 53, a 3M chemical engi-neer, used to be annoyed when pieces of paper he used to mark hymnsslipped to the floor as he stood up to sing. He knew that Spencer Silver, a



Table 7.9 Differentiating entrepreneurial behaviour from administrativebehaviour

Dimension ofbehaviour

Entrepreneurs tend to . . . Bureaucrats tend to . . .

Creatingvalue-addedstrategies

Spot opportunities

Radically change the firm

Exhibit self-confidence

Believe in firm’s capabilities

Control the flow of resources

Make incremental changes inmethodsEfficiently use the firm’s currentresources

Taking decisions External product and processopportunities are closely linked tothe personal value that change isvaluable and meaningfulFlat structures best keep the firmflexible and fluid (cross-training isa must)

Separate personal beliefs aboutexternal opportunities and change(change is not always good)Checks and balances aremore important than rapiddecision-making

Tackling problems inthe firm

Minimise risk by leasing or rentingfacilities and equipmentAlways be prepared to addcapacity

Own equipment and facilities andadd capacity only when capitalcosts are manageable

Using incentives Keep salaries low and use ISPs toretain talented employeesUse bonuses at individual andteam levels

Develop and maintain merit- basedreward systemPeriodic salary surveys to ensurecompetitive pay

scientist at 3M, had discovered an adhesive with very low sticking power.In the world of industrial adhesives that made for a useless adhesive.In Arthur’s hymnal, it was another story. Arthur reasoned that a marketexisted for a paper product coated with an adhesive strip which gave thepaper light adhesive properties. Since 3M allows employees to spend 15per cent of their work time on independent projects, he began to developthe commercial aspects of the product. Fry made pads of paper coated withthe material and distributed them to secretaries as a ‘market test’ for theproduct. They were delighted with the product. 3M started production anddistribution in earnest and soon had sales of $100m worth of ‘Post-it Notes’.

2 At the age of 28, Nolan Busnell created a game called Pong, America’s firstvideo game. He formed the Atari Corporation to market his game. Withinfive years he had sold his interests in the company for $28m.

3 While a student at Yale, Frederick Smith sketched out his plans for an air-delivery business in a paper for his economics course. His professor gavehim an average grade on the paper and in the course. After graduationhe started a company based on his ideas. By the time he reached 40, hiscompany called FedEx was grossing well over $1bn per year.

4 Along with Paul Allen, William Gates founded the Microsoft Corporationwhen he was 20 years old and a Harvard drop-out. At the age of 40, his30.5 per cent stake in the company was worth over $8bn. In the 20 yearssince he founded the company, it has generated more than $29bn in market-value added wealth for its shareholders. This places Microsoft well ahead



of General Motors which is 60 years older and has annual sales of over$140bn.

7.4.3 How Organisations Encourage Entrepreneurial Employees andInnovation

The companies described above have employees who are innovative and entre-preneurial. In fact, these and other successful firms have special roles which arefilled by managers and engineers who help nurture and develop entrepreneurialinnovation in employees. Let us consider the roles that are necessary for encour-aging intrapreneurship in the firm. First, each innovation in an organisationbegins with an idea champion.17 This is an employee who generates an ideaand retains responsibility for developing that idea in the organisation. Often,the idea champion with expertise power is a technical or professional employeewith few management responsibilities. The idea champion recognises a problemand generates a solution.

For each idea champion, there must also be a sponsor who nurtures the newconcept and applies organisational resources to the increasingly disruptive andexpensive development of the idea. The sponsor, who may be from anotherdepartment, lends his positional power (and perhaps his reputation) to the idea,project, process, service or product in question. The best sponsors are formeror current idea champions. They are employees who like to innovate and whotolerate pressure to be innovative.

For the new concept to succeed, the organisation must have employees whooccupy the role of orchestrator or godfather. This individual handles all of thepolitical obstacles surrounding the commercialisation of the product, service, etc.He is often the president or general manager who has the authority to say: ‘We’regoing to develop this concept.’ The godfather makes resources available, getspeople working together and builds coalitions which help convert non-believers.The best godfathers were once idea champions and sponsors themselves.

The creation of the special roles noted above are not sufficient to sustainentrepreneurship and innovation in the large organisation. The organisationmust also create horizontal co-ordination mechanisms which protect innovationteams from outside interference. Galbraith calls these islands for unencumberedcreative thinking reservations or greenhouses.22

These work units are different from other parts of the organisation.23 Theyare often physically removed from the rest of the firm. They take on uniquecharacteristics which reflect the work habits of the employees. One manager’scomments about such a work unit are illuminating:

The floor is cluttered with all a variety of magazines, a stereo blasts away, andphotos of scenes from various science fiction movies decorate one corner. Theseemployees do not come to work until 10 a.m., and they don’t leave until 11 p.m.This went on for four months. At the end of that period, I asked one employeewhat he had accomplished. The employee responded: ‘We’ve finally found the keyproblem that users are having with our software. They don’t like the way thescreens present information’. When I asked why it took four months to figure thisout, the employee responded, ‘Why not? We now know the key to what makes



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

Now, let us see how you think you would fit in to an organisation which usesidea champions, sponsors, godfathers and greenhouses. Try the short question-naire below to see if you’re innovative and suited to be an idea champion.10

Instructions: Rate each statement honestly by using the following scale:

1 = Always describes me.

2 = Often describes me.

3 = Sometimes describes me.

4 = Never describes me.

1 I do not worry about getting a bad job performance rating.2 I more often attempt difficult tasks that I am not sure I can do than easier

tasks that I’m sure I can do.3 I would rather do something that I feel is challenging and difficult than

something that is easy.4 I prefer to develop my own approach to work rather than have a job

description.5 It is very important to me to do my work as well as I can, even if it means

not getting along well with my peers.6 I rarely ask for instructions from my manager even when my job seems

unclear.7 My idea of how success should be measured does not depend on the

number of promotions I receive.8 When I work, I like situations in which I can’t get everything done without

the help of others.9 I make things happen when I work. I can accomplish things no matter what

the work climate is like.10 I do not expect to succeed all of the time. The important idea is to have lots

of room to try new things.

Add up your score. If the total is under 28, then you would be effectivein an organisation that puts pressure on employees to innovate. As a generalprofile, you 1) probably tolerate ambiguity well, 2) believe you can control yourown destiny at work, 3) are not too concerned with organisational politics, 4)handle work overloads well, 5) are persistent about accomplishing things underconditions of adversity and 6) are not afraid to go against work rules.

If you scored over 28, then you probably favour an organisation which rewardsadherence to rules and procedures and has very specific performance goals.You are sensitive to the needs of your co-workers and political aspects of theorganisation matter to you.

Where do you stand? You can see that the idea champion’s life is loaded withcontroversy and doubters. People may block the idea champion’s way and resisthis ideas in favour of the status quo in the organisation. If the idea champion’s



life is for you, be prepared to defy the culture of the organisation if it does notencourage intrapreneurship and innovation. It can be lonely for a while, but therewards can be substantial.

Summary Points

• Power is the ability to influence someone else.• Authority is the right to order or to ask others to do what you want them

to do. It is bestowed by the position in the organisational hierarchy.• Influence is the process of affecting the thoughts, feelings and behaviours

of others.• All employees have a zone of indifference, the range in which they perceive

influence attempts to be legitimate and fair.• Managers who use power ethically must communicate effectively and

through their words and actions show respect for their subordinates.• There are several sources of interpersonal power. Reward power, coercive

power and legitimate power all adhere to the position held by the indi-vidual. They are a function of vertical placement in the hierarchy. Referentand expert power are forms of personal power which have little to do withplacement in the hierarchy of the organisation.

• Subunits in the organisation gain power by 1) competing for resources, 2)managing organisational uncertainty, 3) occupying a central position in theflow of work and 4) eliminating substitutes for the subunit’s activities.

• Organisational politics refers to the management of influence to obtain endsnot sanctioned by the organisation or to obtain sanctioned ends throughnon-sanctioned means.

• Managers play politics by whistle-blowing, sustaining line and staff conflict,building coalitions and finding sponsors and practising insurgency. Whistle-blowing behaviour occurs when the organisation’s values and practicesviolate an employee’s instrumental or terminal values.

• Upward management of the boss is both reasonable and necessary to sustainan effective superior–subordinate relationship.

• Leadership is the power of one individual to guide the actions of another.Management is understood as a set of interlocking roles: 1) interpersonal,2) informational and 3) decisional.

• The study of leadership moves forward on three fronts: 1) trait theory;2) behavioural style theory and 3) contingency theory. The trait theoryemphasises qualities of the leader. The behavioural style theory focuses onthe actual behaviours of the leader. The contingency theory attempts toblend leader behaviours with the demands of the leadership situation.

• Behavioural style theory emphasises two basic forms of leader behaviour:1) consideration refers to those behaviours which sustain the morale andcohesiveness of the work group and 2) initiating structure refers to direc-tive behaviours which focus on achieving goals and clarifying work. Bothleader behaviours are related to group performance and member satisfaction



depending on: 1) external pressure, 2) nature of the task, 3) clarity of goalsand 4) extent of performance feedback.

• Fiedler’s contingency theory tries to integrate the leader’s orientation to hisleast-preferred co-worker and the favourableness of the leadership situation.The theory proposes that the situation is composed of: 1) leader–memberrelations, 2) leader’s position power and 3) task structure. The leader’scontrol of situational favourableness can be enhanced by changes in leader–member relations, position power and task structure.

• The path-goal theory of leadership proposes that the leader’s job is theclarification of pathways between subordinates’ effort and performance, andbetween subordinates’ performance and the rewards they value. The leadercan adopt: 1) directive, 2) supportive, 3) participative or 4) achievement-oriented behaviour to achieve the clarification noted. Characteristics ofsubordinates, tasks and the organisation can function as neutralisers andsubstitutes for leadership.

• Leader reward and punishment behaviours consist of four dimensions.The leader’s use of non-performance-contingent punishment behaviour willundermine his position the fastest.

• Entrepreneurs are special types of leaders who create wealth by assumingrisk. Entrepreneurship consists of skills which can be learned. They differfrom administrators in their orientation to strategy, opportunity exploitation,decision-making, resource-allocation and reward practices.

• Entrepreneurial behaviour can be learned by employees. The organisationmust create the roles of: 1) idea champion, 2) sponsor and 3) godfatherto ensure a culture that encourages entrepreneurship. Organisations mustalso protect creative groups from organisational bureaucracy by creating‘greenhouses’ or ‘reservations’.

Review Questions


7.1 If an employee has expert power and referent power, then he must also haveauthority. T or F?

7.2 Banning smoking in public work areas is an expression of coercive power. T orF?

7.3 If a task is ambiguous, subordinates will be more effective and satisfied witha manager who uses a combination of referent and expert power than with amanager who uses a combination of legitimate and reward power. T or F?

7.4 An employee with referent and expert power will automatically acquire morelegitimate power. T or F?

7.5 By and large, employees are limited in the ways they can gain power at work.T or F?



7.6 If an employee attempts to manage his boss, it always makes sense to becomethoroughly familiar with his management style. T or F?

7.7 Generally, manufacturing units are better able to manage organisational uncer-tainty than sales and marketing units. T or F?

7.8 As organisations practise more just-in-time inventory management, purchasingdepartments will lose their centrality. T or F?

7.9 Stockbrokers who practise insider trading would be pursuing approved outcomesby unapproved methods. T or F?

7.10 Whistle-blowers are typically disgruntled employees who have an axe to grindwith their employers. T or F?

7.11 If a manager were explaining a new personnel policy to his workers, he wouldbe engaging in the disseminator role. T or F?

7.12 The trait theory of leadership does not emphasise the observable behaviour ofleaders. T or F?

7.13 Contingency theories of leadership blend leader behaviours or traits and thesituation the leader confronts. T or F?

7.14 The main problem with the trait approach to leadership is its failure to developa set of ‘core traits’. T or F?

7.15 The behavioural approach to leadership posits that leaders can only be successfulif they learn how to exhibit both consideration and initiating structure. T or F?

7.16 Fiedler’s contingency theory places special emphasis on the value of teachingpeople how to change their task-oriented or relations-oriented leader behav-iours. T or F?

7.17 When subordinates have high ability and the task is unambiguous, then acombination of directive and supportive behaviour will work best for the leader.T or F?

7.18 Characteristics of subordinates can be a substitute for leadership, but never aneutraliser. T or F?

7.19 Companies can achieve more intrapreneurship by encouraging idea champions,creating sponsors, and protecting creative teams from organisational bureau-cracy. T or F?

7.20 Creating a ‘greenhouse’ for a new product development team may encouragethe development of expert power in all team members. T or F?




7.21 The right to give orders inherent in one’s position is and the capacityto influence peers and superiors is .

A power; authority

B influence; authority

C locus of control; need for achievement

D authority; power

E power; control

7.22 Which of the following types of interpersonal power is not likely to changeafter a lateral job transfer (or transfer to the same job at another location) inthe same company?

A legitimate

B expert

C coercive

D reward

E referent

7.23 Which of the following power sources is least likely to be available to atechnical, non-managerial employee?

A expert

B legitimate

C referent

D knowledge

E coercive

7.24 Being a management trainee, you are assigned to a senior manager whobecomes your mentor. The relationship you have with your mentor is based on

power.

A reward

B coercive

C referent

D expert

E legitimate

7.25 When an employee engages in entrepreneurial behaviour and seeks to findcreative solutions to problems confronting his department, he is usingto gain power in his job and career.

A creating obligations in others

B giving excellent performance

C limiting access to information

D taking risks and being creative

E rule manipulation



7.26 Which of the following is least likely to minimise the problems associated withorganisational politics?

A encouraging participative management.

B communicating the rationale behind decisions.

C clarifying goals and performance objectives.

D maintaining open communication channels to higher levels of management.

E disregarding the informal organisation.

7.27 The problem of which comes first: great leaders who make great situations orgreat situations which make great leaders, is handled least well by theleadership theory.

A behavioural

B trait

C contingency

D path-goal

E neutraliser

7.28 The Fiedler contingency theory of leadership would predict which of the fol-lowing in matching the leader to a favourable leadership situation?

A re-engineer the situation.

B leader behaviour training.

C better selection and assignment of the leader to the situation.

D match LPC score to locus of control.

E train followers in consideration and initiating structure.

7.29 According to Fiedler’s leadership research, high LPC (relations-oriented) leadersare most effective in situations where:

A leader–member relations are poor, the task is unstructured and positionpower is weak.

B leader–member relations are poor, the task is structured and position poweris strong.

C leader–member relations are good, the task is unstructured and positionpower is weak.

D leader–member relations are good, the task is structured and positionpower is weak.

E leader–member relations are good, the task is structured and positionpower is strong.

7.30 House’s path-goal theory of leadership is a transactional, contingency theory ofleadership which shares theoretical principles with

A expectancy theory.

B Herzberg’s two-factor theory.

C Maslow’s hierarchy of needs.

D McClelland’s socially acquired need theory.

E management by objectives.




7.1 A project team is working to develop a new product. The team selects membersto manage components of the project based on their expertise. The membershave all worked together before and this is their third new product developmenteffort. The team is highly cohesive, members set their own work hours and theteam is generally protected from outside interference by the project manager.Given this description, which sources of interpersonal power will be mostimportant in sustaining the effectiveness of the project team?

7.2 What is the most important distinction to make in understanding a person’spower in an organisation?

7.3 Develop an argument for explaining the extent of your marketing department’spower in your organisation.

7.4 Some top executives have suggested that their organisations would do muchbetter if they could get rid of politics. From the information in the module, doyou think that the complete elimination of political behaviour is possible?

7.5 Characterise how management differs from leadership.

7.6 Suppose you had to explain to a friend how leadership study had changed overthe years. What would you say about its development?

7.7 Based on the discussion of entrepreneurship, what recommendation would youmake to a firm wanting to develop entrepreneurial employees and innovativeteams?

7.8 Why do start-up companies in industries with shortening product life cycleshave to function in an entrepreneurial fashion?

7.9 Why must upward management become more important in delayered anddownsized organisations?

Case Study 7.1: Lenton IndustriesIan Reese could not think of a time in the history of the company when there hadbeen as much anti-company sentiment among the workers as had emerged in thepast few weeks. He knew that Ashton Lenton would blame him for problemsin the production division. Ian was supposed to be ‘smoothing the transition’for Ashton’s son Wexley as manager of the production division. Wexley hadonly recently taken over as production manager of the company (see Table 7.10).Wexley was very unpopular with most of the production workers, but the eventsof the past weeks had caused him to be resented even more. Anger was so highin the production division that several foremen had left and none of the femaleproduction workers would come to work. Their resentment had increased to thepoint where several female employees were threatening to file harassment suitsagainst Wexley.

The programmes which had caused the worker resentment were instituted byWexley to reduce waste and production costs, but they had produced completely



opposite results. Ian knew that on Monday morning he would have to explainto Mr Lenton why the workers had reacted as they had and that he would haveto present a plan to resolve the employee problems, reduce waste and decreaseproduction costs.

Table 7.10 Lenton organisational chart

President

Mr Lenton

Assistant

Ian Reese

Accounting Engineering Production Marketing Product Design

Wexley Lenton

Assistant

Eve Orderly

Foreman Foreman Foreman

L. Orbs B. Sharp Y. Fore

Company History

The firm makes circuit boards for an original equipment manufacturer. Lentonpurchases all the parts and assembles the boards for direct shipment to severalAmerican manufacturers. Lenton had grown swiftly due to the expansion of itsmajor customer which accounted for 90 per cent of Lenton’s business. WhenMr Lenton began the business, his was one of a handful of firms building theboards. Recently, several other firms had started making similar boards. Onecompetitor had bid on business with Lenton’s major customer. Thus, Mr Lentonbegan to put pressure on Ian to increase efficiency and cut production costs toensure low bids to the valued customer.

Conditions before the Cost Reduction Programmes

A family-type atmosphere had existed at Lenton before the cost reduction pro-grammes were installed. There was little direct supervision and pressure wasseldom placed on employees to meet production standards. Several employeesworked overtime without supervision and most employees socialised at lunchand they often played cards together after work. Mr Lenton was on good termswith all employees but he was not perceived by employees as being involvedactively in all operational decisions. He used Ian as his assistant and he wasresponsible for ensuring that company goals were achieved. Ian had a reputationas a firm manager who seldom gave in to employee complaints.

Wexley Lenton had recently been appointed as production manager by hisfather. He was 25 and recently married. He supervised employees very closelyand was a stickler for detail in record-keeping. Most of the production employeesbelieved that Wexley was the production manager because he was the founder’sson. He would frequently pull production employees away from their jobs towork on his ‘special projects’ which were not always related to the work of the



firm. Recently, several employees had completed the installation of a computersystem at Wexley’s home.

While Wexley took great personal interest in the details of record-keeping, hisinterest in personnel matters and production control was lower. He rarely spoketo employees and he left ‘distasteful’ personnel decisions to his secretary, EveOrderly.

Production tasks were repetitive and foremen supervised the work of 70employees on three assembly lines. Employee–foreman relationships were good,but the employees found the work to be boring and monotonous. Wages wereabout average for the industry and Lenton’s employee turnover rate was alsoabout average. The foremen knew that the work was monotonous. They fre-quently looked the other way if employees took slightly longer breaks, especiallyif the group was on schedule with its work. Employee theft was generally nota problem. Quality control had become an issue and several foremen had men-tioned to Wexley that a quality control inspector should be hired.

New Programmes in Production

After Mr Lenton began emphasising cost control and waste reduction, Wexleycalled the foremen together and indicated to them that they would be responsiblefor implementing tighter work rules. Each foreman received specific goals interms of 1) higher production quotas, 2) more productivity per labour hour,3) lower waste and 4) a new handbook on administering employee discipline.They were told to implement the programme in a week.

The foremen’s efforts to implement the goals met with immediate employeeresistance. The employees’ reactions were typified by Allison Roe, an assembleron Lewis Orb’s production line: ‘I don’t get it, Lewis used to be one of us. Heknows how monotonous this work is, why is he being such a tyrant all of asudden? Nobody wants to be around him any more. All he does is complainabout his new goals.’ Foremen complained to Ian that they were ‘caught in themiddle’, and were made to be the ‘bad guys’ in the new efficiency programme.

For several weeks there were no improvements in the four targeted areas. Iancalled a meeting with Wexley and the foremen to announce a new cost-cuttingprogramme. The production division was going on a four-day, 40-hour workweek to reduce costs. In addition, the practice of unsupervised overtime wouldend. There was considerable grumbling about the new work hours, especiallyamong the older workers who felt 10-hour work days were too long. Theyounger employees were indifferent to the four-day work week plan. The thirdchange upset all the employees, however. Ian told them that no one would workovertime any more.

Employees from each of the production lines agreed to stage a work slow-down. Previously hard-working employees voiced their support for the slow-down, reasoning that ‘the company can’t fire all of us’. Ian and Wexley observedthe effects of the slow-down. Wexley’s response was to further tighten work rulesby requiring: 1) a loss of one half-hour’s pay for each five minutes of latenessin reporting to work in the morning and after lunch, 2) reducing breaks from



30 minutes to 15 minutes and 3) a new discipline system which would result indismissal more quickly for work infractions.

The new rules drew fire quickly from the employees. For the next two weeksthey flagrantly violated the new rules. Wexley had Yves Fore dismiss twoemployees under the new discipline system. Other problems surfaced in BernardSharp’s assembly area. There, employees were slowing down work by taking toomuch time to test circuit boards. Since they had been told that quality controlwas too lax in their department, they had agreed among themselves to increasethe amount of time they spent on board inspection regardless of its effect onproduction output.

Bernard had asked Wexley to help him design some new standards for qualitycontrol, but Wexley had not done it. Now employees were setting up their ownquality control guidelines and it was hurting production seriously. Ian heard ofthe problem and he promised Bernard that he would meet with the employeesand discuss a more workable system for conducting good board inspectionwithout serious disruption to production rates.

Ian’s Dilemma

As Ian sat at his desk, he gave serious thought to resigning. The new emphasison cost control and waste management was turning into increasingly numerousand restrictive work rules which were frustrating employees. He was findingthat his work relationship with Wexley was becoming more strained. Worse,perhaps, was the total deterioration in co-operation between Wexley and theforemen. The foremen were routinely ignoring Wexley’s tightened work rules.

Phillip Colson, the company accountant, came into Ian’s office. He droppedthe previous month’s production efficiency and productivity report on Ian’sdesk. Ian flipped the printout to the production figures and he knew instantlythat he’d have to call a meeting with Mr Lenton, Wexley and the productionforemen. The report clearly indicated that production quotas had not beenmet, quality control had deteriorated and productivity per production employeehad declined. These figures indicated that the company was no longer pricecompetitive. Mr Lenton would not be pleased.

1 What kind of leadership procedures are now needed to resolve the problemsin the production division?

2 Analyse the current problems in production from the standpoint ofMintzberg’s managerial roles.



Case Study 7.2: Looking for Mrs Good Cookie∗

Debbie Fields is the quintessential hands-on CEO and founder of the cookiecompany which bears her name. As part of her management routine, she makesunannounced visits to stores where she quickly sizes up the effectiveness of oper-ations and quizzes the manager about sales figures and store expenditures. Sinceshe had an extremely high need for achievement, she had demanding expecta-tions for store managers and their adherence to company management practices.While some management experts might judge her to be a very demandingtaskmaster, others who are familiar with her methods say: ‘If she’s not satisfiedwith the way a store is being run, she simply rolls up her sleeves and doesthe job herself.’ According to her husband Randy, ‘She can go into a store aftervisiting [once] and remember not only a staff person’s name but the names ofmembers of her family, or what the telephone bill was at that store two monthsago.’

As she is something of a business icon, management writers and studentsof business have compared her to figures as diverse as Colonel Saunders andMargaret Thatcher. Her autobiography, One Smart Cookie, has been a best-sellerand her store management methods have been copied by competitors. Duringthe late 1980s she was a frequent guest lecturer at prominent American businessschools and she has been a celebrity guest on American TV game shows. Shehas been an inspiration to would-be women entrepreneurs everywhere becauseshe seems to have geared herself for success in the cut-throat food retailingworld while maintaining a household and a successful marriage. Dissatisfiedwomen on corporate career paths flocked to her seminars and several becamehighly successful managers of her retail cookie stores.

By 1987, 10 years after she started the company, it had grown to 543 retailoutlets in six countries. While the debt load grew, sales grew faster, and thecompany had sales of $104m and earnings of $18m in 1987. That year thecompany’s stock was issued in London on an unlisted exchange and it soared asinvestors hoped to capitalise on the company’s proven growth formula. By thelate 1980s the strains of the company’s frenetic growth were beginning to show.The rapid expansion in the number of stores had proven costly as many of thestores were weighted down by very expensive long-term leases which placed ahuge burden on profit margins.

The onset of a US recession made once loyal customers think twice aboutpaying a dollar for a chocolate chip cookie. Mrs Fields soon recognised that shecould not personally control all aspects of the business and continue to makegood decisions which would lead to stable operations and continued growth.

By 1988 her bankers were concerned by stagnant sales, rising costs andthe company’s increasing inability to service its heavy debt load. Her bankersencouraged her to reduce costs so she agreed to close 97 stores which resultedin a $19m loss. Meanwhile, she started to learn how to delegate authority and

* Sources: Alan Prendergast, ‘Learning to Let Go’, Working Woman, February 1992: 42–5; Robin Pogribin,‘What Went Wrong with Mrs Fields?’, Working Woman, July 1993: 9–11; Harris Collingwood, ‘Kitchen Too Hotfor Mrs Fields?’, Business Week, 1 March, 1993: 46.



she began to fill needed professional manager positions in her company. Withthe help of a marketing specialist, she repositioned the company as a specialityfood retailer in the highly competitive, premium, convenience food niche. Toexploit this new competitive advantage, her company began to load the productpipeline with new offerings which capitalised on her name. To broaden themarket base for her company’s products she signed a licensing agreement withthe Marriott Corporation, a major US hotel and restaurant conglomerate. Thisagreement allowed Marriott to open Mrs Fields stores along freeways and inmajor US airports. Over 50 new locations were planned in 1995. Her companyalso entered a licensing arrangement with Ambrosia Chocolate to peddle semi-sweet chocolate chips in supermarkets. The company is now opening cookie-bakery-coffee shops which also feature soups and sandwiches along with thesignature premium cookies and cakes. Clearly, the mass-merchandising of theMrs Fields name had begun. Still unsatisfied, her lenders forced her out aspresident and CEO in the spring of 1993. In a debt-for-equity exchange, hercreditors got 80 per cent of the business when she resigned her two positions.Even though she has been removed from company operations, she remainschairwoman of the board and the company’s largest stockholder with her 20 percent stake.

1 Was Debbie Fields’ hands-on style of management necessary to build thecompany? Did it contribute to the company’s problems by the late 1980s?

2 Using concepts from the module describe Mrs Fields’ use of power andfeatures of her leadership behaviour and style.

References

1 Cobb, A. (1984) ‘An Episodic Model of Power: Toward an Integration of the Theoryand Research’, Academy of Management Review 9: 482–93.

2 French, J. and Raven, B. (1959) ‘The Bases of Social Power’, in D. Cartwright (ed.),Studies in Social Power. Ann Arbor, Mich.: Institute of Social Research, University ofMichigan.

3 Crozier, M. (1964) The Bureaucratic Phenomenon. Chicago, IL: University of ChicagoPress.

4 Velasquez, M., Moberg, D. and Cavanaugh, G. (1982) ‘Organizational Statesmanshipand Dirty Politics: Ethical Guidelines for the Organizational Politician’, OrganizationalDynamics 11: 65–77.

5 Hickson, D., Hinings, C., Lee, C., Schneck, R. and Pennings, J. (1971) ‘A StrategicContingency Theory of Intraorganizational Power’, Administrative Science Quarterly 16:216–29.

6 Mayes, B. and Allen, R. (1977) ‘Toward a Definition of Organizational Politics’,Academy of Management Review 2: 672–8.

7 Mintzberg, H. (1983) Power In and Around Organizations. Englewood Cliffs, NJ: PrenticeHall.

8 Mintzberg, H. (1973) The Nature of Managerial Work. New York: Harper & Row.



9 Kotter, J. (1982) ‘What Effective General Managers Really Do’, Harvard Business Review(January–February): 156–62.


11 Bennis, W. and Nanus, B. (1985) Leaders: The Strategies for Taking Charge. New York:Harper & Row.

12 Lewin, K., Lippitt, R. and White, R. (1939) ‘Patterns of Aggressive Behavior inExperimentally Created Social Climates’, Journal of Social Psychology 10: 271–99.

13 Fiedler, F. (1967) A Theory of Leadership Effectiveness. New York: McGraw-Hill.

14 House, R. (1971) ‘A Path-Goal Theory of Leader Effectiveness’, Administrative ScienceQuarterly 16: 321–39.

15 Korukonda, A. and Hunt, J. (1989) ‘Pat on the Back or Kick in the Pants: AnApplication of Cognitive Inference to the Study of Leader Reward and PunishmentBehaviors’, Group and Organizational Studies 14, No. 3: 299–324.

16 Drucker, P. (1985) ‘The Entrepreneurial Mystiques’, Inc. (Oct.): 34–44.

17 Aldag, R. and Stearns, T. (1987) Management. Chicago, IL: Southwestern.

18 McClelland, D. (1976) The Achieving Society. New York: Irvington.

19 Sexton, D. and Bowman-Upton, N. (1991) Entrepreneurship: Creativity and Growth. NewYork: Macmillan, 12–13.

20 Sexton, D. and Bowman-Upton, N. (1991) op. cit., 13.

21 Aldag, R. and Stearns, T. (1987) op. cit.

22 ‘Here Come the Intrapreneurs’ (1985) Time, 4 February: 36–7.

23 Galbraith, J. (1982) ‘Designing the Innovating Organization’, Organizational Dynamics(Winter 1982): 5–25.


Module 8

Organisational Design and NewForms of Service-DrivenOrganisations

Contents

8.1 Making Sense of Organisational Anatomy 8/38.1.1 Understanding Organisational Design 8/38.1.2 Aspects of Organisational Design 8/4

8.2 Organisational Structure: Understanding the Basics 8/138.2.1 Centralisation and Decentralisation 8/138.2.2 Interorganisational Designs 8/158.2.3 Organisational Design and Employee Needs 8/188.2.4 Co-ordination and Control 8/198.2.5 Vertical Co-ordination Mechanisms 8/208.2.6 Horizontal Co-ordination Mechanisms 8/228.2.7 Control in the Organisation 8/24

8.3 Understanding the Responsive Organisation 8/278.3.1 Experiments with the Boundaryless Organisation 8/30

8.4 Drivers of Growth in Customer Service 8/35

8.5 How Good Service Retains Customers 8/368.5.1 Managing Services Differs from Producing Products 8/378.5.2 Excellent Service Goes Beyond Manufacturing Efficiency 8/38

8.6 Organising Principles of Service Quality 8/40

8.7 Creating a Service-Driven Organisation 8/44

Summary Points 8/46


Case Study 8.1: Analysing a Change in Design 8/54

Case Study 8.2: How Hewlett-Packard Avoided the Decline Suffered byIBM and DEC

8/56

Case Study 3: Dumbsizing 8/60


Module 8 / Organisational Design and New Forms of Service-Driven Organisations

Learning Objectives


• Differentiate between organisational structure and organisational design.

• Identify the distinguishing features of mechanistic and organic organisa-tional designs.

• Develop the four key design issues of division of labour, delegation ofauthority, departmentalisation, and span of control.

• Explain the principles underlying effective delegation of authority.

• Differentiate between the four basic organisational designs.

• Explain the reasoning behind decisions to centralise or decentralise organi-sations.

• Weigh the benefits and costs of decentralised business operations.

• Differentiate between organisational co-ordination and organisational con-trol.

• Delineate the methods to achieve improved horizontal and vertical co-ordination.

• Explain the differences between process-oriented and results-oriented con-trol systems.

• Understand why eliminating the manufacturing approach in customer ser-vice requires a commitment to a strengthened employment relationship.

• Explain why service quality improvements require the rebuilding of organ-isational structure and processes from the bottom up to support servicedelivery employees.

• Assess whether service quality is a major component of competitive advan-tage in the firm.

• Explain why service quality training is an investment in future earningsstreams (and not a current expense).

• Show how excellent service depends on employees who are highly trainedand empowered to make on-the-spot improvements in service.

• Explain how a service-driven competitive advantage must be based onperformance-contingent intrinsic and extrinsic rewards.

• Show how the managers’ role shifts from control to support of front-lineservice employees in service-driven firms.

• Explain how outsourcing of services to cut costs can jeopardise competi-tive advantage and customer loyalty if the supplier’s service is deemedinadequate by customers.

• Explain that raising service quality is far more time consuming than down-sizing, but is more likely to sustain competitive advantage.



8.1 Making Sense of Organisational AnatomyThis module deals with the macro, or large-scale, organisational design issues.Here, we are concerned with how managers put people together to co-ordinatetheir work and to achieve the organisation’s goals. If managers pay little atten-tion to the proper design for the firm (or do not co-ordinate work), employeesdo not fulfil their performance potential and they do not achieve the goals ofthe company’s strategic plan. Consider the following example.

Rex is a senior design engineer who has a good idea for an improvement in arobotic device used to examine the interior of large turbines built by the company.He was told to take his idea to a project manager in the robotics division. Theproject manager explained that Rex must get written approval from the director ofrobotics to work on the device. Rex took his idea to that director who informedhim that he needed sketches before he could consider giving him permission towork on it further. Rex was beginning to sense that he was getting the ‘red taperun-around’. Next, he went to the computer assisted design division for approvalto create the preliminary sketches. The department head told him that all of hiscomputer design stations were occupied for the near future. Rex lost his temperand lectured the department head about ‘obstacles that keep the company frombeing the technological leader in the industry’.

All of the people in this example may be highly motivated and effectiveemployees. However, Rex’s desire to innovate is being severely hampered bythe structure of the company and the formality of its product decision makingsystem.

8.1.1 Understanding Organisational Design

Informally, the structural configuration of a company is the way work is dividedand how it achieves co-ordination among its various work activities. 1 A com-pany’s structure resolves the two basic tasks of getting work done: 1) dividingup the work in the organisation and 2) ensuring the work gets done by providingco-ordination and control of employees’ work activities.

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

Organisational design is a series of decisions made by managers about thebest organisational arrangements to achieve the goals in their strategic plans.The organisational arrangements include: 1) division of labour, 2) allocationof authority, 3) departmentalisation, and 4) span of control.2 The concepts areshown in Figure 8.1 along with some related ideas.

Burns and Stalker, two British social scientists, have labelled organisations aseither mechanistic or organic (see Figure 8.1).3 Mechanistic organisations have:1) high division of labour, 2) low delegation of authority, 3) departments withgreat uniformity of work activities, and 4) narrow spans of control. Mechanisticorganisations are represented by the left end of each continuum in Figure 8.1.Such organisations possess tight rules and policies, limited individual job dis-cretion, and co-ordination which is formal and written.

Organic organisations exist on the right side of each continuum shown inFigure 8.1. These organisations have less job specialisation, greater delegation



MECHANISTICDESIGN

ORGANICDESIGN

DEGREE OF WORK SPECIALISATION

DEGREE OF CENTRALISATION

DEGREE OF WORK UNIFORMITY

NUMBER OF SUBORDINATES

ORGANISATIONALDESIGN ISSUES

High

Low delegation

High uniformity

Few

Low

High delegation

Low uniformity

Many

Division of labour

Distribution ofauthority

Departmentalisation

Span of control

Figure 8.1 Fundamental issues in organisational design

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

8.1.2 Aspects of Organisational Design

Division of Labour

Division of labour is the degree of job specialisation in a firm. It is the spe-cific tasks and work methods which define an employee’s job. Its aspects are:1) specifying the type of work performed (e.g., research scientist, computerprogrammer, production superintendent), or 2) the work method or processto be used (accounting, production, marketing). Division of labour results inspecialisation and it is the primary source of increasing marginal productivityin work units. To a point, output per employee increases as more employeesperforming related tasks are grouped together. Technological advances in com-munication and process control overcome co-ordination problems as work unitsize increases. Such advances make it possible for one manager to supervise alarge number of employees, even telecommuters. Technological advances reducedeclines in employees’ marginal productivity as unit size increases. Division oflabour makes companies effective because managers break down jobs into sub-tasks at which employees develop expertise through repetition. In this waycompanies capture efficiencies in production systems which can be transformedinto lower cost per unit of output and sustainable competitive advantage.



Delegation of Authority

Delegation of authority is a manager’s decision about how much authorityto give to a subordinate. In many ways, it is a manager’s decision to give‘a piece of his job’ to a subordinate or a team of employees. Authority wasdefined in Module 7 and it is the legitimate right to give direct orders to teamsor individuals. It flows to a manager from his position in the hierarchy orchain of command.4 The process by which authority is distributed downwardto employees is delegation of authority. Here’s a short story on the subject ofauthority delegation.

Victor’s superior, Adrian, was concerned that Victor might make costly mistakesif he were given more authority. When Adrian reviewed the types of errors thatVictor could make, he determined that the costliest mistake was £15 000; yet it couldcost the organisation as much as £35 000 in executive time, regulatory complianceand other time-consuming activities if Adrian and other managers had to handlethe problems that should be assigned to Victor. He decided, after considering thedifferences in costs, to give Victor more authority.4

Why Must Managers Delegate Authority?

From the manager’s point of view, delegation represents giving up some mea-sure of control. Managers cannot do all of the firm’s work alone. They mustaccomplish goals through the efforts of others. They must take advantage ofsubordinates’ expertise and job skills while developing them to take on increas-ingly more complicated tasks. From the standpoint of subordinates, receivingauthority is one of the only ways to acquire management skills which can leadto promotions and pay rises. Getting more authority can be a powerful moti-vator (intrinsic reward) which raises subordinates’ effort levels. The need to beeffective in delegation of authority is even more pressing in downsized anddelayered firms. There, the focus of delegation is likely to be self-directed workteams rather than separate individuals.

Principles of delegation of authority. Let’s note the major principles which amanager must follow to be an effective delegator. First, for each responsibilitydelegated to a team or a subordinate, an equal amount of authority must begiven. If you give a business computer salesman the responsibility for assessingthe needs of customers, you must also give him the authority to act on theassessment and recommend a particular configuration of hardware (and price)to meet the customer’s needs.

Second, all decisions should be delegated to the lowest organisational levelpossible, i.e., to the level at which employees or self-directed teams who knowwhat to do can act responsibly on behalf of the firm. This rule can make thedifference between high-quality products and swift, sure service priced to meetthe competition or shoddy products which are backed up by deplorable service.When employees are involved in decisions which affect product quality andservice (i.e., given authority for quality control) and, in turn, are held responsiblefor controlling production, costs begin to stabilise or go down, and quality rises.Japanese management systems rely on the principle of delegation of authorityto teams in the areas of production and quality control. These techniques havehelped make Japanese products the highest quality in the world.



Third, practise management by exception. A manager only becomes involvedwhen an exception to the work routine of the team or subordinate occurs. Thisdoes not mean the manager retracts the delegated authority. He gets involved inthe work activity which is creating the exception. When managers leave peoplealone to do their work, they have time to complete their own work. Managingby exception is not an excuse to be out of touch. Instead, it is a way to helpteams or subordinates achieve their potential while giving the manager moretime to manage.

Fourth, managers should tell the teams or subordinates not only what to dobut how to do it. Simply telling them that they ‘now have the authority’ tocomplete particular tasks or projects on their own is not effective delegation.The effective delegator ensures that the employee’s understanding of the taskis complete. Also, he checks with the subordinate to see that he knows how tocomplete the work.

Fifth, the subordinate’s responsibility to his superior is absolute and superiorscannot escape responsibility for the performance of their subordinates. Thismeans that the boss cannot escape responsibility for failure by saying: ‘Mysubordinate did not complete his work on time’. Ultimately, all managers areresponsible for the work of their subordinates.

The application of the five rules of delegation create beneficial outcomes forthe firm and its work-force. First the widespread delegation of authority leads toa competitive work climate because employees at the same level are evaluatedby their ability to handle delegated tasks. Employees also can become morecreative because they have more autonomy which leads to more opportunity toparticipate in problem-solving and decision-making.

Additional benefits of delegation are summed up in the book In Search of Excel-lence by Peters and Waterman (Harper & Row (1982), who point out that simpleorganisational structures are the result of widespread delegation of authority. Ingeneral, simple structures with high delegation characterise many of the mosteffectively managed organisations. Peters and Waterman have come up with the‘rule of 100’, which says that there is seldom a need for more than 100 peoplein the corporate headquarters. Examples of this rule include the following:

1 Emerson Electric, with 54 000 employees, has fewer than 100 at its head-quarters.

2 Dana, with 35 000 employees, recently cut its corporate staff from 500 to 100employees.

3 WalMart, with $190bn in annual sales has a corporate staff of under 400 atits headquarters.

4 Schlumberger Inc. has a corporate staff of 90 employees.5

These firms have lean corporate staffs because their top managers believe thattheir companies can be low-cost competitors in their industries. To achieve alower cost structure, managements of the firms must practise the principles ofdelegation so that employees working in the field stay close to the needs ofcustomers and react quickly to actions taken by competitors. In a company thatpursues the low-cost producer competitive advantage, delegation of authoritymust be a basic principle of operation.



Departmentalisation

Departmentalisation refers to how work activities are grouped together. Forinstance, functional departmentalisation groups work activities around essentialfunctions such as manufacturing, sales and finance. Departmentalisation canalso be based on technology, product, types of customers, types of distributionchannels used, or geographic regions covered by the company. Regardless ofthe form of departmentalisation chosen, work activities are grouped togetherand assigned to managers. Departmentalisation is the logical grouping of workactivities to create divisions, branches, units and sections in a company. Below,the various forms of departmentalisation noted above are described in greaterdetail.

Managers can create work units which have employees performing aspectsof the same function. All organisations have basic functions which must beperformed. As an example, a hospital has the following functions: radiology,surgery, emergency care, cardiac care, pediatric care, internal medicine, nursingservices, and psychiatry and out-patient services. The functions of a manufactur-ing firm might include production, purchasing, personnel, finance, accounting,and marketing. Figure 8.2 shows a simple functional departmentalisation for anorganisation.

GENERAL MANAGER

PURCHASING

MARKET

RESEARCH

PUBLIC

RELATIONS

EXECUTIVE

ENGINEER

QUALITY

CONTROL

FINANCEENGINEERING MANUFACTURING

PRODUCTION

MARKETING

AND SALES

PERSONNEL

Figure 8.2 The functional design

The functions depicted in the manufacturing firm shown in Figure 8.2 areengineering, manufacturing, quality control, marketing and sales, finance andpersonnel. The principal advantages of the functional design are noted below.

1 The structure is a logical reflection of the firm’s functions.2 It is based on specialisation (i.e., the purchasing department has expertise in

buying all the components and materials which go into production) whichis efficient.

3 It is efficient because individuals in functional departments learn to speaka common language (accounting, purchasing, quality control, and so on).

4 It minimises the extent of duplication of effort.5 Training of employees is narrowed and simplified.6 It facilitates tight control and the legitimate authority of the chain of com-

mand is reinforced.

Several disadvantages do occur in functional designs, however.



1 Overspecialisation can take place and this can narrow the business view-points in functional departments.

2 The development of managers is limited to their functional areas.3 Co-ordination between departments can weaken; for instance, employees

in purchasing may never be aware of problems confronting marketingpersonnel.

4 Employees identify more strongly with their departments than with theculture of the firm.

5 The chief executive may be overburdened.6 Managers may fail to develop a strong focus on customers, products or

markets.

The territorial design establishes work groups based on a geographic area.The rationale is that all activities in a particular area should be controlled by asingle manager. He would control all company activities in a single region. Theprincipal advantages of this design are the following.

1 It tailors work units to the particular features of customers in a given region,i.e., British, Japanese, American, French.

2 It provides an excellent training ground for managers as they are assignedto different regions.

3 It provides an excellent basis for the career development of managers (move-ment from field operations to company headquarters).

4 It creates work units that are highly responsive to specialised customerneeds.

There are a few disadvantages which occur in the territorial form of depart-mentalisation.

1 There is a danger of duplication of effort across departments serving variousterritories or regions.

2 The company must be able to hire general managers who are capable ofhandling several functions such as production, sales and human resources.

The product divisional design has been widely adopted by companies withdiversified product lines. They create divisions to handle all activities associatedwith producing and marketing a given product or family of related products.This design is the preferred method to handle company growth as the firmexpands its product line. Figure 8.3 shows a design which combines the featuresof the product and territorial designs. The product design is represented bythe computer division and the field service division. The territorial design isreflected in the international division. The principal advantages of the productdivisional design are presented below.

1 It provides adaptability and flexibility in meeting the needs of customersand the company’s ability to manage a set of related products.

2 External changes can be detected more readily and understood in product-relevant terms.



Vice-President

Office Machines

Vice-President

Printers and Peripherals

Vice-President

Personal Computers

Vice-President

Mainframe Computers

Vice-President

Office Machine Repair

Vice-President

Printers and Peripheral Repair

Vice-President

Personal Computer Servicing

Vice-President

Mainframe Computer

Servicing

Vice-President

European Region

Vice-President

South American Region

Vice-President

Australia

Vice-President

North American Region

PRESIDENT AND CEO

PRESIDENT,

INTERNATIONAL

DIVISION

PRESIDENT,

FIELD

DIVISION

PRESIDENT,

COMPUTER

DIVISION

Figure 8.3 Combined product and territorial design

3 Employees gain deep understanding of product and market characteristics(product divisions are good training grounds for developing managers withgeneralizable skills).

4 The structure encourages the development of separate business units (profitcentres) which top management can pit against each other through friendlycompetition to maximise profits.

5 Performance measures are easy to create and judging the performance ofvarious product divisions is less complicated.

6 The design shifts some of the burden for general management from corpo-rate executives to division executives (This reduces the extent of diversity inthe chief executive’s job making easier the management of a large companywith diverse products, customers and territories).

The principal disadvantages of the product divisional structure are notedbelow.

1 Product divisions can duplicate effort and resources as they attempt to solvesimilar problems without consulting other divisions (The corollary to this isthat corporate executives have less day-to-day control over product divisionoperations).

2 Finding and training people to head each division is a difficult job.3 When product divisions attempt ‘joint ventures’ conflicts can arise due to

sharing resources and agreeing on ‘transfer prices’.

What Kinds of Problems Can the Complex Product Divisional Design Create?

We have noted some of the problems in the product-divisional design. Whenproduct divisions multiply in the firm, severe co-ordination and communicationproblems can arise. In some cases, product-oriented divisions can actually work



at cross-purposes to each other. At both Digital Equipment Company (DEC) andHewlett-Packard during the early 1980s, widespread product divisionalisationled to the production of products which could not integrate with each other.Both companies were not serving customer needs very well. Both moved awayfrom their nearly autonomous product divisional structure to a market structurewhich was better adapted to serving customer needs.

In its earlier, less effective design, H-P operated as an organic organisa-tion composed of autonomous businesses each of which focused on its ownproduct line. The arrangement worked well as long as the company focused onproduct lines aimed at specific market niches. However, customers demandedH-P products able to work together and the organic, decentralised design becamea liability.

Under the watchful eye of Bill Packard and a new CEO, HP’s divisions wererearranged to create a strict customer focus. Not all of H-P changes sat well withemployees. Turnover in the redesigned divisions rose and disgruntled engineersand designers cited poor co-ordination and failure of other divisions to cooperateas their reasons for leaving.

Through the restructuring, formerly independent product divisions weremerged into three large sectors aimed at different markets. One division, theCAE division was moved to a design group in Colorado, far from the division’sold home in Cupertino, California. Embittered about the reorganisation, andreluctant to accept transfers, CAE engineers and managers left for other jobs inH-P, or worse yet, left H-P altogether. H-P employee resumes fluttered aboutSilicon Valley in phenomenal numbers. Richard Moore, a 23-year veteran of H-Pand the head of the CAE division, went to Valid as president. By the time H-Pcompletely closed CAE, many of its top managers and engineers were gone.

Matrix departmentalisation. Another form of departmentalisation is calledthe matrix design. This configuration evolved in aerospace firms which oftenwork on very complex projects requiring more co-ordination than is possible inany of the previous designs. The matrix design overlays a project or productdesign on a functional design. Figure 8.4 shows the basic matrix arrangementin a medical products firm.

In Figure 8.4, the matrix design is represented by the project managers andtheir project teams which are composed of employees from the functional divi-sions of production, marketing and engineering. The matrix design creates theneed for the specialised management position called ‘project manager’. Theseindividuals become thoroughly knowledgeable about their projects and theytypically have responsibilities which exceed their authority for their projects.Higher management in the matrix organisation selects employees from func-tional departments to work on one or more project teams. The teams remainintact for the duration of the project work. The team members have two or morebosses, one or more project managers, and a functional boss. For this reason,the matrix design is said to violate the ‘unity of command principle’ which isone boss for each employee.



PRESIDENT AND CEO

MEDICALPRODUCTS

DIVISION

INDUSTRIALINSTRUMENTS

DIVISION

DEFENCESYSTEMSDIVISION

PRODUCTIONMANAGER

MARKETINGMANAGER

ENGINEERINGMANAGER

RESONANCEIMAGINGPROJECTMANAGER

LATERALCOLLATORPROJECTMANAGER

Productionemployees

Marketingemployees

Engineeringemployees

Productionemployees

Marketingemployees

Engineeringemployees

Figure 8.4 The matrix design in a medical products firm

Now let us examine the advantages and disadvantages of the matrix design.The principal advantages are noted below.

1 The matrix design combines the strengths of the product divisional andfunctional designs.

2 The design blends an emphasis on market changes with management andtechnical expertise in given product or project areas.

3 It develops managers with technical product and project knowledge whocan communicate effectively with marketing, production, and personnelfrom other functional departments.

4 A self-contained department can devote its undivided attention to the needsof its product, project or customer groups.

5 The firm can focus on specific products and their development withoutcreating permanent units which may outlive their usefulness.

The disadvantages of the matrix design include the following:

1 It is a confusing design because employees may not know who their ‘realboss’ is. The project manager is worried constantly about the project, whilethe functional manager frets over departmental details. This confusion canlead to political game-playing and loss of work focus in the project andfunctional areas.

2 The design requires excellent planning and resource allocation to ensurethat functional work proceeds and projects do not ‘starve’.

3 Project managers must have excellent technical, political communication,and managerial skills. When an organisation decides to ‘go matrix’, it mustoften do extensive training or hire new employees with project managementexperience.

4 The design may lead to excessive overhead costs because projects mayover-hire technical and support staff.



Table 8.1 summarises the discussion on departmentalisation.

Table 8.1 Forms of departmentalisation

Functional Product divisional Hybrid/territory Decentralised matrix

Emphasis on:

Profit responsibility CEO Subsidiary president Regional manager Project / programmemanagers

Self-directed teams de-emphasised used at unit level customer-driven project expertise

Cross-trainingfor manager andemployees

de-emphasised used at unit level vendor andcustomer-driven

emphasised forproject managers

Customer relationsand service quality

de-emphasised mostly a productfocus

balanced emphasison product andservice

emphasises mostlyproduct

Broadening ofmanagers’ andemployees’ technicalskills

emphasised onprocess basis

emphasised on aproduct and processbasis

emphasised on aprocess and servicebasis

emphasised on aproduct and processbasis

Span of Control

The organisational designer must make a decision about span of control.. Thisconcept is the number of subordinates who report to a given manager. Thereis no agreement on the ideal span of control. Most experts note that span ofcontrol is influenced by the number and intensity of interpersonal relationshipsbetween the superior and his subordinates. Ivancevich and Matteson note thatthree factors affect a manager’s span of control.2

1 Required contact. In research and development, and medical and produc-tion work, there is a need for sustained and frequent co-ordination betweensuperiors and subordinates. Self-directed teams need flexible co-ordinationmechanisms to ensure product quality and cost control in production. Teamleaders and team members must rely on face-to-face contact to make theteam effective.

2 Degree of specialisation. In general, a manager lower in the firm can havea wider span if he oversees many specialised employees doing the samething. On the other hand, higher-level jobs have much less specialisation,therefore, spans of control narrow further up the organisation’s hierarchy.Modern computer-based communication systems are turning these estab-lished relationships upside down. Employees performing complicated workcan now work from home and stay in instant contact with work colleaguesby being on-line.

3 Ability to communicate. Managers who can clearly and concisely conveycompany policies, procedures, and work expectations to subordinates can



manage a wider span of control. During the last ten years, the manager’sability to communicate has been exponentially increased by computer-basedtechnologies Video teleconferences allow managers to communicate withtheir colleagues and customers wherever they are located. Geographic sep-aration no longer means ineffective or intermittent communication.

8.2 Organisational Structure: Understanding the BasicsManagers make countless decisions about division of labour, delegation ofauthority, departmentalisation, and span of control. Over time, their decisionscreate an organisational structure which is the linking of departments and jobswithin the firm. Extensive research on firm structure indicates that it is composedof several dimensions which have significant effects on company performance,employees’ behaviour and their levels of job satisfaction. In this section we willconsider two most basic components of organisational structure: 1) centralisationand decentralisation, and 2) co-ordination. We will also consider the effects ofthese structural variables on organisational performance, employees’ behaviourand their levels of job satisfaction.

8.2.1 Centralisation and Decentralisation

Centralisation is the retention of authority to make decisions by top manage-ment. Decentralisation is the process of pushing authority down the organisa-tional hierarchy so that decisions are made as close to the origin of organisationalproblems as possible. When a firm is centralised, all employees follow uniformprocedures and policies which are formulated and enforced by higher manage-ment. Rules and regulations direct employees to do certain things in specificways at certain times. Rules and regulations make employees’ tasks explicit andthey determine the nature of superior–subordinate relationships. If managersestablish many rules and regulations covering employee behaviours, then theymaintain control over their subordinates’ tasks, work relationships, and behav-iour. Thus, decision-making is centralised through the formal system of rulesand regulations. When centralisation dominates, the firm creates more control byadding more layers to the chain of command. This causes the number of man-agers and administrators to grow faster than the number of employees engagedin production and customer service. This trend expresses a rising administrativeratio and it can be a cause of rising costs in centralised firms.

Highly centralised firms usually exhibit high formalisation. Formalisation isdefined as written documentation of rules, regulations, and procedures whichguide employee behaviour and organisational decision-making. Centralisationusually triggers standardisation as well. Standardisation is the degree to whichbehaviour variation is allowed in a job or a series of jobs. Standardisation occursif typical work situations are isolated and regularised to the point that few excep-tions are encountered. Written work guidelines are formulated so that similarwork activities are performed in the same way each time. Greater standardis-ation and formalisation lead to greater centralisation and larger administrativeratios in firms.



We have said that decentralisation is a managerial decision to delegate author-ity to employees or to self-directed teams at lower levels in the chain of com-mand. The spreading beliefs among managers about the use of self-directedteams and employee empowerment as ways to sustain competitive advantagecause them to favour decentralisation over centralisation. Henry Albers observesthat ‘decentralisation has become the golden calf of management philosophy. Ithas been lauded as ‘more democratic’, ‘a step toward world peace’, ‘greaterfreedom of spirit’, and ‘less authoritarian’. The implicit assumption is that cen-tralisation reflects the opposite of these worthy qualities.6

The drive to decentralise using the tools is also propelled by several power-ful forces. They are: 1) shareholder demands for higher returns, 2) increasingglobal competition from rivals that are true low-cost producers, 3) more sophis-ticated repeat buyers who demand higher quality products and services and4) technological advances that support highly delayered structures. Loweredentry barriers to many markets also force decentralisation moves in many firms.Because of the growing power of these forces, decentralisation has become a‘rule of competition’ in many industries. This means simply that a companydecentralises or it leaves the industry.

Other Driving Forces and Effects of Decentralisation

Some contemporary managers decentralise their firms on the basis of products,services and markets while they centralise functions and processes (e.g., account-ing, purchasing, finance, information systems and human resources). If processcentralisation proves to be too costly, then managers try outsourcing. Out-sourcing is contracting for manufacturing, distribution and personnel activities.Outsourcing allows the firm to control its costs because many types of labourand overhead costs are pushed off to the supplier. Outsourcing allows the com-pany to mix and match external product and service providers to create the‘best modular design’ to facilitate strategy implementation. Outsourcing is theultimate end-point of decentralisation. The function in question is contracted outto a more efficient supplier. Outsourcing can be thought of as a form of strategicalliance that raises company performance by the recognition that a supplier hasa competitive advantage that the company cannot easily match. Outsourcingconserves resources for the company in question. The assumption in outsourc-ing is that the company’s management team will find a higher economic returnfor the freed assets. Presumably, management will use the resources to raisecompetitive advantage and generate more shareholder value.

In many US firms, the use of outsourcing employees is creating modular workforces that use temporary employment agencies to provide managers, techni-cians, accountants and staff specialists on a contract basis. Because employmentbenefits and payroll taxes now represent on average 25 percent of total workercompensation in the USA and over 80 percent in many EC countries, manycompanies have concluded that the decision to use contract workers is muchmore economical than hiring permanent workers. American managers find thatit is much easier to dismiss temporary or contract workers than it is to lay offworkers who were hired by the company. Currently, about nine percent of USworkers are employed by companies in the temporary or contract work industry.It is the fastest growing segment of the US labour market.



If competitors were not so aggressive about lowering costs and stealing themarket share of rivals, most managers would prefer to reduce uncertainty bycreating highly centralised organisational designs. True decentralisation seemsto go against the instincts of managers as they try to reduce risk and uncer-tainty. Most managers prefer fixed accountability and responsibility for decisionmaking. Centralised designs make these two issues easier to resolve. RobertDuncan, a prominent management researcher, has summarised the strengthsand weaknesses of decentralised organisational designs. Table 8.2 presents hisfindings.7

Table 8.2 Strengths and Weaknesses of Decentralised Designs

Strengths Weaknesses

1 Meshes well with rapid change and fastcompany growth

1 Innovation is often restricted to projectsor specialised programmes

2 High awareness for projects,programmes, or products

2 Difficult to allocate pooled resourcessuch as computer analysis

3 A high task focus which yields controlover time, financial and human resources

3 Co-ordination problems in joint functionssuch as purchasing

4 Customers can determine taskresponsibilities and project personnel arehighly responsive to their needs

4 Deterioration of broad managerial skillsand potential for loss of technicallyskilled employees

5 Concurrent multiple tasks can be 5 Jurisdictional and priority disputes

co-ordinated across functionaldepartments

6 Possible neglect of high-levelco-ordination to ensure organisationaleffectiveness

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

8.2.2 Interorganisational Designs

Current discussions of organisational design would be incomplete without men-tioning inter-organisational designs that permit one company to work closelywith another to produce goods and services. Two common approaches to sucharrangements are conglomerates and strategic alliances. Conglomerate arrange-ments involve diversification while strategic alliances are a form of joint venturefor a specific purpose between two or more companies. A conglomerate is aholding company that acquires many other companies which have entirely dif-ferent business strategies and operate in diverse industries. A conglomerate isthe expression of the strategic principle of unrelated diversification. Unrelateddiversification is the acquisition of companies because they are: 1) undervalued,2) financially distressed; or 3) likely to grow but cannot because they have limitedcapital. Making a conglomerate successful requires the linking of comparativelyautonomous companies into a successful enterprise that increases shareholderwealth faster than alternative uses of capital. Conglomerates are very large andthey have widely different, unrelated product lines and services. Also, they aremanaged through a system of autonomous subsidiary presidents who report tosector or group vice-presidents who in turn report to the conglomerate’s CEO.



In the United States, General Electric is an excellent example of a conglom-erate. To achieve overall co-ordination and control, it uses 43 strategic businessunits (SBUs) to group its 190 subsidiaries. A strategic business unit is a group-ing of companies based on an important strategic element such as overlappingcompetitors, a closely related strategic mission, or a common need to competeglobally. GE’s 43 strategic business units are compartmentalised into six sectors.For conglomerates such as GE, the SBU concept helps reduce the complexity ofintegrating corporate strategy (conglomerate-level) and business strategy (sub-sidiary or company-level). Further, the integration of strategy obtained throughthe application of the SBU and sector concepts reduces the number of strategicplans which must be reviewed by the CEO and his staff, which is no small chorewhen you consider the size of GE.

Conglomerates are not confined to North America and Europe. In Japan theyare called a keiretsu which is a corporate system that links suppliers and manu-facturers that are clustered together to take advantage of geographic, logistical,and financial proximity. Mitsubishi is an example of a keiretsu. It is composedof three leading companies: 1) Mitsubishi Corporation, 2) Mitsubishi Bank and3) Mitsubishi Heavy Industries. Its 29 companies are organised into 12 sectorsincluding paper, chemicals, food, real estate and construction, glass, electricaland machinery, shipping and warehousing, textiles and fibres, finance and insur-ance, mining and materials, metals and petroleum. All of the sectors are highlyvertically integrated and each sector supports the business and trading activitiesof the other sectors. If Kirin Brewery has container needs for its products, itturns to the other Mitsubishi companies such as Ashai Glass and MitsubishiPaper Mills (for labels and boxes). Worldwide marketing is handled through thegeneral trading company and financing is available through the conglomerate’sbank. In general terms, the keiretsu provides a reliable source of raw materialsand support for each company in the keiretsu. The keiretsu also provides a readymarket for the products of its subsidiaries.

In Japan, the six largest keiretsu represent about 15 percent of the entireJapanese economy, about 4 percent of the labour force, and 13 percent of allcorporate assets. In most keiretsus, companies hold stock in the companies inother groups. Twenty-five percent or less of the stock in a given keiretsu companyis held by other members of the conglomerate. Financial arrangements alsodictate that no one company in a keiretsu hold more than five percent of the stockof another keiretsu member. These interlocking financial relationships encourageco-operation and information sharing within the keiretsu. At Mitsubishi co-operation is enhanced by meetings called kinyokai among company CEOs. Heldevery second Tuesday among the 29 CEOs, the meetings encourage new ideaexchange, problem solving and product development. Mitsubishi makes a finaleffort at integration by practising amakudari which is the exchange of executivesfrom the top three leaders to less key companies in the various groups or sectors.This form of executive job rotation is designed to broaden the organisationalknowledge base of Mitsubishi managers and to deepen the pool of managerialtalent to ensure a steady stream of managers who can rise to the executive-levelranks.

Recently, not all has been well in the stable world of the Japanese keiretsu.



The on-going deflationary period in Japan has forced them to slash expensesto maintain profits. During the mid-90s, Toyota slashed domestic productioncosts by $1.5bn. Known as the ‘world’s most efficient car producer’, Toyota isbelieved to be still immensely profitable at an exchange rate of 92 yen to thedollar. Some experts believe that the company could still be profitable at 52 yento the dollar. Keiretsu like Toyota lower their costs by pushing suppliers andswitching to cheaper imported components, thus the keiretsu have raised theirprofit margins by a full percentage point since the mid-90s. Subcontractors andsuppliers have a term for this trend: shitauke ijime, or ‘subcontractor bullying’.8

Ultimately, the unrelenting squeezing of subcontractors by the keiretsu threatensthe keiretsu themselves because it may signal the end of cooperative relationshipsamong companies in the supplier chain. For instance, at Matsushita, some 6000suppliers have prospered along with the company for the past 50 years. In1932, founder Konosuke Matsushita declared, ‘Our primary goal is to eliminatepoverty and increase wealth’ through the principles of co-existence and co-prosperity.9 During the Great Depression, he announced a 250-year plan formeeting his goal. Lately, that goal has fallen on hard times as Matsushita hassqueezed suppliers to reduce their prices by as much as 27 percent in an effortto raise its profit margin to 5 percent.

The Japanese conglomerates are under enormous pressure from Japanese con-sumers to lower prices. Small retailers in Japan are failing in record numbersbecause they cannot compete on price with larger, more efficient, discount-oriented retailers. Business analysts note that after 50 years of ‘quasi-legal’price-fixing, Japan’s business cartels must lower prices and reduce profit mar-gins. These pressures continue to accumulate due to nearly four years of near-zero economic growth.9 The formerly close relationships between manufacturersand suppliers are collapsing as Japan’s industrial customers shop for bargains.For instance, Nissan Motor Company imports steel from South Korea and, inturn, this pressures Japanese steel suppliers to cut prices.9 By some estimates,keiretsu and collusion cost Japan’s consumers more than $140bn per year.9 So, thehead of Japan’s Federal Trade Commission (FTC) has hired more investigatorsand last year the agency cracked down on price-fixing in six industries rangingfrom cosmetics to warehousing. By 2000, the agency promises to eliminate allof Japan’s cartels.9 Until the economic distortions created by cartels and pricefixing are eliminated, Japan’s recession will continue as will the large number ofbusiness failures in retail distribution channels. This ensures that unemploymentwill continue its slow, upward rise.

Even as the keiretsu system is working less well in Japan, it is under attackby companies licensed to sell products in Japan. Foreign competitors claim thatthe keiretsu create ‘structural impediments’ to international trade. An example ofsuch an impediment was recently advanced by IBM which was the largest sellerof personal computers and mainframe computers in Japan.10 During the late1980s IBM had the right product at the right price in Japan. Japanese customerssought out IBM computers and its products were perceived as superior byJapanese customers.

As Japanese companies such as NEC and Fujitsu improved their own com-puter products, IBM slipped to a distant third in sales. This happened because



companies in the NEC and Fujitsu keiretsus were expected to buy their com-panies’ products instead of those produced by non-keiretsu rivals. Such mandatedpurchasing patterns generally raise the price of goods produced by Japanesecompanies for sale in Japan over the prices of products produced by foreigncompetitors trying to sell products in Japan. These structural impediments sub-stantially reduce the purchasing power of consumers in Japanese markets.

A strategic alliance is a form of interorganisational design. A strategicalliance is a cooperative agreement between two firms that fall short of amerger or full partnership. An alliance can involve joint product developmentor research, production technology-sharing, joint use of production facilities,marketing of one another company’s products, collaborating to manufacturecomponents or to assemble finished goods, or outsourcing as mentioned earlier.Strategic alliances have come into use as a method for companies in the sameindustry but based in different countries to compete on a global scale whilemaintaining their independence. Both Japanese and American corporations haveformed alliances with European companies to meet the challenge of the EuropeanEconomic Union.

To maintain its leading competitive edge in world markets, Caterpillar formeda strategic alliance with Mitsubishi in 1984 to better market its products in Japan.Its toughest competitor, Komatsu, formed a strategic alliance with DresslerIndustries to expand its manufacturing and marketing capabilities in the USmarket.11 Companies entering into strategic alliances expect several beneficialoutcomes.12 They hope to gain economies of scale in production or marketingor they might believe that such a move will fill perceived gaps in their technicalor manufacturing expertise. These arrangements are commonly used to gainaccess to markets by lowering their entry barriers. Alliances have drawbacksbecause they require exhaustive co-ordination through meetings and task forces.Other problems in alliances are: 1) deciding what is to be shared and whatremains proprietary; 2) overcoming cultural and language barriers; 3) risingabove suspicion and mistrust; and 4) depending too much on expertise andskills in another company. In most instances, strategic alliances are best thoughtof as transitional arrangements that can be used to overcome a competitivedisadvantage in international markets. Seldom are such arrangements the sourceof sustainable competitive advantage.13

8.2.3 Organisational Design and Employee Needs

While there is no simple relationship between employee job satisfaction andorganisational design, the literature in OB does offer us some clues. Researchindicates that managers in decentralised organisations with fewer than 5000employees are more satisfied with their jobs than their counterparts in centralisedorganisations with more than 5000 employees.14

Formalisation of rules and regulations often promotes job dissatisfaction,except for employees who have very strong needs for job security, which isprovided by adherence to well-understood rules and regulations.15 High formal-isation is a special problem for those employees who must deal with customersand suppliers. If a company has rules which prevent salesmen from handlingcustomer complaints directly, both customers and salesmen grow frustrated.



Research on span of control suggests that employees begin to experienceconfusion about work expectations and performance if their manager’s span ofcontrol is too wide.16 Spans that are too wide can cause communication andco-ordination problems. Narrow spans may frustrate professionally trained andexperienced employees who believe they should have considerable autonomy atwork, for example, research scientists and professors.

8.2.4 Co-ordination and Control

The firm’s formalised operating practices provide it with a framework for con-trolling the work behaviour and work expectations of employees. Written rulesand regulations inherent in a firm’s design do not ensure co-ordinated effortand goal accomplishment. To ensure these outcomes, managers must createco-ordination and control.

Co-ordination is the set of mechanisms used to link the actions of subunitsto achieve a pattern of desired outcomes. When a firm is small, the chain ofcommand can ensure desired outcomes. With growth, the hierarchy overloadsand the managers seek other ways to link work units to sustain competitiveadvantage.

How Much Co-ordination is Needed in Organisations?

The answer to this question has been formulated by Lawrence and Lorsch,two Harvard researchers who have studied organisational co-ordination issuesin depth.17 They believe that the critical determinant of the co-ordination needis the amount of information which must be processed during task execution.They think that the firm’s environment determines the information load whichcreates the need for co-ordination mechanisms to manage information flows.17

If a work unit manager knows exactly what needs to be done to co-ordinatethe unit’s work with other units, then minimal information would have to beprocessed and exchanged to get work done. When tasks are unclear then moreco-ordination must take place among related work units. The uncertainty whichcreates pressure for more information processing often stems from the firm’senvironment.

Turbulent business environments create higher co-ordination needs in theorganisation. Lawrence and Lorsch found that business environments withchangeable and complex features forced firms to find varied and unique waysto co-ordinate subunit activities.17 They concluded that integration was harderto sustain in firms operating in turbulent environments because they generatemore uncertainty and create more information processing requirements.

Stable environments require fewer methods for co-ordinating the work ofsubunits. Firms with more stable and placid environments do not need as manyco-ordination mechanisms because these environments do not create as muchuncertainty, thus the organisation needs less capacity to process information.This means a lower co-ordination burden between subunits of the organisation.Lawrence and Lorsch found that firms operating in ‘stable’ environments weremore centralised, with greater standardisation and formalisation, than firmsoperating in turbulent environments.17



What Requirements Must a Co-ordination Mechanism Meet?

The major job of any co-ordination mechanism is to reduce uncertainty foremployees and their subunits about what they are supposed to do. As externaluncertainty increases, information processing capacity in the firm must increase.This usually means the installation of PC networks and an e-mail system. Inturn, companies need more sophisticated co-ordination mechanisms to handlethe information load. Information processing capacity in the firm must be devel-oped in the vertical and horizontal dimensions. Increasing vertical informationprocessing capacity reduces the number of exceptions which must be resolvedby the hierarchy and its line managers. When the capacity to process informa-tion is increased horizontally, the firm is better able to integrate its workflow.We can now consider vertical and horizontal co-ordination mechanisms whichhelp managers to handle the firm’s internal information load.

8.2.5 Vertical Co-ordination Mechanisms

Vertical co-ordination strengthens the link between organisation levels. To beeffective, these co-ordination mechanisms must decrease uncertainty. Let usconsider the co-ordination tools that firms use to handle vertical flows of infor-mation.

1 Use teams and task forces. One way to increase co-ordination hierarchicallyis to create more group decision-making. For example, a firm might usetask forces composed of people from different subunits to identify and solveproblems which span hierarchical levels. Another way to use groups is tocreate a collateral organisation which is composed of task forces. A collat-eral organisation is a parallel, co-existing arrangement of task forces whichsupplements the formal organisational hierarchy.18 The collateral organisa-tion works on problems which cut across the firm. Research indicates thatknowledge problems which are ill-defined are solved more effectively bycollateral organisations than by the firm’s formal hierarchy.19

A collateral organisation is much broader than a single, temporary taskforce. It can be composed of, for example, members of self-directed teams,employees who work in a strategic alliance and expatriate managers whohave overseas assignments. An example of how a firm could set up acollateral organisation to solve a complex problem is presented below.

Digicourse Ltd. produces digital compasses used in offshore oil exploration. Rapidtechnological change in the industry and explosive growth in Digicourse havecaused the firm to be less able to anticipate sudden product changes. With the helpof external consultants, the firm decided to tackle these issues at its Birminghamplant. The project started by gaining top management commitment and involvementto solve the plant’s co-ordination problems. The consultants held informationalmeetings about the need to improve the firm’s capacity to manage change andimprove the effectiveness of lower-level supervisors. Data were gathered and fedback to management and employees. This encouraged employees to provide specificrecommendations to correct the problems.

A collateral organisation was set up to involve supervisors and employeesin changes which could not be easily managed by the formal hierarchy. The



collateral organisation consisted of a steering committee composed of managersand employees from different departments. Several task forces were created andthey reported to the steering committee. Each one was given latitude to experimentwith new ideas and methods to improve product design, reliability and productioncost control. The steering committee reviewed all proposals submitted by the taskforces. The proposals were presented to top management by members of the taskforces. Examples of innovations accepted by top management included: 1) usingcustomer focus groups to detect product improvements, 2) giving engineers 15 percent of their work time to spend on product innovation, and 3) an employee-controlled board to review production cost control suggestions.

2 Use direct supervision. This costly form of traditional vertical co-ordinationworks through the chain of command. Supervisors and managers co-ordinate the work of their subordinates by using standardised work rulesand procedures. This method has fallen out of favour for numerous reasonsthat are related to competitive advantage.

3 Use standardisation of work processes. Much work is so routine thatthe firm’s technology dictates the pattern of co-ordination. Little directsupervision is necessary. The sequential work flow dictated by the assemblyof cars is an example of technology-driven co-ordination. Workers do nothave to interact with each other. This method has fallen out of favourbecause standardisation makes it harder for organisations to utilise self-directed teams. Many companies have simply thrown out their rule booksand installed self-directed teams that have cross-trained members.

4 Use standardisation of outputs. When direct supervision is minimal andwork processes are not standardised, co-ordination can be achieved byspecifying the nature of work outputs. Co-ordination issues shift fromhow work is done to ensuring that outputs conform to certain physicaland economic standards. Technicians in a product design division may berequired to construct complex prototypes. In turn, these designs dictate thearrangement and set up requirements for the production.

5 Use performance appraisal. Performance appraisal is a tool not often recog-nised as a vertical co-ordination mechanism. It can be used to control indi-vidual performance and to communicate work expectations and goals toemployees. Managers and their subordinates meet several times each yearto discuss the subordinate’s performance and goal accomplishment. Theseassessments are then communicated upward by managers. This processlinks levels of the hierarchy. The newest twist on performance appraisal isthe 360-degree appraisal system described in Module 4.

6 Create a management information system. Originally, management infor-mation systems (MIS) were simple devices such as employee suggestionsystems or company newsletters. Now, they consist of computerised infor-mation and record keeping systems. Their uses include: 1) providing earlywarning signals (product breakthroughs), 2) providing information to assistdecision-making (supplying financial ratios to top managers), 3) conductingprogrammed decision-making (allocating funds to spread risk in a com-pany’s investment portfolio), and 4) automating routine clerical functions(meeting payroll needs with a computerised system). The areas for the great-



est economic benefit from MIS are: 1) inventory management, 2) accountspayable, 3) purchasing, 4) production control, and 5) project control.

8.2.6 Horizontal Co-ordination Mechanisms

As noted earlier, horizontal co-ordination mechanisms ensure the orderly pro-cessing of the company’s workflow. With improved horizontal co-ordination,fewer work exceptions are encountered causing work units to integrate moreeffectively. Fewer exceptions are referred up the hierarchy and managers canfocus on strategy making. Several horizontal co-ordination mechanisms aredescribed below.20

1 Use direct contact. The simple and least costly form of horizontal co-ordination is direct contact among units linked by workflow. If a productdesign group is behind in its schedule, the manager of the group can go tothe engineering department manager and they can work out an agreement.Thus, direct contact reduces demands on the hierarchy by moving decision-making down to the level of workflow integration. The managers in thesituation described above should have all the information necessary to solvethe design problem.Galbraith makes several important points about the use of direct contactto facilitate horizontal co-ordination.20 First, the use of direct contact is afunction of the amount of interdepartmental work experience of managers.Managers with considerable interdepartmental work experience build a net-work of dependable interpersonal contacts over time. These contacts facili-tate lateral relations which are instrumental in solving workflow problems.Second, direct contact and lateral relations decay over time because man-agers are promoted, transferred or dismissed, or leave of their own accord.The decay in lateral relations must be offset by a programme designed todevelop new managers with the task expertise and interpersonal skills toform new lateral relations. Most programmes rely on the formalisation ofmentor–protege relationships and the rotation of managers through inte-grated work units.

2 Use liaison roles. The liaison role is formally established to link two or moresubunits which must co-ordinate workflow. For example, in an oil company,the marketing staff often had trouble with the refinery personnel. Themarketing staff understood which products were selling at the highest andlowest prices. The refinery personnel were simply providing those productswhich were the easiest to produce with available supplies. The solutionchosen by management was to create the position called ‘Oil ProductsCo-ordinator’, and the sole responsibility was to ensure that marketingand refining worked together more effectively. The creation of liaison rolesassumes that there are knowledgeable managers in the functional unitswhich need improved horizontal co-ordination. The ‘boundary spanning’managers need excellent political skills and the ability to speak multiple‘functional languages’. As the firm becomes more complex and it adds newhorizontal departments or divisions, the need for skilful liaison managersgrows.



3 Use cross-functional teams. When direct contact or liaison roles are inade-quate, a third option is to create a temporary task force to provide horizon-tal co-ordination. When problems arise involving numerous departments, across-functional team can be created with members from the affected depart-ments. For many firms, informal task forces are a way of life. For instance,one large manufacturer requires managers from marketing, engineering,quality control, and production to get together when joint problems arise.Once the problem is solved, the representatives on the task force return totheir functional assignments.Formal cross-functional teams can also be set up in the organisation.21 Forinstance, an advertising firm may hold weekly ‘creative account reviews’.Account executives are required to present their campaigns to senior man-agers. The senior managers represent a task force charged with the respon-sibility of reviewing the creative aspects of advertising campaigns beforethey were reviewed with clients. In other firms, engineers are required topresent their new product ideas to senior managers and engineers beforethe firm will commit resources to further product development.

4 Use permanent teams to manage recurring workflow problems. If thefirm finds that horizontal co-ordination problems persists, then it can createpermanent teams to address them. Let us consider an example of howhospitals are using permanent teams to handle horizontal co-ordinationneeds.

In the United States, hospitals operate under a government-imposed system ofreimbursement for various types of health care services. The government ‘caps’its payment for various services provided to patients who qualify for Medicare. Ifa hospital exceeds the ‘cap payment’ for a particular procedure or treatment, thehospital must absorb the extra cost. This system has forced hospitals to be morecost conscious and market-oriented. One outgrowth of this ‘prospective payment’system has been the development of service line managers in American hospitals.Service line managers are health care professionals who have responsibilities for aset of related health care functions.

Most hospitals would have service line managers for cardiac, psychiatric, wellnessor fitness, pediatric, community health and education, emergency, drug rehabili-tation, and other health services. The service line managers have responsibilityfor marketing profitability, and growth of their respective health care services. Toensure horizontal co-ordination between the service lines, the managers would meetperiodically to communicate their goals and review service line activities.

The important point in the example is that hospitals are creating service linemanagers who possess specialised business expertise and technical expertise ina specific health care function. The need to control costs, a new constraint forAmerican health care systems, has created a service focus in marketing healthcare. More progressive hospitals are adopting horizontal co-ordination mecha-nisms which have served consumer goods manufacturers for years. Proctor andGamble, UniLever, General Mills, Quaker Oats, and Carnation are just a few ofthe large corporations which have used product and brand managers to preservethe profitability of their extensive product lines. As competition works its wayinto the American health care market, this form of horizontal co-ordination willproliferate.



8.2.7 Control in the Organisation

We have considered how firms meet their vertical and horizontal co-ordinationneeds. Co-ordination is concerned with linking together the actions of employeesand their work units throughout the firm. Control is the set of mechanisms usedto keep action and outcomes within predetermined limits. It is the setting ofwork standards, measuring results against plan, and initiating corrective action.Management control systems focus on methods of doing work, i.e., processcontrol, or on objective settings, i.e., results control. Let us consider each.

Process control. This is the standardisation of task performance. Managerssee process controls as tools for achieving economic efficiency by reducingthe marginal costs of production. Employees see process controls as mindlessformalisation (standardisation and specialisation) forced on them by managerswho do not understand the nature of their work.

During the last 15 years, much externally-based process control (rules andregulations imposed upon employees and over which they have no control)has come to be inefficient and counter productive in terms of product andservice quality. Companies that have shifted to internally-based process control(total quality management (TQM)) applied in a self-directed team environmentseized an immediate competitive advantage over their rivals. By using the twinengines of self-directed teams and TQM’s continuous process improvement,Japanese firms were able to get a competitive jump on their less effective,foreign rivals. In industry after industry, American firms gave market shareto their more quality conscious Japanese rivals. Today, in most industries, theproduct innovativeness of American and European firms have mostly neutralisedthe competitive advantage of Japanese firms that use TQM. In strongly contested,global markets, TQM is now simply a rule of competition that is well understoodby all industry contestants.

Firms that are still relying heavily on process controls have become rigidand inflexible. This may be acceptable if the firm operates in a placid businessenvironment. However, if the environment is turbulent and highly uncertain,extensive, external process control severely limits company flexibility. Previ-ously mentioned factors that disturb external business environments are: 1)knowledgeable repeat buyers who compare prices and product options; 2) muchshorter product life-cycles; 3) rapid product innovation; 4) production processimprovements; 5) global competition; 6) industry and market deregulation; and7) return-hungry investors.

Effective, internal process control applied by self-directed teams creates anumber of benefits. These include the creation of meaningful work standards,accurate and continuous measurement of performance, specification of employeetraining and development needs, a clear team basis for distributing performanceor merit-based rewards, a way to link employees and customers, and a soundbasis for taking corrective action.

Company efforts to create unnecessary, external process control can also resultin a number of problems.22 These are summarised in Table 8.3.

Results control. A popular results-oriented control system is management byobjectives (MBO). In Section 4.2, in Module 4 we discussed the motivational



aspects of MBO for individual employees. We can also examine this subjectfrom the standpoint of the firm’s efforts to create integration, co-ordinationand proper fit between its strategy and its design. As a method of integration,MBO is used to gain output control in firms. MBO systems try to ensure thatmanagers set specific measurable goals, monitor progress toward these goals,and receive rewards based on their accomplishments. Output control throughMBO focuses on desired targets and allows managers to select their own methodsfor reaching defined targets which have been specified in the firm’s strategicplan. Firms relying on output controls can remain more open to environmentallyinduced uncertainty.

Table 8.3 Organisational problems created by external process controls

Lack of patience. External process controls may lead to sub-optimal decision-making asmanagers search for the first solution rather than a team-generated best solution. This is ashort-run ‘band-aid’ approach which leads to lowered integration of work activities.

Across-the-board cuts. Heavy emphasis on external process controls may lead to poorlyimplemented cost containment strategies when business conditions deteriorate.

Confusing documentation with action. Concern for external process controls and standards maylead to impressive process control documentation but no actual results. Managers get lots ofdata that do not mean much.

Vague and unrealistic expectations. A heavy emphasis on how work is done may lessen theconcern for clearly specified results and challenging goals.

Panic. This often occurs when controls are established in a department which formerly hadnone. Employees resent the ‘sudden’ imposition of standards in their work.

Escalating standards. To improve productivity, managers may unilaterally raise work standardswithout increasing resources, rewards, or the number of employees.

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

In operational terms, MBO relies on superior–subordinate meetings 1) to estab-lish goals, 2) to review periodically goal activities and results, and 3) to resolveconflicts and take corrective actions. MBO experts believe that three propertiesare critical to the success of any MBO system.22

1 Knowledge of what is expected. MBO can reduce misunderstandings forsuperiors and subordinates. Reduction of misunderstandings leads to com-mon work expectations for employees and their managers.

2 Knowledge of results. MBO systems place a high priority on perform-ance feedback. For the feedback to be effective, it must be supportive andimmediate.

3 The function of the superior. Superiors must work to provide feedbackwhich is work-oriented and not personality-oriented.



Steps in the MBO Process

Much information exists on the characteristics and methods of MBO. Besidesfocusing attention on output control, MBO shapes company culture in termsof how the firm values setting ambitious goals, maintaining high standardsand focusing on long-run results instead of short cuts. The characteristics of atypical MBO system are noted below. Please note the emphasis on employeeinvolvement and participation.

1 Members of the work unit establish goals and action plans for achievingthose goals.

2 Discussion of work unit goals ensures that everybody understands them.3 Employees in the work unit establish their own action plans for achieving

their goals. The managers participate in one-to-one meetings with employ-ees. Here the goals are made specific and quantifiable if possible.

4 The superior and subordinate jointly establish outcome criteria for assessingsuccess.

5 The superior conducts periodic formal and informal feedback with employ-ees concerning individual and work unit goals.

6 The system is documented with all goals set down on paper.7 Goals are ‘cascaded’ down the hierarchy. They become more specific and

quantified at lower levels.

The MBO process is summarised in Figure 8.5, which shows that it is acomprehensive control system which creates a results-oriented work relation-ship between the superior and subordinate. Thus, MBO is teamwork-oriented.Figure 8.5 shows how participative decision-making can extend from planninggoals to the evaluation of the subordinate’s successes in goal attainment. MBOcan be a comprehensive process offering employees numerous opportunities tofind intrinsic rewards from their work.

While MBO can greatly improve control at all levels in the firm, overemphasison goal-setting can lead to certain problems. Let us consider the documentedproblems which have developed in using MBO.

1 Employees can develop tunnel vision about results and they may not giveadequate attention to how task activities should be done. MBO can be moreeffective if it is linked to product and service quality standards.

2 MBO degenerates into a ‘paper chase’, emphasising red tape and completingforms in triplicate. This may occur when MBO is linked to external processcontrol mechanisms.

3 Superiors fall into an ‘either punish or reward’ mentality regarding resultsachieved by subordinates.

4 The collaborative aspects of the system are lost if employees have too manygoals or they are worried about accomplishing their specific goals.23



Jointly establishperformance goals and

service outcomes

Manager orTeam leader

Employee orSelf-directed team

Employee or team set methodsto achieve goals and

improve serviceManager or team leader ensures

resources, aids co-ordinationand gives feedback

Joint evaluation ofperformance and service

Organisation gives performance -and service - contingent incentives

Figure 8.5 The MBO process in delayered organisations

8.3 Understanding the Responsive Organisation

Today experts preach the virtues of companies which are not bound by themechanistic reaction patterns of highly bureaucratic, centralised firms composedof employees burdened by external process controls. As management expertTom Peters puts it, success in the market-place ‘is directly proportional to theknowledge that an organisation can bring to bear, how fast it can bring thatknowledge to bear, and the rate at which it accumulates knowledge’.24 Com-panies must be designed to respond to new competitors, products, technologies,de-regulated industries and foreign markets, shrewd, price-sensitive customersand tough, global competitors. Product divisional structures, matrix designs,vertical and horizontal co-ordination mechanisms are a few of the tools thatcompanies use to be responsive. Yet, often these tools are inadequate to helpfirms obtain and preserve a competitive advantage. Several new actions to cap-ture competitive advantage through enhanced responsiveness have emerged andthey are discussed below.

Simplify and delayer. To reduce costs and to speed decision making, com-panies are simplifying and reducing the complexity of their structures. Thecomplementary processes of simplification and reduction often entail 1) elimi-nating several layers of the chain of command; 2) widening the spans of controlof those managers who remain and 3) reducing the amount of managementattention paid to employees by managers (elimination of close and constant



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

PRIOR TO 1987 REORGANISATION

Executive VP Operations

VP Operations

General ManagerTransportation Services

Assistant Manager

Regional TransportationSuperintendent

Divisional Superintentent

Divisional SuperintententTransportation

Trainmaster / TerminalSuperintentent

Assistant Trainmaster

Terminal Trainmaster

Yardmaster

Railroaders

NEW COMMAND STRUCTURE (1990)

Executive VP Operations

VP Field Operations

Superintendent

Manager Train Operations

Yardmaster

Railroaders

Figure 8.6 Union Pacific Railroad hierarchy: 1987 and 1990

CEO Mike Walsh had this to say about the sluggish firm that he took over inthe mid-1980s:

‘Suppose a customer was having difficulty finding a railroad car – it was either notthe right one, or wasn’t where the customer needed it for loading or unloading.The customer would go to his UPRR sales representative, who “went up” to thedistrict traffic manager, who in turn “went up” to the regional traffic manager.The regional boss passed the problem from his sales and marketing organisation,across a chasm psychologically wider than the Grand Canyon to the operationsdepartment’s general manager. The general manager then “went down” to the



superintendent, who “went down” to the train master to find out what had gonewrong.’25

When Mr Walsh reviewed his firm’s rigid design, he immediately ordered theremoval of 800 managers in five layers of management shown in Figure 8.6.He believed that a more streamlined structure would deliver superior customerservice. In the time necessary for UPRR to move from the old to the newstructure, customer service and the market valuation of the firm would bothincrease.

Reassign supporting staff employees. Over time, corporations tend to buildtop-heavy staff components at corporate headquarters. Industrial engineers, staffconsultants, human resources specialists and management information expertsgrow in number at headquarters. This leads to a rising administrative ratio. Inhighly responsive firms, this trend is often reversed. Staff experts are transferredto operating divisions where they become involved in running the SBUs orbusiness teams. An example of this would be the giant Wal-Mart Corporation,with annual sales of over $190bn. It has only 450 corporate staff employees atits company headquarters while it employs 358 000 people worldwide. Similarly,when Percy Barnevik assumed control of Sweden’s ASEA, it had a corporatestaff of 2000, which he immediately pared to 200. When he acquired Finland’sStromberg company he reduced its corporate staff from 880 to 25.26

Widen spans of control. Delayering creates wider spans of control for thoseremaining. In responsive firms, spans of 100–200 employees per manager arecommon.27 Wide spans are made possible by sophisticated computer networkswhich deliver current production information to teams of employees that moni-tor their productivity and take corrective measures without managerial oversightand permission. In these arrangements managers’ jobs shift from oversight andcontrol to facilitating co-ordination.

Empower the work-force. In leaner structures found in responsive firms,employees and their work teams take on decision-making duties once doneby middle managers. Employees who once had to seek permission from man-agers before they could make a decision now have responsibility for handlingall ‘point-of-transaction activities’. Their responsibilities cover transactions withcustomers, suppliers, vendors and regulators. Often the changes in empower-ment reach out to a company’s field operations. In less responsive structures,field representatives and technical specialists might have to wait for weeks foranswers to warranty questions or pricing proposals. Empowered field reps andspecialists have the authority to answer warranty questions and to commit theircompany to make the necessary adjustments.

Create team-based work system. Because of the control vacuum created bycommand structures with fewer management layers, companies rely more onself-managed teams to raise productivity, product and service quality and costeffectiveness. By using teams, firms boost their responsiveness without addinglayers to their hierarchies. As noted in Module 6 empowered work teams managethemselves and make point-of-transaction decisions without direct managementoversight. In such firms, empowered teams make the following decisions.



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

8.3.1 Experiments with the Boundaryless Organisation

Rigid, hierarchy-based firms create numerous vertical boundaries which act asobstacles and choke points to rapid and responsive decision-making. Such firmsdevelop highly differentiated departments which create horizontal complexitythat often prevents members of one department from working swiftly andeffectively with other departments. If companies also use the product divisionalstructure, then the work of each division is self-contained and separate fromthe work performed in other product divisions. This design works well whenproblems are few in number and their solution can proceed in an orderly fashionwithout crises or mounting time pressures. The cases describing Hewlett-Packardand Digital Equipment Company strongly underscore these observations.

The simplicity of stable markets and routine technologies has given way torapid product and process change and acute competitive pressures from low-cost, domestic and foreign rivals. Neat, clear organisational boundaries aredisappearing as firms replace complex vertical hierarchies with loose horizontalnetworks to link traditional functions such as production, marketing, account-ing and product development with cross-functional teams. Companies expandtheir responsiveness by forming strategic alliances with suppliers (outsourcing),customers and competitors. Outsourcing of sales work to telemarketing firmsreduces the costs of goods sold. These profound changes represent the unravel-ing of years of efforts to integrate vertically. They are creating what managementexperts call the boundaryless organisation.

The boundaryless organisation is one in which traditional vertical and hori-zontal boundaries are made more permeable and flexible by using self-directedteams, technologically sophisticated communications, responsiveness to cus-tomers, outsourcing and strategic alliances. These arrangements create a muchmore flexible and adaptable work-force whose has members are capable of per-forming many more complex tasks than their counterparts in rigid, hierarchically-oriented firms. In the evolution of boundaryless firms, strategic alliances withcustomers and suppliers dismantle those traditional boundaries. Hirschorn andGilmore argue that traditional vertical and horizontal boundaries will disappearif a firm alters its authority, task, political and identity boundaries.28

The authority boundary is the natural distinction between leaders and fol-lowers in firms. In firms using self-managed teams the authority boundary stillexists. Hirschorn and Gilmore state that this is precisely the problem. They sayto achieve responsiveness, the flat, or delayered firm must move away from asystem which issues orders. To overcome this barrier, managers must learn to



lead while remaining open to criticism and accepting advice from lower rankingemployees who are experts on various aspects of problems which arise. In theboundaryless firm it is assumed that problem solving expertise is widely dis-persed. This encourages employees to follow leaders without losing the abilityto challenge them if they detect a performance problem.

Hirschorn and Gilmore’s advice is fine as long as it does not involve investorswho may be unhappy with their returns and the company’s earnings per share.When these problems arise, shareholders expect executives to correct earningsand market performance problems. When this happens, these executives re-assert the power of the chain of command through their decisions to downsize,delayer and outsource. In each of these decisions employees experience risingeconomic insecurity through job loss and low salary rises. After the fallout fromthese decisions, employees would say that the ‘authority boundary has comeroaring back’. Preaching that the authority boundary should be eliminated isone thing. Making it happen in companies that face intense, global competitionand return-hungry shareholders is quite another thing.

The task boundary emerges when someone decides who must do whatwhen departments work together. When employees from different departmentsco-ordinate work, they create a flexible task network which supersedes the tra-ditional ‘compartmentalised’ view of work in centralised firms. For the networkto be effective, members must shed the notion of ‘that task is not in my jobdescription.’ As Hirschorn and Gilmore note:

Indeed, their own performance may depend directly on what their colleagues do.So, while focusing primarily on their own task, they must also take a lively interestin the challenges and problems facing others who contribute in different ways tothe final product or service.29

Once again, our experts are preaching to the choir. All managers would likeemployees to ‘pull together’ to ensure excellent product quality and customerservice. Employees say that they would prefer to work in the energised, self-directed team environment. However, the devil is in the details of implementingand sustaining these more open, collaborative work arrangements. The biggestthreat to the flexible task boundary idea is in how managers view costs ver-sus investments. If managers fully adopt the accounting view of costs, then allexpenditures in training and development, research, product development, andnew forms of co-ordination are seen as annual costs (which are subject to min-imisation). This perspective leads to budgeting systems and resource allocationdecisions which inherently favour cost reduction and containment to bolstershort-run performance (higher net income).

If, instead, a value-added perspective is adopted, all of the costs noted abovebecome ‘investments in future earnings’ through a focus on the maximisationof future revenues. When the value-added point of view is favoured by man-agers a shift in emphasis occurs. The focus of management decisions becomesthe ‘maximisation of the market value of the firm’. This causes executives toemphasise increasing future earnings. To do this, firms must increase marketshare, improve products, extend greater and more valuable services to customersand so on. It is a revenue-driven perspective that can only be nurtured by more



flexible task arrangements and responsiveness. It does not happen in companiesrun by executives who are obsessed by cost containment. It occurs in companiesrun by managers who are obsessed with revenue growth.

The political boundary is made up from the different political agendas whichcan divide company units and create conflict. For instance, production prefersto make products as simply as possible and to control costs. Marketing andsales prefer to market products which meet or exceed customer expectationsbut are more costly and complex to make. These disagreements often erupt inbattles among departments over budgets and personnel. The boundaryless firmmanages such political disagreements by creating a culture which emphasisesthe best interests of the work teams, the network and the firm through thecomplementary processes of accommodation and conflict management.

Turf battles and political scraps among work units will never disappear. Thetrick is to have in place the types of performance measurement systems andincentives to encourage collaborative processes among departments and workteams. The measurement systems that hasten the resolution of political battles infirms are those that track and measure customer satisfaction. Here the ‘externalcustomers’ are those who buy products and services and ‘internal customers’ arethose that depend on the work of departments and self-directed teams. Manycompanies have taken up the challenge of making themselves more responsiveto customers by measuring countless aspects of service and product qualityfrom the ‘customer’s’ point of view. Strategic plans are altered to accommodatethese measurements and managers set ambitious customer service goals. Thebonuses and merit-based pay rises for self-directed teams and autonomoussubsidiaries are linked to improvements in customer service indicators. Onlyoutcome-based measurement systems and meaningful incentives will improveinternal, organisational processes of accommodation and conflict management.When well designed, these systems create superordinate goals that prod self-absorbed units to pull together.

The identity boundary consists of employees’ shared experiences and beliefswhich they insist set them apart from the rest of the company. When thisboundary is well developed, members of departments and work groups have an‘us versus them’ attitude.30 It encourages employees to trust insiders more thanoutsiders. This belief can undermine cross-functional team work and networkcreation. To overcome it, firms try to excel at socialising new members to getthem to identify with the company and its goals. Of course, this may be quite aproblem when older members long for the days before the company was prunedby half or the days when managers preached their no-layoff policy.

Again, the experts are not giving us much to go on regarding the iden-tity boundary, other than the fact that it probably exists. The argument in thelast paragraph is based on the tendency of all companies to develop multiplecultures (see Module 9). There is really nothing wrong with having multi-ple cultures or noticeable identity boundaries in a firm if the common threadtying all units together is adaptability and responsiveness to customers. Iden-tity boundaries are just really ‘surface characteristics’ of all companies. Theyonly cause co-ordination and integration problems if adaptability and respon-siveness to customers is not a core feature of the firm’s mission. Lurking in



the background as an explanation for the dangers of identity boundaries inthe firm is managers’ passion for cost containment instead of revenue growth.The revenue-driven–market–value–maximisation perspective tends to remove orerase identity boundary problems because it causes the ‘customer-market share’perspective to rise in importance. The ‘net-income-cost-containment’ perspectivetends to raise and solidify identity boundary problems.

The systematic removal of the boundaries identified above moves firms toadopt designs that strongly emphasise adaptability and responsiveness insteadof command hierarchy and centralised decision making. This is a horizontaldesign that emphasises adaptiveness and responsiveness. These companies arenot organised around the functions of business. Instead, they focus on coreprocesses such as: 1) new product development, 2) sales and warranty fulfilment;3) product quality and 4) customer service. In the horizontal organisation, allemployees work on cross-functional, self-directed teams which perform one ormore of the four key processes noted above. The horizontal firm depends lesson traditional departments composed of employees with functional expertise.Instead, functional specialists are uniformly spread among the work teamswhich perform core processes. Companies are going horizontal for a number ofreasons.

1 The structure reduces cycle time in production and service. Documentsand decisions pass through fewer layers and among fewer teams beforedecisions are taken.

2 The benefits (competitive advantage) of downsizing diminish rapidly infirms that cling to the hierarchically-oriented functional or product divisionalstructures.

3 Downsizing may reduce costs, raise productivity and temporarily increaseprofitability but it does not fundamentally change the way work is done.Work is still handed from one department to another even though there arefewer people in the departments. This shows that any firm can downsizeand obtain some temporary economic gains. To hold a competitive advan-tage, downsizing must be done in conjunction with a fundamental alterationin the way work is organised and completed.

Figure 8.7 shows the decisions which must be made by a firm that wants tobe more responsive to its business environment. The natural outcome for a firmtraveling the path in Figure 8.7 is to become a horizontal firm. At the centreof Figure 8.7 are the difficult jobs of determining the company’s core processes,dismantling functional departments and assigning functional specialists to thecorrect cross-functional teams. The successful completion of such a restructuringinvolves significant downsizing in departments which are shown not to addvalue to the identified core processes. Deciding which units do not add valueand making the human resources decisions which naturally follow often teststrongly the resolve of senior executives. These decisions are tough to makebecause they are often made in companies that are already showing growingprofitability.



What is our corestrategic business?

What are the firm's keyinternal strengths andweaknesses in relation to itsmarketing and financial goals?

Once we strip away functions,what are our core corporateprocesses that create the mostprofit-making opportunities?

What are the key tasks in ourcore, value-adding processes?

What current functions andjobs fail to add value to ourcompetitive advantage?

Devise a plan to eliminatefunctions and their staffswithout losing professionalskills and knowledge ofcustomers needs

Set performance requirementsfor each new core, value-addingprocess in market andfinancial terms

Create multi-disciplinary teamsto run each core process.Conduct wall-to-wall trainingin product quality andcustomer service

Empower employees andprocess managers withauthority and give themproduct and customerservice performance datato accomplish their goals

Revise training, performanceappraisal, pay and budgetingsystems to support the newcore processes that areteam-driven and managed

Figure 8.7 Creating a horizontal organisational design

A Comment on Selecting the Best Design

Managers have to consider several factors in creating the best design for theirfirms. We have noted that key design decisions are division of labour, delegationof authority, departmentalisation, and span of control. The decisions about theseelements must be made against the backdrop of rising environmental turbulenceand the uncertainty it creates. The emergent designs for highly competitivefirms are no longer the functional, product, territorial or matrix configurations.Instead, these designs are delayered, technologically sophisticated and highlycustomer-oriented.

The firm’s overall structure unfolds from a series of managerial decisionsabout the four parameters noted above. These designs now vary from mech-anistic to organic to horizontal. Further, the breakdown of boundaries amongunits in the firm and between the firm and its customers is driven by thesearch for competitive advantage in industries that are more de-regulated andglobal. Depending on managerial judgments about environmental turbulenceand uncertainty, managers will take decisions to dismantle boundaries and todelayer their hierarchies.



8.4 Drivers of Growth in Customer ServiceIn developed nations such as Canada, Great Britain, Germany and America,the percentage of people employed by the service sector is rising much fasterthan employment levels in the manufacturing sectors of those economies.31 In1975, about 20 percent of university graduates in those countries entered jobsin manufacturing, construction, agriculture and mining. In the same year, about22 percent of college graduates found employment in the service sectors. By1990, 38 percent of these countries’ college graduates worked in services. By2001, 51 percent of graduates will be working in services, with flat or decliningemployment in manufacturing, construction, agriculture and mining.

The sections which follow examine why companies are turning to serviceimprovement to increase profits and market share. The nature of the serviceexperience from the customer and employee perspectives is presented and anal-ysed. The distinction between a manufacturing focus versus a service focus asa basis for sustained competitive advantage is examined. These sections comedown firmly on the side of service quality improvement as a path to sustainablecompetitive advantage for the firm. The sections focus on the importance ofwork-force management practices which must be altered or refined to create aflexible work-force of employees who value service delivery and who under-stand fully its critical role in sustaining competitive advantage. Let’s begin byexamining the reasons why service quality improvement is a driver of sustain-able competitive advantage.

Differentiating service is often easier and faster than differentiating productsin terms of their physical characteristics. The wider availability of pre- and post-purchase service reflects increased competitive rivalry in any industry. Whencompanies and their industries mature, so do their products. Mature industrieshave products that are standardised and all rivals know how to produce themefficiently. Product innovations become more costly and elusive and when theyare successful, they are quickly copied by rivals. That is not to say that firms inmature industries do not try to increase their market share by introducing newproduct innovations, rather they step up the search for ways to strengthen theircompetitive advantage by differentiating their service mix from that of theirrivals.

Customers demand better quality. Firms around the globe have respondedto this driving force by creating total quality management systems to reduceproduct defects. Initially, TQM was a manufacturing phenomenon. As its usewidened by manufacturing industries, firms that had captured more marketshare by using it found that their profit gains eroded as rivals installed theirown TQM programmes. Like most widely adopted innovations, TQM began tolose its value in adding to competitive advantage. Knowledge diffusion of themethods and goals of TQM ensured that all rivals in a given industry knew howto achieve gains through its application. TQM in its maturity as an organisa-tional improvement mechanism has simply become a rule of competition. Anycompany wishing to compete with rivals having excellent products and serviceshad better use TQM. For many firms the next step in the search for sustainablecompetitive advantage is to add more services to their product mix. To improvetheir profits firms are now experimenting with the application of TQM principles



to measure and improve service quality as it is experienced by customers.Service improvements strengthen brand loyalty and erect market segment

and industry entry barriers. Companies that offer excellent products and highquality services know that they have a more sustainable competitive advantagethan their rivals who simply try to be the industry’s low-cost producer. In globalindustries having intense competition, the low-cost producer is vulnerable torivals with more efficient technologies and better product designs. In globalindustries, the firms that capture the differentiation competitive advantage cancreate markets segments containing excellent products and high quality servicespurchased by highly brand and company-loyal customers. To the extent thatbrand loyalty is service-driven, these firms create protected market segmentswhich are very hard for low-cost producers to penetrate. Domestic industrieswith excellent service reputations will have higher entry barriers (to foreigncompetitors) than domestic industries having intense price-based rivalry amongfirms vying for the low-cost producer advantage.

Bad service quickly drives off customers and lowers or erases profits.Research on the economics of customer service problems indicates that customer-contact employees are a crucial link between resolving a complaint on the spotand the customer’s intention to repurchase.32 The Technical Assistance ResearchProgram of the US Department of Consumer Affairs found that when customersexperience minor problems, 95 percent say they will repurchase if the complaintis quickly resolved. If the complaint resolution process takes even a little time,the rate drops to 70 percent. As Schlesinger and Heskett note, ‘A spread of25 percentage points can easily mean the difference between spectacular andmediocre operating performance.’ Studies on the effects of customer loyaltyhave shown that even a five percent increase in customer retention can raiseprofitability by 25 to 85 percent.32

8.5 How Good Service Retains Customers

The profile below describes a firm that aggressively solved the customer retentionproblem.33 It introduces our discussion of customer service and the principlesthat firms can use to raise service quality.

The ByteRight Corporation is a maker of computer and office products. Thecustomer service department in the business products division has responsibilitiesformerly assigned to the company’s product managers. Before these changes,product managers had to develop and launch new products, but they were oftenswamped with customer enquiries about: product applications, bids, product qualityproblems and new product features. They had little time to develop and launchnew products. For instance, a product manager, after being gone two days, wouldoften find 60 or more customer and vendor e-mail messages on his computer.

To address the problem, customer service was given the responsibility and theauthority to handle these service issues noted above. Training was provided toservice reps and service issues. Training was provided to service representativesand managers agreed to back them up on their decisions, right or wrong.Support was vital to the success of this change in the minds of the reps. As long



as they could count on manager’s backing for their decisions, then they werecomfortable making the appropriate customer service decisions.

The goal in customer service is called the ‘one-stop programme,’ and it tries toeliminate the need for transferring customers to different people in the company.‘Before the programme customers often did not know with whom they needed totalk or if they had the right people at all,’ says Ian Mentor, ByteRight’s controller.‘Now, customers can call service reps and have all of their questions answered.The reps evolved from being order-takers to being territory managers,’ accordingto Mr Mentor.

8.5.1 Managing Services Differs from Producing Products

Producing and developing services differs from manufacturing and sellingproducts in several distinctive and important ways. First, not until serviceis demanded is it produced. Service units are consumed immediately and theycannot be stored. Second, service is often provided by employees not under thedirect supervision of a manager. Third, services are provided when and wherethe customer desires. For instance, banks build near their customers and McDon-ald’s puts a store on every street corner. Fourth, services are labour intensive. Atruly memorable stay in a fine spa or hotel cannot be automated and deliveredby a staff of robots (in sharp contrast to some of your own personal experiencesno doubt). Fifth, service is intangible and its characteristics are more difficultto measure than the features of a product with distinctive performance andphysical characteristics. And sixth, service is often produced in the presence ofthe customer who participates in the delivery process. An example of customerparticipation is the interaction between a bank customer and an automatic tellermachine. At the health spa you might have a personal trainer who helps youestablish a workout regimen and who shows you how to perform the exercisesproperly (despite your semi-silent groans triggered by your aching muscles).

It is the recognition by firms that clients are co-producers of services that hashelped them detect deficiencies in their systems and methods. The recognitionthat customers are actively involved in service delivery opens opportunities forfirms to cement customer loyalty, ensure repurchases and raise profits. Evenfirms in mature industries find that their improvements in service offerings(that are based on viewing clients as co-producers of service) create sustainablecompetitive advantage and raise market share. It is no coincidence that thelikelihood of price wars and the intensity of competitive rivalries lessen inindustries if firms find ways to improve service that is co-produced with theircustomers. These arrangements are acquiring the characteristics of strategicalliances between producers and their customers.

To understand how companies can strengthen their competitive advantagethrough service enhancement, we can look at what Albrecht calls ‘momentsof truth.’34. According to him, a moment of truth occurs in service deliverywhen the customer encounters any aspect of the firm and forms an opinionabout the quality of its services and products. He stresses that these momentsaccumulate and the customer forms a durable opinion about a firm’s interest inhis satisfaction and repeat business.



Here are some examples of moments of truth in your hypothetical visit toyour doctor’s office.

1 You stand in front of a desk or peer through a little window to get theattention of a staff nurse.

2 You complete a form to authorise payment for the visit.3 You pass some time in a waiting room full of other patients.4 You sit in an examination room.5 After a procedure you stay in an examination room while the physician sees

to another patient.6 You are instructed in the proper use of medications by the nurse or the

physician.7 You speak to the staff nurse before you can leave the office.

While these moments of truth may differ from the ones shown above, theydo illustrate the opportunities that the physician and his staff have to deliverto you excellent or poor service. For a firm to achieve competitive advantagethrough service improvement, the three factors described below must guide allchanges to the firm’s service mix.

A well-conceived strategy for service. Highly competitive firms have discov-ered, invented, or evolved a unifying idea about what they do. In the responsivefirm, this is a guiding service concept (business value in the firm’s mission state-ment) that prompts all front-line employees to discover the customers’ realpriorities. This guiding concept becomes a permanent feature of the firm’s com-petitive advantage and it is used aggressively to differentiate the firm’s servicemix from that of its rivals’.

Customer-oriented front-line people. The managers of firms have encouragedand helped the people who deliver the service to keep their attention fastenedon the needs of the customer. This leads to a creative service customisation byemployees that marks the service as superior in the customer’s mind.

Customer-friendly systems. The delivery system that backs up the servicepeople is designed for convenience of customers rather than the convenience ofthe firm and its staff. The physical facilities, policies, procedures, methods, andcommunication processes all say to customers, ‘This apparatus is here to meetyour needs’.35

8.5.2 Excellent Service Goes Beyond Manufacturing Efficiency

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



signals to the customer, ‘We want your business and we want you to be involvedin what we do for you, but we want to do it our way’. This is the pursuit ofmanufacturing efficiency in service delivery and it seriously undermines thesix ways in which service differs from producing discrete products. It threatensrepeat business and prevents a company from selling more services to customerswho reject the ‘do it our way’ balm.

Many companies try to improve competitive advantage by redesigning theirservice offerings and then applying the manufacturing paradigm. After muchtraining and effort to support a more efficient service model, the service redesigneffort fails because cost containment and not customers’ needs and expectationsare really at the centre of the service improvement programme. In serviceimprovement programmes, the tendency to apply manufacturing methods tothe delivery of services can be avoided by starting with the goods-servicescontinuum in Figure 8.8. It makes the distinction between pure goods that aresubject to efficiencies in manufacturing (scale efficiencies) and pure services thatare not.37

Electrolux manufacturesa washing machine unitand prepares it forshipping to a reseller.

You buy your Electroluxwashing machine fromyour local appliance storeand you receive aone-year warranty .

Pure goods Bundled goods/services Pure services

An authorised Electroluxrepairman comes to yourhome to fix vibration inyour unit.

Figure 8.8 The goods–services continuum

Figure 8.8 shows that service delivery work differs from production work.Figure 8.9 classifies service jobs by sales opportunities and production effi-ciency. There is an inverse relationship between production efficiency and salesopportunities. Production efficiencies fall as sales opportunities increase due tothe complexity of customer-server interactions.38 Companies in mature indus-tries producing standardised product offerings find that gains in market shareare more lasting when they are achieved by improving service offerings thanby industry-destructive price wars. Firms in mature industries find ways toenhance and increase the number of sales opportunities by adding face-to-face,customised service delivered by highly skilled front-line employees.



Sale

sopport

unitie

s

High LowTime and cost efficiency

LOW UNCERTAINTY IN SERVICE METHODS HIGH

LOW EMPLOYEE SKILL REQUIREMENTS HIGH

Mail /faxes

On-sitetechnology

Phonecontact

Face-to-face,tight specs,

use individuals

Face-to-face,loose specs,

use individuals

Face-to-face,loose specs,use teams

Basic serviceproblemdetection

Electronicdetection

Customerdissatis-faction

Servicerules only

Narrowdiagnosis

Broaddiagnosis

Figure 8.9 A graphical representation of service design strategies

8.6 Organising Principles of Service Quality

The first principle of service quality improvement is classifying the firm’sservices on the client-customer service spectrum.36 Figure 8.10 shows the spec-trum. It signals the importance of building work-force service delivery skills.The significance of Figure 8.10 is that the firm matches its service strategy to itscurrent service offerings and the level of employee training necessary to supportexcellent service. To their dismay firms find that their service offerings haveslipped from unique to routine. If a company wants its service strategy to addvalue to its competitive advantage, it must custom-tailor services and ensurethat employees have the proper skills to deliver them.

Principle two is organising to improve service and it occurs in firms thatsubordinate all control processes to service enhancement and adopt employeeempowerment. Subordinating control functions to service enhancement puts



edCustomised Balanc Standard operating

methods

What type ofcontacts thatclients expect

HIGH LOWEXTENT TO WHICH SERVICE QUALITYTRAINING IS A CORE VALUE

Face-to-face, totalcustomisationFace-to-face, loosespecifications

Face-to-face, tightspecificationsPhone contact

On-site technologyFax and email contact

Outcomes clientsexpect

Unique solutionsto technicolorcomplex problems

Experienced-basedsolutions to moreroutine problems

Generic solutions to

common problems

Example Product liabilityclass action law suit

Telephone patients toexplain medical testresults

Software completion ofa tax calculation

Figure 8.10 The range of services and the extent of service customisation

customers at the centre of service and reminds employees that the firm exists tohelp front-line service employees deliver excellent service. The work-force learnsthat all operating systems and management actions are co-ordinated to ensurethat service personnel have all the resources, training and authority to delivertotal service quality to customers. This perspective emphasises a customer-driven chain of command that places the customer and his needs instead ofmanufacturing efficiencies at the centre of a company’s business strategy. Whensuccessfully applied by management, this approach shifts information systems,incentive plans, training and development, career planning and managementtraining from a ‘bottom line’ to a ‘top line’ emphasis.

The traditional, organisational control system stresses top-down decision mak-ing and communications that strive for manufacturing efficiencies by sealingoff production systems from the uncertainty-inducing demands of customers.This bottom-line approach strives for cost reductions and maximisation of netincome. Accounting measurement systems track costs as annual expendituresand attempt to minimise them by applying rigorous measurement, control andbudgeting methods. Managers stress cost minimisation and productivity max-imisation, often at the expense of customer satisfaction. A bottom- line orien-tation reflects a preoccupation with building, achieving and sustaining low-costoperations. Firms with few core competencies in mature industries are oftendismayed to find that this approach creates stagnant market share, rising unitcosts and shareholder dissatisfaction.

Putting service first makes a firm emphasise the importance of expandingmarket share. Company expenditures for: 1) service training of employees, 2)delayering, 3) redesign of information systems to measure customer satisfactionand 4) enhanced incentive systems to spur sales to repeat customers become‘investments’ in future income streams. The primary criterion for these expen-ditures is ‘How much value they will add to customer service’. Companies in



service industries that adopt a ‘top line’ emphasis improve their competitiveadvantage because it leads to customer loyalty and the lowering of unit coststhrough growth in market share. From an industry standpoint, sustained cus-tomer loyalty to the industry’s service and product mix erects an entry barrierto foreign competitors. To the extent that they are relevant, the effect of currencyfluctuations are reduced because loyal customers will be less likely to switchto cheaper products sold by foreign rivals. Lasting service improvements inan industry reduce the attractiveness of substitute products. These effects leadto fewer destructive price wars and higher profit margins because customersclearly value the service-product mix.

The third principle of strategic, service quality improvement is using employeeempowerment to give front-line employees, and all employees for that matter,the authority to make on-the-spot decisions to meet (or to exceed) customers’requests for service. Figures 8.9 and 8.10 suggest that more opportunities forrepeat sales are created by investing in employee service-delivery training. Com-pany initiatives empowering employees to customise service without thoroughlytraining them first invites customer frustration since untrained employees lackthe knowledge to alter service offerings in ways that please and surprise buyers.Raising employee empowerment in service delivery rests on excellent servicequality training for employees. Table 8.4 shows this relationship.

The fourth principle is abandon manufacturing assumptions in service qual-ity delivery. When companies break down manufacturing assumptions aboutgaining efficiency in the delivery of service, they must follow in some combi-nation, the human resources practices shown in Table 8.4. The consequencesof successfully shifting from an efficiency-centred to a customer-centred servicefocus are soon felt in the firm. These consequences include the tracking of thelosing or keeping of customers as well as the performance of employees whodeliver excellent service. Service delivery personnel should be able to see howunit revenues hinge on excellent service delivery. Aside from real-time unitperformance data, they learn it through their paycheques which should be tieddirectly to their service performance.

An example of excellent service delivery that uses service customisationthrough phone contact is illustrated below.

An appliance manufacturer has abandoned its long-standing practice of licensingappliance repair services from contractors who have been trained in companyprocedures (out-sourcing). Now, it uses its own repairmen and it has completelyoverhauled the way it delivers repair service.

From its customer service center in Tennessee, 300 customer service reps taketoll-free calls 24 hours a day from anywhere in the USA and Canada. These highlytrained service reps use a procedure to diagnose an appliance problem over thephone. Using the customer’s description of the problem, and by using computer-based diagnostic software, the customer service reps order repair parts that areselected automatically from a warehouse near Nashville, Tennessee. Once the partsare bundled, they are shipped by United Parcel Service overnight to the repairman’shome that is the closest to the customer. The parts bundles come with a routingitinery to optimise the repairman’s work time for the next day. Three hours priorto his or her arrival at the customer’s home, the customer is called and remindedthat the repairman will be there within the next two to three hours.



Table 8.4 Perspectives on empowering employees to deliver excellent service

Organisational Practice Manager’s Perspective Employee’s Perspective

Select employees for theirinterests and values in highquality service delivery

Value diversity in the workforce

What you think and believeabout service quality is moreimportant than who you are

Revise job descriptionsto emphasise teamworkco-operation

Coach employees and developa teamwork approach to eachjob in the company

The customer is at the centreof service delivery

Give teams of employeesaccess to real-time data onunit service quality, costs andproductivity performance

Decentralise informationsystems and simplify them tocapture features of servicedelivery and service results

Employees’ work to provideservice is related to unit

Adjust incentive systems to‘pay for performance’

Develop appraisal system thatstresses service behavioursbased on service outcomes

Employees who deliverexcellent service receiveincentives

Base significant portion ofmanager’s pay on quality ofunit’s service performance

Teach employees therelationship between serviceenhancement and unit marketshare and profit

All employees can be‘entrepreneurial’ and findnew ways to deliver betterservice

Move managers to where theservice is being delivered

Interact with customers andmodel good service work

Managers are looking forways to enhance service, notso they can check up on ourwork

The repairmen keep a generic inventory of appliance parts in their vans andthey all work from their homes. The generic parts inventory is adequate to solveabout 70 percent of the appliance problems. The other 30 percent of the problemsare solved with the phone and computer-based diagnostic procedure followed bythe service reps.

The Tennessee town where the customer service centre is located has a capablework force that was overjoyed to be picked for the company’s customer servicecentre. A local college has placed numerous graduates in the company’s trainingprogramme and surrounding towns are more prosperous because of the influx ofhigh-wage jobs.

The example shows how a company in a highly mature and intensely com-petitive industry reinvented itself to emphasise customers’ needs. It shows thatcommunications systems, inventory management, warehousing, parts shipping,repairmen’s jobs and community involvement can all be positioned to supportrepair services that customers experience as highly customised. The firm alteredits employment practices to change the behaviour of managers and employ-ees who deliver front line service. The strategy integrated several informationstreams, rigorous training and highly motivated workers to deliver excellentservice.



If customers are the starting point to revenue growth in successful companies,then the employees who create and deliver that excellent service must be valuedas much as its customers. Companies trying to improve their market share andraise customer loyalty must train, support and reward employees who provideexcellent service. Over time, employees will earn more in those firms that breakaway from the manufacturing focus to service delivery. Likewise, employees’pay gap between firms delivering high and low quality service will widen andbecome well known throughout the industry. Firms that choose the servicequality strategy will have the advantage of choosing new employees from ahigher quality applicant pool. Their less service-driven rivals will continue toselect employees from a shrinking pool of less qualified applicants.

8.7 Creating a Service-Driven OrganisationFor ten years, service quality experts have extolled the potential for success inthe service-driven firm.39 Their steps to achieve a service-driven strategy aresummarised here. For a full treatment of the service improvement steps seecitations 34 and 39 in the References.

Step 1: Conduct a service audit. Audits mean measurement and measurementmeans tracking customer satisfaction. The features of service that are importantto customers and how they are prioritised is the starting point to design acustomer service audit. An audit evaluates how well a firm rates in comparisonto its rivals’ service mix. Some examples of the kinds of questions that mightappear in such a customer survey are shown below.

1 What is the maximum service-delivery time you will tolerate without feelinginconvenienced?

2 How long should it take to perform the service itself?3 How much time can elapse before you take a negative view of our service?4 What factors should tell us that the service experience has begun for you?5 How many different employees should be involved to deliver service to

you?6 What components of the service are necessary? Desirable? Unnecessary?7 What service components must be controlled to ensure your service experi-

ences are excellent?8 What components of service can vary by service episode without compro-

mising its quality?9 Do parts that we buy from other companies affect your satisfaction with

our service?10 What aspects of our service reduce your anxiety or feelings of delay?

Step 2: Develop a company-wide service strategy. A firm needs a ‘servicemission statement’ clarifying how its competitive advantage is based on servicequality delivery. Frito-Lay, a maker of snack foods defines service as ‘99.99percent on-time product delivery’ to retail outlets. For USAA Insurance Com-pany, the mission is ‘Service Comes First.’ Scandinavian Airlines System’s CEO,Jan Carlzon says, ‘. . . service, as perceived by the customer, [is] the number



one driving force of the operation of the business.’40 In the simplest terms, theservice mission statement should answer the question: ‘Why should customerschoose us?’ All aspects of the company’s culture should reinforce the answerto that question. A firm’s hiring and training programmes should have as theircentral focus the creation of a work-force that knows how to deliver the servicethat keeps customers coming back for more.

Step 3: Conduct ‘wall-to-wall’ employee training. Training employees todeliver excellent service is an investment in future earnings. Managers whobelieve that service training is a cost to be minimised by hiring people for‘idiot-proof’ jobs jeopardise their firms’ future earning streams. Idiot-proofingjobs echos the manufacturing approach because such jobs leave little real roomfor employees to create meaningful service improvements. A costly side effectof standardising the service mix can be a demoralised work force with highturnover among those employees who may have the most potential to workeffectively in a service-driven environment.

Managers in companies that deliver excellent service know that there is alink among customer satisfaction, employee morale and service quality training.Studies in the retail sector show that customer satisfaction declines in storesusing part-time workers and having high sales staff turnover.41 The MarriotCorporation, a large US hotelier, discovered that reducing employee turnoverby 10 percent would reduce customer nonrepeats by 3 percent and raise rev-enues by $50 to $150m. At Ryder Truck Rental Company, managers found thatturnover and workers’ compensation claims dropped substantially for employ-ees receiving training in service quality versus employees who did not receivethe training. The inescapable conclusion about training is this: customer loyaltydepends on employee morale and employees’ knowledge of how to deliverexcellent service.

Step 4: Implement the service improvement programme. By following theemployee empowerment imperative, most companies implement service qualityimprovement programmes by expanding the discretion of front-line employeesas they work to improve service quality. A project (temporary) organisationshould be created to maintain a sharp focus on unfolding success as wellas troublespots in programme implementation. Typically project organisationsare set up for opening a new plant, initiating a new product line, starting astrategic alliance or starting a company-wide service improvement programme.The project organisation lasts as long as it takes to diffuse the programmethroughout the company. It is headed by a steering committee that reportsto top managers. Project teams can be organised to handle specific aspects ofservice quality improvement. For instance, the project team in charge of servicetraining and development might design an application lab. In an applicationlab, service specialists from the project team fan out to company departmentsto conduct sessions to develop the department’s service mission and to identifyservice operations that the department would like to improve with the projectteam’s help. Using tools like the goods-services continuum and the servicespectrum, the project team can help a department customise service deliveryprinciples to its service mix.



During programme implementation, project teams regularly report their resultsto management. In turn, management controls service systems to ensure that theservice quality programme is on schedule and meeting its goals. Therefore, theimplementation phase includes measurements of service quality improvementsas well as measurements of implementation success. As the work of service qual-ity improvement teams diffuses through the firm, old systems are abandonedor redesigned. Moments of truth can be applied to show where conventionalservice systems have broken down. The activities described above break downthe status quo of a service model that is based on manufacturing efficiency.Employees who are willing to deliver excellent service usually become dissatis-fied with features of organisational culture that are based on the old model. Inturn, they learn how to make the customer the centre of service improvements.

Step 5: Make the service improvements permanent. To make service improve-ments permanent, work force management practices such as performance mea-surement, incentive system design and communication practices have to bechanged. Along with learning new service-focused job behaviours, employeesmust be rewarded when they succeed in delivering excellent service. Throughthe use of incentives, excellent training and valued rewards that are tied to ser-vice, the firm can create new values in its culture that centre on service quality.Once a new culture based on service is created, the service quality programme isinstitutionalised in the company. Full institutionalisation can take as long as fiveyears. However, rising profits and market share will occur much sooner. Hereare some typical indications that a service quality improvement programme hasdiffused throughout the company.

1 All employees understand the job behaviours which lead to excellent service.2 New employees are trained in service quality as they are oriented to the

company and its systems.3 Measurement of service quality reaches all aspects of company operations.4 The company commits to ‘wall-to-wall’ service training.5 A major component of pay for managers and employees is based on mea-

sured service excellence.6 Recruiting and hiring systems reflect the importance of personal attributes

that are related to excellent service skills.7 Older employees show the importance of service quality to new workers.8 Rivals take notice of the company’s service improvements and try to copy

them.

Summary Points• The four key aspects of organisational design are division of labour, alloca-

tion of authority, departmentalisation and span of control.• Mechanistic designs vary in terms of division of labour, allocation of author-

ity, departmentalisation, and span of control. The mechanistic firm has highdivision of labour, low delegation of authority, uniform departments, andnarrow spans of control. Organic designs have less division of labour,greater delegation of authority, and wider spans of control.



• Division of labour is a management decision to subdivide work. It cancreate economies of scale since people can specialise in certain tasks. Thiscan be a factor in sustaining competitive advantage based on being a lowcost producer.

• Delegation of authority is a management decision to give control of workactivities and goals to employees. It is a necessary aspect of superior–subordinate relationships. There are five principles for effective delegationof authority. When done broadly across the firm, delegation of authoritytransforms to employee empowerment.The benefits of delegation of authority for the firm include: 1) developmentof competitive work climates, 2) increased employee creativity, 3) loweredcosts through smaller staffs, 4) employee participation in decision making,and 5) more rapid employee development.

• Departmentalisation refers to how work activities are grouped together.The four forms of departmentalisation are: 1) functional, 2) territorial, 3)product, and 4) matrix. Large, complex firms blend all four forms of depart-mentalisation in their designs. The choice of design is heavily influenced bythe extent of environmental uncertainty.

• Many large corporations have developed successful product-divisional struc-tures only to find that integration of the product divisions has become dif-ficult. This has led some of them to adopt more functional designs whiletrying to preserve the flexibility of the product-divisional design.

• Organisational structure refers to the arrangement of roles and reportingrelationships which govern employee behaviour.

• Centralisation refers to the retention of authority to make decisions by topmanagement. Highly centralised firms exhibit high formalisation, standard-isation and specialisation.

• Administrative ratio is the number of managers and administrators in rela-tion to the number of employees engaged in production. It generally risesas firms become more centralised and vertically complex.

• Formalisation is the extent to which employees’ work is controlled bywritten documentation of rules, regulations and work procedures.

• Standardisation is the degree to which behaviour variation is allowed in ajob or series of jobs.

• Outsourcing is contracting with outside firms for goods and services thatsupport manufacturing, accounting functions purchasing, sales, customerservice, product development and personnel practices. In some ways itresembles a strategic alliance.

• Decentralised organisations create work systems where authority is dele-gated to employees. They exhibit less formalisation and standardisationthan centralised organisations. The decentralised organisation presents spe-cific strengths and weaknesses which must be matched to strategic decisions.

• Co-ordination refers to the set of mechanisms which managers employ tolink the actions of organisational subunits to achieve a pattern of consis-tent outcomes. The extent of co-ordination necessary in the organisationis determined by the amount of information to be processed during taskaccomplishment.



• Turbulent business environments create more information processing needsthan placid environments.

• Vertical co-ordination can be enhanced by using groups, a collateral organ-isation, direct supervision, standardised work processes, standardisation ofoutputs, use of performance appraisal, and management information sys-tems.

• Horizontal co-ordination can be facilitated by the use of direct managercontact, liaison roles, horizontal task forces, and permanent teams to managerecurring work-flow problems.

• Interorganisational designs are conglomerates. Conglomerates can engagein related and unrelated diversification. Strategic alliances are cooperativearrangements between two firms and they are often used to help a companyenter global markets. Keiretsu are Japanese conglomerates and they dominatethe Japanese economy.

• Organisational control refers to the set of mechanisms used to keep actionand outcomes within predetermined limits.

• Process control is the standardisation of task performance. It can be achievedby specifying work methods and setting work standards. Process controlcan limit organisational flexibility if the firm operates in a turbulent envi-ronment. Further, it can be external or internal. External process controlrefers to organisational units that detect production process problems andcorrect them. Internal process control is based in self-directed teams thatsolve product or production problems with total quality management. Onceall companies in an industry understand and use TQM, it ceases to be abasis for competitive advantage and simply becomes a rule of competition.

• Results-oriented control refers to a system which achieves control by spec-ifying the results to be obtained by employees and their work units. Themost common form of results-oriented control is management by objectives(MBO).

• MBO rests on superior–subordinate teamwork to: 1) establish goals, 2)review goal progress, and 3) resolve conflicts and take corrective actionwith respect to set goals. MBO capitalises on the important motivationalforce of specifying outcomes to be obtained. MBO can create problems inorganisations if the process of documenting and recording goals becomesmore important than the goals themselves.

• Responsive firms are customer-oriented and delayered. In them co-ordinationis achieved through technology-based communications. The primary empha-sis is on revenue growth within a reasonable cost structure; but cost controlis not a primary goal. Companies that use outsourcing to create lean staffsand increase the extent to which customers have contact with the firm.Boundaryless firms use lean corporate staffs, wide management spans andempowered, self-directed teams.

• The complexity of service delivery requires the responsive firm to emphasiseemployee training, reward system design and improvements to the qual-ity of the employment relationship. The client/customer service spectrumshows a firm the relationships among its types of service, the customer-service provider interaction and the extent to which employees need more



service training. This tool can be used by a firm wishing to enhance itscompetitive advantage through service quality improvement.

• Many firms go through downsizing and delayering prior to becomingresponsive and service driven. The job insecurity created by these twoactivities makes employees reluctant to believe that their jobs can becomemore secure if the firm achieves greater service providing capabilities. Ineffect they doubt that there are increased profit opportunities in service cus-tomisation. This attitude is a carry-over from long-held assumptions aboutthe central importance of manufacturing efficiencies in profitability. Thisform of resistance to change must be managed and reduced.

• Manufacturing assumptions originate in scientific management. In scientificmanagement the goal is to seal off operating systems from the effects ofexternal uncertainty. This allows the firm to manage and control the rate offlow of factors of production through its transformation process (conversionof inputs to outputs). However, a major and less manageable source ofexternal uncertainty is customer demand for service. To make service asource of profits, the firm must abandon the management and processassumptions that originate in scientific management.

• Job designs in the responsive, service-driven firm require employees torecognise sales opportunities as they complete a customised service trans-action. A customised service episode (based on the analysis of moments oftruth) requires that employees have the authority and training to systemsthat are based on measurements of customer satisfaction, response times andcost effectiveness in service delivery. Service employee empowerment mustbe at the centre of the firm’s attempt to give front-line service employeesthe authority and training to deliver high quality service.

Review Questions


8.1 If a manager created a matrix arrangement to cope with high hierarchicalinformation loads, he would be practising organisational design. T or F?

8.2 The two most important features of division of labour are how the work shouldbe divided and how jobs should be grouped. T or F?

8.3 Mechanistic organisations would find the introduction of self-directed workteams to be less cumbersome than organic organisations. T or F?

8.4 Delegation of authority must be an operating principle in a decentralisedorganisation. T or F?

8.5 Once authority is delegated to a subordinate, the manager is not accountablefor the quality of the subordinate’s work. T or F?

8.6 ‘Manage by exception’ refers to a principle of delegation which requires themanager to involve himself in his subordinates’ decision-making only whenunusual events occur. T or F?



8.7 You would expect organisations that practise delegation to have large corporatestaffs. T or F?

8.8 The functional design helps the organisation develop managers with consider-able knowledge of field operations. T or F?

8.9 Departmentalisation can be successful if it combines a product and a customeremphasis. T or F?

8.10 The territorial design helps the organisation develop managers with extensivecustomer knowledge. T or F?

8.11 The product divisional structure is an excellent design for an organisation whichwishes to develop products to fit market ‘niches’. T or F?

8.12 The product divisional design lends itself well to the creation of ‘profit centres’for a product or family of related products. T or F?

8.13 In the matrix design, the unity of command principle is often violated (anemployee can have more than one superior). T or F?

8.14 Outsourcing contributes to the flexibility and adaptability of organisations’designs and strategic plans. T or F?

8.15 As a general rule, a matrix organisation will have to encourage delegation ofauthority. T or F?

8.16 Unrelated diversification would not be a characteristic of a keiretsu. T or F?

8.17 Highly centralised organisational structures will have more formalisation andstandardisation than decentralised structures. T or F?

8.18 Decentralisation is often associated with empowerment and self-directed teams.T or F?

8.19 An indicator of the extent of decentralisation in an organisation would be theamount of authority salesmen had for autonomous price setting. T or F?

8.20 As an organisation grows in size, its hierarchy of authority remains the mosteffective means for ensuring co-ordination. T or F?

8.21 The extent of environmental uncertainty and task uncertainty determine theamount of information which must be processed during task execution. T or F?

8.22 Reducing the amount of attention that managers pay to employees would bea feature of a delayered organisation. T or F?

8.23 Combining a management information system with an MBO system wouldimprove vertical co-ordination and control in the organisation. T or F?

8.24 In the product divisional structure we would expect to see liaison roles transforminto product or brand manager positions. T or F?

8.25 Increasingly difficult work standards are an example of a problem which occursin process control-oriented work systems. T or F?



8.26 Eliminating manufacturing efficiency from service delivery requires the firm toalter the criteria that it uses for selecting and hiring employees. T or F?

8.27 Because service cannot be stockpiled or warehoused, it is unimportant to trainservice delivery employees in effective inventory cost control. T or F?

8.28 Making service delivery a major feature of competitive advantage requires moreeffective use of the line-of-sight principle. T or F?

8.29 Employees delivering excellent service would be likely to say that from oneperiod to the next they are unconcerned with how well their work unit isperforming. T or F?

8.30 Service-driven firms find ways to improve the quality and amount of upwardcommunication. T or F?

8.31 Service quality measurement programmes emphasise results-oriented controlmore than process-oriented control. T or F?

8.32 Starting a price war and lowering costs is a faster way to gain market sharethan by investing in service quality improvement. T or F?

8.33 In downsizing, a firm’s service quality would not be hurt if employees whodelivered experienced-based service for routine problems were laid off. T or F?

8.34 Employees of service-driven firms are highly motivated by across-the-board payrises. T or F?

8.35 Delayering and outsourcing, when done without employee participation andemployment security, can cause the relationship between job stress and per-formance to become negative. T or F?

8.36 When firms conduct a service quality audit they often learn that customersassociate cost cutting and outsourcing with much lower service quality. T or F?


8.37 Which of the choices below represents the structure of a firm?

A The firm’s goals.

B The firm’s division of labour and co-ordination of work activities.

C Only how the firm delegates authority to various managerial positions.

D The firm’s pattern of formal communication channels.

E The firm’s listing of job titles.

8.38 Which of the choices below represents an organisational chart?

A The formal authority lines and manager-employee reporting relationships.

B The informal work groups and their connections to the firm.

C The total size of the firm.

D The number of employees in each department or subsidiary.

E The job requirements for each position in a department.



8.39 Which of the following choices represents a flat organisation?

A Narrow spans of control.

B Close supervision and limited delegation of authority.

C Wide spans of control.

D Uniform departments.

E Numerous promotion opportunities and rapid upward movement of employ-ees.

8.40 Which of the following choices would work best to create horizontal andvertical co-ordination in a firm?

A An assistant to the president.

B Cross-functional project teams.

C A technical mentoring programme.

D A management information system coupled with the use of liaison roles.

E A flat structure.

8.41 Which of the following choices is linked to a tall chain of command?

A Centralisation.

B Matrix designs.

C Loose, organic decision-making structures.

D Informal communication channels.

E Professional bureaucracy.

8.42 Which of the choices below would require a manager to have excellent projectand team management skills?

A Matrix.

B Territorial.

C Functional.

D Product divisional.

E Mechanistic.

8.43 Which of the following choices is the most commonly accepted basis for depart-mentalisation?

A Communication patterns that are linked to unit tasks and goals.

B Span of control.

C Required groupings of jobs to accomplish work.

D Length of seniority of members of various departments.

E Production planning and output goals.

8.44 Which of the following choices should be used to complete the followingsentence? The design would be most effective for meeting businessconditions that required specialised products to meet variations in customertastes based on culture and customs.

A Matrix.

B Functional.

C Product divisional.

D Territorial.

E Combined product and territorial.



8.45 Which of the following choices shows how decentralision can strengthen thefirm?A Reduce the chance of jurisdictional and priority disputes among various

departments.B Smooth co-ordination problems in joint functions such as purchasing.C Allow concurrent and multiple tasks to be co-ordinated across functional

departments.D Prevent innovation from being restricted to specific projects.E None of the above.

8.46 When a firm’s problems are ill-defined and managers believe it needs to moreeffectively handle change, the firm probably would follow which of the follow-ing choices?A Create a collateral organisation.B Set up a matrix design.C Adopt the product divisional design.D Recentralise.E Decentralise.

8.47 A results-oriented control system would be most characterised by which of thefollowing choices?A The establishment of output control through goals and objectives (MBO).B Carefully set work standards.C Close supervision in the production division of a company.D Quality control work that is separated from production or assembly work.E Focus on the methods of production.

8.48 Which of the following choices should a company select that is trying to improveits service quality?A Make greater investments in technology to speed service delivery by using

computers.B Increase investments in work force training to enhance service delivery.C Delayer and move corporate managers to field units charged with service

delivery.D Downsize and delay the decision to conduct wall-to-wall training.E All of the above.

8.49 Which of the following choices represents one thing that firms delivering poorservice have in common?A They have forgotten the central role of customers in revenues.B They view service improvement as a priority that should be addressed

before outsourcing.C They use project teams to oversee company change programmes.D They have more employee empowerment as a result of outsourcing and

delayering.E They have developed a service mix that is too complicated for the service

skill level of the front-line employees.




8.1 Europa Insurance Company operates in several countries in Europe. The firmhas experienced stiff competition from rivals recently purchased by Japaneseinsurance firms. Europa is organised on a ‘product line’ basis with certaindivisions concentrating on types of related policies (group insurance, commercial,maritime, family, auto and health). Customers have complained about policieswhich do not meet their particular needs. Several have noted that policies are‘designed more for the convenience of Europa than for its customers’. Further,several sales managers have been criticised by customers as ‘lacking a customerorientation’. With these considerations in mind, suggest a new design whichmight improve Europa’s capacity to meet market needs.

8.2 At a dinner party your friend Phillip asks you about your ‘knack’ for developingyour subordinates into skilled managers who are recruited by other divisions ofyour firm. You explain your technique as ‘constantly pushing authority down thecompany hierarchy’ to see which subordinates can handle it. Phillip is intriguedby your explanation. If he were to try to be a more effective delegator, whatadvice would you give him?

8.3 What are the four issues facing a manager when he designs his organisation?

8.4 What are the disadvantages for employees who work in a product-divisionalfirm?

8.5 What managerial skills would project or programme managers need to besuccessful in a matrix organisation design?

8.6 Why do so many managers advocate decentralisation in theory but practise itineffectively?

8.7 Differentiate between co-ordination and control. What are some negative out-comes associated with process control?

8.8 What are some of the benefits of conglomerate business structures?

8.9 What forces may be acting to undermine the strength of Japanese keiretsu?

8.10 Corporate responsiveness to customer needs is increasingly viewed in terms ofnew structural arrangements in companies. What are some of the changes thatare being made in the design of firms to enhance their customer responsiveness

Case Study 8.1: Analysing a Change in Design

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



The Company’s Organisation Design

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

PRESIDENT Assistant to President

Vice-PresidentSales

Vice-PresidentPurchasing

Executive Vice-President

Senior Vice-President

V.-P.Finance

V.-P.Traffic

V.-P.Manufacturing

V.-P.Personnel

V.-P.Planning &

Quality Control

Controller ManagerTraffic

ManagerPlanning &

Quality Control

ManagerManufacturing

ManagerPersonnel

Figure 8.11 Tobric company organisation (old design)Source: Adapted from R.C. Dailey, 1988. Understanding People in Organisations. St. Paul, MN: West.

The division did not have a general manager. Each manager in the Manch-ester production centre reported on a line basis to his functional counterpart atcompany headquarters in London. For example, the manufacturing departmentmanager reported to the vice-president in charge of manufacturing at the corpo-rate office. This was also the arrangement for Tobric’s other four manufacturingfacilities in the UK.

The president was disappointed in the company’s overall performance. Tryingto improve the situation, he implemented a new way to manufacture, and heused the Manchester plant as a test situation. A consultant’s report stated that thetwo requirements for improved operations are to reduce costs and manpower.He had to accomplish these two goals without losing any competitive positionin the market. Since several operational features would be new for productionemployees, the consultants suggested that a pilot project be implemented beforemaking the changes at all company manufacturing locations.

New Operations Mean a New Design

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



PRESIDENT Assistant to President

Vice-PresidentSales

Vice-PresidentPurchasing

Executive Vice-President

Senior Vice-President

V.-P.Finance

V.-P.Traffic

V.-P.Manufacturing

V.-P.Personnel

V.-P.Planning &

Quality Control

Controller ManagerTraffic

ManagerPlanning &

Quality Control

ManagerManufacturing

ManagerPersonnel

General ManagerLucien Able

Figure 8.12 New design of Tobric (Manchester pilot project)

Lucien described his situation and new position as follows:

I am going into a situation involving a large number of changes. This will bea new operation with new methods at Manchester. Most of all I will be tryingto manage a new set of relationships. Before this, the managers at Manchesterreported to their functional superiors in London. Now they will report to me,and I’m a complete stranger to them. I’ve met with each of the vice-presidents inLondon and I’ve learned how they dealt with subordinates in the old Manchesterdesign. I have decided to issue all instructions to them and I’ll clear this first withLondon headquarters. I have noticed that some vice-presidents were cutting offtheir connections with their former direct subordinates at Manchester. Still, twoother vice-presidents want to maintain their direct contact with plant personnelinformally. I have quickly realised that these two different intentions from vice-presidents would create problems for me. I’m worried about how to manage boththe plant and the vice-presidents effectively.

1 How would you describe the structure of Tobric before and after the pilotprogramme at the Manchester plant? What must top management do toensure the success of the new design?

2 What options does Lucien have to help ensure horizontal co-ordination atthe Manchester facility?

Case Study 8.2: How Hewlett-Packard Avoided the DeclineSuffered by IBM and DEC∗

In 1990 David Packard, a founder of Hewlett-Packard, said ‘If we didn’t fixthings, we’d be in the same shape as IBM is today’. In 1990 as Mr Packard andMr Hewlett each approached the age of 80, they stepped back into managementdecision-making at the company they founded even though they had not beenconnected to operational decision-making for years. They did this because they



didn’t want the company to have the same problems as IBM or Digital Equip-ment Corporation with their high-priced, technologically superior products anddeclining profit margins.

By 1992, both IBM and DEC were in the red, their stock prices had beenhalved, and management turmoil and work-force concerns were mounting. IBMlost over $5bn and the company’s board dumped John Ackers, its CEO and hiredLouis Gerstner, Jr., a former McKinsey and Company consultant and one-timeCEO of RJR Nabisco. At that time, HP faced many of the same problems DECand IBM did: years of stellar performance, widespread corporate expansion,customer loyalty and stagnant markets for mainframe computers. Even thoughIBM pioneered the personal computer, it had lost substantial market share tomore nimble competitors such as Dell, Packard-Bell, Compaq and Gateway.DEC continued to lose money as it pumped resources into the production ofmainframe computers at a time when the market demanded low-cost PCs thatcould be networked. During the year ending October 1992, HP earned $881mon sales of $16.4bn.

Unlike CEOs at IBM, Mr Packard and Mr Hewlett had retained their powerto cause change in their company. Between them they had hand-picked allof the board members and, together, they owned 25 per cent of HP’s stock.As the company’s founders and two of its most creative engineers, they stillcommanded the loyalty and respect of HP’s technical personnel and managementstaff.

Aside from the stature of its founders, HP was quite similar to IBM andDEC in 1990. All three companies had grown tenfold during the previous 25years and they were all prosperous, secretive and paternalistic. Each companyhad adopted firm no-lay-off policies and each one had a culture of complacencywhich rewarded employees for adopting the values and practices that had servedeach company well for the past 25 years. None of the companies was ready forthe wrenching change that was to come as fundamental market shifts unfolded.Since 1990, all three companies have undergone significant changes.

HP emerged as a redesigned and refocused company well before IBM andDEC. IBM, being a much bigger company, has taken much longer to repositionitself. During 1994, IBM continued to announce lay-offs even as it returnedto profitability. Its acquisition of Lotus Corporation signalled to the computerworld that it would challenge Microsoft in the all-important market for softwareand operations systems. Industry analysts still believed that IBM would have tomake further lay-offs to complete its strategic repositioning.

Meanwhile, back in California, Messrs Packard and Hewlett bypassed theirheadquarters staff and they went to the field to speak to groups of HP employees.From their conversations they concluded that HP had grown too bureaucraticand centralised. To reduce these rigidities, they began to move people, powerand product development decision-making away from corporate headquartersto field operations.

As these shifts unfolded, managers who were comfortable at corporate head-quarters found themselves moving to field operations. For example, Lew Platt,

* Excerpted from J. Pitta, ‘It Had to be Done and We Did It’, Forbes, April 26, 1993, 148–52.



head of HP’s computer systems group, had to transfer from Palo Alto to an office20 miles away in Cupertino. Once he had settled in, Platt quickly developed aplan to build a new computer workstation in the remarkable time of one year.Significantly, he set out on this course without seeking approval from CEO JohnYoung.

Messrs Packard and Hewlett then engineered a smooth leadership transitionby easing out CEO Young and replacing him with Mr Platt. Mr Young servedon the selection committee which recommended Mr Platt for the job. Simi-lar management changes at IBM and DEC were much more messy and bothcompanies had significant stockholder and public relations disasters as a result.These problems put CEO replacements at both companies on the defensive andforced them to discuss many sensitive decisions in the business press.

In 1992 a redesigned HP ousted DEC from the number two industry positionin the manufacture of workstations. At the same time, it consolidated its domi-nation of the laser printer market by overwhelming Apple Computer Companyand several Japanese competitors. By 1995, HP was closing in on Sun Microsys-tems, the industry’s lead company in the manufacture and design of computerworkstations.

The important ingredient in HP’s successes was the simple difference betweenaction and words. During the early 1990s, IBM and DEC executives planned anddevised strategies for profiting from the benefits and value of downsizing anddecentralisation. While he was IBM’s CEO, John Ackers proposed that Big Blueshould restructure itself into 13 autonomous divisions. Robert Palmer, DEC’snew CEO, planned to reorganise DEC into nine business units. The point is this:HP practised what it preached and decentralisation proceeded quickly in theearly 1990s under Mr Platt’s leadership. IBM and DEC are still struggling withthe implementation of decentralisation plans even after both companies havereturned to profitability.

Taking swift action and dispersing power have always been part of the man-agement culture at HP. In the company’s early days, Messrs Packard and Hewlettpractised the simple strategy of dividing in half any division which reached 1500employees. Each division has its own marketing, engineering, manufacturingand human resources staff. The company’s founders did not want divisions togrow so large that workers and staff lost their sense of pride in their work andtheir urgency to make their divisions successful. This organising principle wasat the heart of the company when it was founded. Messrs Packard and Hewlett,along with their other founding engineers, valued the entrepreneurial spirit andthey wanted the opportunity to stay close to all aspects of running the divisionsof the company. Thus, divisions in HP are highly focused and committed tosuccessful product lines which are run by managers with entrepreneurial spiritand technical excellence. In contrast, Tom Peters, the management expert, viewsDEC as the ‘one man, one product’ company which relies on an individual witha good idea and a highly integrated product. For DEC, this was Kenneth Olsenand his VAX computer line.

In IBM, those managers and engineers with entrepreneurial spirit are con-fronted by a different set of obstacles. At Big Blue, the organisation and itsstructure always take precedence over individuals and their product ideas.



Organisation men who are well-rounded and thoroughly versed in IBM’s cul-ture and operating divisions are highly valued and their careers are put on thefast-track. These individuals are moved and promoted about every two yearsand quite frequently they begin posturing for their next promotion before theyhave completely settled into their current job. The inside company joke wasthat IBM stood for: ‘I’ve been moved’. There was considerable truth to the jokebecause IBM had a department of 70 specialists who handled the paperwork forIBM employees who were undergoing international transfers.

It isn’t that HP doesn’t transfer personnel too. However, at HP transferand personnel movement are initiated by the individual rather than being areflection of a giant cross-training and promotion programme for executives asin the IBM system. In HP, employees can request transfers to available jobs,but they must compete with qualified candidates from outside the company. AtIBM, promotion from within and systematic job transfers have always been away of life.

Vertical complexity is also sharply different in IBM and HP. Four levels ofmanagers separate David Packard from assembly line workers. At IBM thisseparation swells to eight levels. With its countless executives and managers,IBM does need eight levels in the chain of command to make its managementpromotion and job rotation system work. However, any reasonable managerrealises that in a successful company, market and product strategy, and not thejob transfer and promotion systems, should drive the configuration of the chainof command.

It should be noted that too much divisional autonomy and decentralisationcan also create complications for a company like HP. This arrangement can createconflict among product lines and considerable duplication of resources amongproduct divisions. In the late 1980s, Mr Young tried to centralise control of thecompany’s divisions from headquarters. He created a central product designdivision which was responsible for creating all HP products. Conflicts amongdivisions were handled by committees which bargained and negotiated solutionswhich left neither party satisfied. Under the Young centralisation regime, onevice-president, Robert Frankenberg, recalls seeking 19 signatures to institute aone-time change in a pricing plan for a software product. Launching a newnetworking product required approval from 38 committees. On the pathwaycreated by Mr Young, HP had clearly carved out a lane that had been well wornby IBM and DEC.

Under Mr Young’s watchful bureaucratic eye, HP created management sys-tems which suppressed creativity and product innovation. In the companysomeone suggested that HP sell computers through the same 1-800 telephonenumbers that the company used to sell its computer supplies like power cablesand converters. The headquarters response was that HP didn’t do things thatway because price changes had to be submitted to a committee 45 days inadvance of any proposed changes. In the US phone-mail computer business,companies such as Dell and Gateway are apt to announce 30 per cent price cutswithout any warning. A 45-day price deliberation cycle was the equivalent ofproduct suicide and HP began to suffer.



HP headquarters continued to look for more opportunities to centralise andcontrol. HP’s medical products group was not spared. Number-crunchers atheadquarters decided that all HP hospital customers had to pay within 45 days.Ben Holmes, the HP medical products group manager, noted that ‘Hospitals aretypically slow to pay, but they always do – slow but sure’. When headquartersclerks began to lean on hospitals, Mr Holmes got countless angry calls. It wasclear that HP bean-counters did not understand the payment constraints facedby hospitals as they tried to collect money from the government, insurancecompanies, employers and patients.

It was at this point that Messrs Packard and Hewlett stepped in and began totransform HP into a more entrepreneurial oriented decentralised company. ‘I’ma strong believer in finding out what the troops think,’ said Mr Hewlett. ‘Wehad too damn many committees . . . decisions weren’t being made . . . overheadis something that creeps in. It’s not something that overtakes you overnight.’

The founders’ shake-up at HP paid dividends as committees disappeared,divisions once again chose their own pricing policies and product developmentsped up to fill channels of distribution with new products. Mr Platt’s workstationproject resulted in an $11 000 machine that arrived on time and under budget.And Messrs Packard and Hewlett once again slid into the background whilekeeping a watchful eye on the company and any tendencies in it towardscreeping overheads.

1 Please explain HP’s transformation using the concepts advanced in thismodule.

2 In your opinion, could HP’s practice of decentralisation go too far? Pleaseexplain your reasoning using the concepts advanced in this module.

Case Study 3: Dumbsizing

Shareholder demands for higher returns and more aggressive competition haveevoked a widespread downsizing trend that is sweeping across nations andthrough industries. Module 2 of the OB text describes the relationship betweenjob stress and downsizing. Downsizing creates economic insecurity in a workforce. Employees who have personally experienced downsizing might be lesscharitable and call it ‘dumbsizing’. The vignettes to follow show how servicequality deteriorates when companies cut costs by downsizing and outsourcing.

Valuetech Decides to Save Some Money. . .

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



According to Ms Lee, Valuetech’s downsizing has left its engineering groupdemoralised, burned out, and disinterested in their work. ‘When they send ajob over here and we say it will cost X, they just say go ahead’, she says.

Executives have taken to downsizing with a fervor driven by low-cost globalcompetitors, and return-happy investors. In turn they hope their efforts willyield quickly rising profits and impregnable defences against hostile suitors.Some downsizing decisions are hasty and they return to haunt the executiveswho make them. The hobgoblins that emerge are: poor public relations, nochange in the bottom line, customers unhappy with service, vendors who leaveand never return, and employees who do the same or who stay on the job andworry constantly about the next layoff.

Synergeticum Company Tries to Benefit from Downsizing. . .

Synergeticum recently announced across-the-board cuts in its health-industriesgroup that sold computer equipment and services to hospitals. The cuts dis-rupted long-standing ties between its veteran salespeople and major customersbecause their accounts were transferred to other divisions. It also outsourcedhundreds of smaller accounts without telling its customers. The experience ofa company marketing manager who recently resigned from Synegeticum paintsthis picture: ‘I had customers coming up to me and saying, “I haven’t seen aSynergeticum sales rep in nine months. Whom do I talk to now?”’

Resellers of the company’s equipment have also complained about diminishedtechnology and sales support. ‘There were months when I couldn’t find any-one with a Synergeticum badge,’ complains a client who had grown used toSynergeticum salespeople accompanying him on sales calls. ‘They walked awayfrom large numbers of clients,’ says Richard Cysco, CEO of Itrain systems, acompany that used to have an exclusive arrangement with Synergeticum. So far,the winners in this industry segment have been Synergeticum’s rivals. In fact,many laid-off employees simply took jobs with Synergeticum’s rivals and withthem came their customers.

Global Biscuit (GB) Tries to Boost Profits Through Cost Cutting. . .

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



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

By replacing its 35 experienced veteran meter-readers with cheaper contractworkers, Northern hoped to save about £1m per year. ‘We thought we wouldbe able to get the same quality by outsourcing as we would with our ownemployees,’ said Edward Lott a spokesman. That happy thought burst andturned into a public relations nightmare for the UK-based company when oneof its new contract meter readers was accused of rape by a customer. Soon6000 customers who had given keys to their homes to their meter readerswere on the phone . . . Northern forked over £60 per customer to have theirlocks changed. Meanwhile, the company has stopped reading meters altogetheras it tries to decide if it should: 1) buy electronic reading equipment; 2) hireanother contractor or; 3) bring back all the veterans. At the moment, Northern issuing Infomax, PC. the supplier of the alleged rapist-meter reader, for failure toconduct proper background investigations on its employees. No doubt, Northernis hoping that its assaulted customer will not get the same idea. . .

1 Create a diagram to show how the companies in case study number 3 coulddevelop a customised service focus as a basis for regaining their competitiveadvantage? Please add an explanation to accompany your diagram.

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18 Cummings, T. and Worley, C. (1993) Organizational Development, 5th edn. St. Paul,MN: West.

19 Bavelas, A. (1974) ‘Communication Patterns in Task Oriented Groups’, Journal ofAcoustical Society of America 22: 725–30.

20 Galbraith, J. (1973) Designing Complex Organizations. Boston, MA: Addison-Wesley.

21 Melcher, A. (1976) Structure and Process of Organizations: A Systems Approach. Engle-wood Cliffs, NJ: Prentice Hall.

22 Huse, E. (1966) ‘Putting in a Management Development Plan that Works’, CaliforniaManagement Review 9: 73–80.

23 Levinson, H. (1970) ‘Management by Whose Objectives?’, Harvard Business Review 48:125–43.

24 Peters, T. (1992) Liberation Management. New York: Alfred Knopf, 310.

25 Ibid., 88.

26 Ibid., 49–50.

27 O’Toole, J. (1974) Work and the Quality of Life: Resource Papers for Work in America.Boston, MA: MIT Press, 18–29.

28 Hirschorn, L. and Gilmore, T. (1992) ‘The New Boundaries of the “Boundaryless”Company’, Harvard Business Review (May–June): 104.

29 Ibid., 108.

30 Ibid., 109.

31 ‘Industrial Growth’ (1991) Occupational Outlook Quarterly, (Fall): 18.

32 Schlesinger, L. and Heskett, J. (1991) ‘The Service-Driven Service Company’, HarvardBusiness Review, (September–October): 75.

33 ‘Profiles in Quality: Blueprints for Action from 50 Leading Companies,’ Bureau ofBusiness Practice, Boston, MA: Allyn and Bacon, 1991, 183. Homewood, Il: DowJones-Irwin, 1990, 24–49.

34 Albrecht and Bradford, op. cit., 30.

35 Ibid., 32.

36 Schlesinger, L., and Heskett, J., op. cit., 77.

37 Kreitner, R. (1992) Management, (5th edn.), New York: Houghton Mifflin, 589.



38 Tansik, D. (1989) ‘Balance in Service Systems Design’, Tucson, AZ: Dept. of Manage-ment and Policy, Karl Eller Graduate School of Management, University of Arizona,working paper, 8–9.

39 Shaw, J. (1990) The Service Focus, Homewood, IL: Dow Jones-Irwin, 31.

40 Albrecht, K., and Zemke, R. (1985) Service America!: Doing Business in the New Economy.Homewood, IL: Dow Jones-Irwin, 169–79.

41 Albrecht, K. (1988) At America’s Service: How Corporations Can Revolutionize the WayThey Treat Their Customers, Homewood, IL: Dow Jones-Irwin, 20.


Module 9

Managing Transitions: OrganisationalCulture and Change

Contents

9.1 Organisational Culture: Its Meaning and Relationship to SuccessfulStrategy

9/2

9.1.1 What Is Organisational Culture? 9/29.1.2 Multiple Cultures in Organisations 9/39.1.3 Understanding Contributors to Organisational Culture 9/39.1.4 Developing High-Performance Organisational Cultures 9/8

9.2 Organisational Life-Cycle Theory 9/11

9.3 Organisational Change 9/139.3.1 Why Do Organisations Have to Change? 9/149.3.2 The Planned Change Process 9/159.3.3 Diagnosis 9/179.3.4 Resistance 9/189.3.5 Carry-Over to the Work Setting 9/199.3.6 Evaluation 9/209.3.7 Institutionalisation 9/219.3.8 Diffusion 9/22

9.4 Methods of Change in Organisation Development 9/239.4.1 Examples of Change Methods in OD 9/249.4.2 Interpersonal and Group Change Methods 9/249.4.3 System-wide Process Change 9/269.4.4 Grid Organisation Development 9/289.4.5 Does OD Work? 9/29

Summary Points 9/30


Case Study 9.1: A Turnaround at Tentex 9/37

Case Study 9.2: One Man’s Values Force a Company Into Bankruptcy: TheStory of Wang Laboratories

9/39


Module 9 / Managing Transitions: Organisational Culture and Change

Learning Objectives


• Characterise organisational culture and explain the importance of the fitbetween it and the organisation’s mission, strategic plan and goals.

• Explain the roles of the founder (or chief executive officer) in preservingstrong organisation culture.

• Discuss the features of a strong organisational culture.• Detail the relationship between competitive advantage, company strategy

and organisational culture.• Develop the concept of the organisational life cycle and describe how organ-

isations and their systems change throughout the life cycle.• Describe the process of planned change for organisations and the key prob-

lems which can surface in each phase of change.• Describe the key elements of a multi-method and multi-level organisational

diagnosis.• Develop methods to: 1) reduce resistance to change, 2)) minimise the carry-

over problem, 3) plan for the evaluation of a change programme, 4) institu-tionalise the change and 5) diffuse the change.

• Differentiate: 1) interpersonal and group level change, 2) system-wide pro-cess change and 3) Grid OD.

• Discuss those factors which contribute most to sustaining organisationalchange and ensuring it is absorbed by the organisation.

9.1 Organisational Culture: Its Meaning and Relationship toSuccessful Strategy

This module takes up the important topics of organisational culture and strat-egies for planned change in organisations. The topics are the subjects of muchwriting and analysis by business practitioners and observers of organisationalbehaviour. Your job in this module is to understand the basic terminology andassumptions which support each concept and to apply the logic in each areaof management thinking to two cases which describe dramatic changes withintwo companies. Once you have the concepts, applying them to the cases and toyour own firm should be easy.

9.1.1 What Is Organisational Culture?

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



and what it stands for) and beliefs (i.e., how organisational practices and systemswork) to employees. Communicated values and beliefs become shared employeeexpectations. Organisational culture has several other qualities noted below.

1 Culture indicates the ‘way of life’ for organisational members who often takeits influence for granted. An organisation’s culture only becomes obviouswhen contrasted with other organisational cultures or when it must change.

2 Culture is fairly stable over time and resistant to quick changes. Once aculture is well developed, it can resist change despite turnover, changes inproduct line or organisational acquisition activity.

3 An organisation’s culture involves internal and external aspects. Internally, aculture might encourage product quality, cost effectiveness and minimisingproduction errors. Externally, the culture may promote customer service,timely distribution, price competitiveness and social responsibility.2

4 Culture is known by employees and they can describe its characteristics. Itcan be measured, evaluated and perfected.

5 Culture can develop in a random fashion or it can be managed if a firmhas a strategic plan that suggests specific properties for its culture. We willhave more to say about this important point in a moment. If there is noconscious culture development, the organisation ‘forgets what it does well’,or never learns what it can do well. Thus, culture is the expression of organ-isational experience which personalises the meaning of the organisation forits members.

9.1.2 Multiple Cultures in Organisations

Because of geographic dispersion and variations in business environments andproduct lines, organisations develop subcultures which reflect variations amongsubunits. Research conducted on computer manufacturers found that technicaland professional employees divided into ‘hardware types’ and ‘software types’.Hardware types subdivided further into engineers and technicians and softwaretypes subdivided into software engineers and computer scientists. Each grouphad its own values, beliefs and assumptions about the proper way to designcomputer systems.3 Organisational culture is reflected in the specific, professionalorientations and skills of groups of employees. If these professionals acquire theirwork values and beliefs through their educational training, then they are boundto exert an effect on their employers’ organisational cultures.

9.1.3 Understanding Contributors to Organisational Culture

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



perhaps, to an industry crash (e.g., mad cow disease) or a widespread pricewar and the strong culture which supported past excellence may not quicklychange to support the new patterns required in the organisation. An exampleof this problem is the growing tendency for companies to compete on the basisof service quality excellence. These firms empower frontline employees to cus-tomise service offerings that exceed customer expectations. To accomplish this,companies invest heavily in service-improving technology and employee train-ing. While these investments are being made, the companies must undo aspectsof their organisational culture which reinforce practices based on manufacturingand economic efficiency. Failure to change the organisation’s culture in this waycan undermine the investments in technology and training.

Second, strong cultures may not mix well when one firm acquires another firm.The managers in the acquiring firm expect certain changes to occur to bring thenew subsidiary in line with ‘company rules’. AT&T purchased National CashRegister Company (NCR) during the late 1980s. The expectation was that themerger would create a communications giant that could exploit the inevitablesynthesis of telephonic and computer-based communications. AT&T’s CEO,Robert Allen, reasoned that AT&T should be in the computer manufacturingbusiness. He bought NCR, declared a revolution in communications technologyat AT&T and introduced its employees to the ‘Ma Bell’s’ way of doing things.Six years and $5.3bn later, Mr Allen: 1) announced the sale of NCR, 2) laid off40 000 workers and 3) received $16.4m in compensation. Merging organisationalcultures in the name of related diversification does not always work for theinterests of employees or shareholders. Given Mr Allen’s pay package, it didseem to work well for him and AT&T’s management team.

Similar strains show in the merger in autumn 1995 of Merrill Lynch & Co. andthe British broker Smith New Court plc.5 Merrill Lynch paid $794m for Smith andthe merger has turned Merrill Lynch into a truly global company. Unfortunately,the merger has created a culture clash that resulted in the high-profile departuresof Merrill’s head of research and Smith’s head of research. Smith veteranscomplain about the Merrill executives’ tendency to pat themselves on the backand their obsession with regulatory compliance. Merrill employees who hadonce been big fish in its small London office are now little minnows swimmingin Smith’s much larger trading and sales operation. The two companies’ culturescould hardly be less similar. Smith is a rough-and-tumble trading house whileMerrill Lynch is a Wall Street brokerage that serves a vast private clientele acrossthe USA.

Tensions between employees were at their highest in research. Merrill hadabout 20 analysts, most covering pan-European business sectors, while Smithhad more than 100, who targeted UK sectors or individual countries on theContinent. The styles and attitudes throughout the two firms were also very dif-ferent. For instance, Merrill had separate floors for research and trading and thecommunications between the two were highly formalised. Smith kept analystsand traders close together and their communications were loaded with punningheadlines, provocative pictures and clear ‘buy’, ‘sell’ or ‘hold’ recommendations.When the Merrill and Smith teams moved together in early 1996, an ‘us-versus-them’ mentality broke out. A Smith veteran decorated his computer with a



miniature American flag at half-mast. Others named the coffee machine ‘Andre’after Merrill’s head of strategy, Andre Sharon. Asked why, the analysts repliedthat the machine was short, square and you couldn’t get much out of it. MrSharon responded with a terse e-mail: ‘The coffee’s on me. Get it while youcan.’ Staffers on both sides of the merger left their jobs. They cited fears of thecoming turmoil. The beneficiary of this rocky marriage seems to be GoldmanSachs International which has picked up several stars from Merrill and Smith.Altogether, 10 Merrill and 10 Smith sales people have left since the merger wasannounced in 1995.

Despite the upheaval, Merrill executives say the enlarged firm has kept Smith’sapproximately 20 per cent market share of London’s equities. The combined firmnow tracks far more business sectors on a global basis, with inputs from Merrillanalysts in New York, London and Asia. Senior executives say the effects of themerger on the bottom line are still murky. Insiders insist that the culture clashesin London will peter out because the merger helps Merrill be more global.

Third, some strong cultures threaten organisational goal attainment becausethe cultures legitimise infighting, secrecy and empire-building. This is particu-larly true in family businesses which do not properly prepare for the orderlytransfer of control to successors. Family businesses in their first generation ofmanagement are often ruled by founders who are blind to the importance ofsuccession planning. While the existing culture may reinforce the founder’surgency, entrepreneurship and marketing emphases, the firm can be highly vul-nerable to a period of extreme turbulence if the stubborn founder ‘dies in thesaddle’ without preparing for the orderly transfer of the business to a trainedsuccessor.

Factors which Contribute to the Development of an Organisation’s Culture

It is generally agreed that an organisation’s culture depends heavily on the role ofthe chief executive (or founder) and the close management of the organisation’ssocialisation process. Let us consider each.

The Chief Executive or Founder’s Role

Extremely successful companies owe a lot to their dynamic founders or charis-matic leaders. It is significant that strong cultures of very successful companiesreflect the personal values of the founder. The imprint of Watson on IBM, Gateson Microsoft, and Michael Dell on Dell Computer Company is obvious. A briefdescription of Iacocca’s managerial style sheds light on Chrysler’s culture.

Down the hall he puts in long days running the company. ‘Some guys in thisbusiness slow down, retire and take it easy,’ he says. ‘A couple of months laterthey’re dead.’ Not Iacocca. He has spent almost 39 years in America’s pivotalindustry, and he still glories in the hurly-burly of his factory floors. Iacocca likes itbest when he can make managing a car company seem like a martial task, urgentand vast and possibly heroic. Iacocca’s definition of management by consensus isrevealing. Consensus, he says, ‘is when we have a discussion. They tell me whatthey think. Then I decide.’6

Socialisation



Socialisation transmits an organisation’s culture from one generation of employ-ees to the next. Organisations which manage their mission goals/culture fitrecognise that haphazard employee selection, unchallenging job assignmentsand fragmented employee development processes can erode a culture and causethe company to drift from core organisational goals and strategy. Pascale notesthat organisations with strong cultures go to great lengths to help employeesunderstand it through the socialisation process.7 Pascale’s steps in this processare reviewed below.

1 Realistic job previews (candid descriptions of the good and bad character-istics of jobs) are used to communicate the company’s expectations for newemployees. Procter & Gamble structures a series of individual interviews,group interviews and tests for brand manager positions.

2 Debasement and indoctrination are used to create humility in new employ-ees so that they are open to norms about effort and performance excellence.An example of this would be to give newly hired university graduatesprojects with extremely low chances for success.

3 Employees are given intensive on-the-job training so that they master thecore areas of the business. The Lincoln Electric Company requires all newengineers to work in welder assembly and production for six months beforethey move to technical sales work. The company insists that all engineersfirst know how to solve customers’ problems through thorough productknowledge.

4 Adjust the reward and promotion system to define performance excellencein the core areas of the business. Base rewards on merit.

5 Use top managers as personal role models for the company’s culture. Theyshould run sales meetings, have open door policies and reward entrepre-neurship.

6 Reinforce the culture with stories about the organisation and its founder.7 Use mentors to develop younger employees who exhibit personal charac-

teristics which are consistent with the organisation’s culture.

These recommendations for sustaining the organisation’s culture through well-managed employee socialisation are shown in Figure 9.1. A company’s successat following them depends heavily on management’s commitment to the linkbetween organisational culture and accomplishment of strategy. Thus, Figure 9.1assumes that top managers 1) view the employment relationship as a core aspectof the business, 2) embrace their role of mentors for excellence, 3) are comfortablewith the more personal or human aspects of running a business and 4) are opento information from customers and other external constituencies about ways toimprove the business.

Try completing the brief questionnaire shown in Table 9.1. It will give youan idea of your company’s current commitment to a strong culture. Total yourscore and then read the interpretation below for the range into which your scorefalls.

Strong culture score: 33 to 44. Your company has successfully integrated itsemployee socialisation process to support company mission, goals and strategy.



Hire new employees who have adocumented record of innovationand creativity in products andprocesses

Use realistic job previews toevaluate job applicants priorto hiring them.

Build mentor-protege relationshipsbetween newly hired employeesand seasoned managers

Rotate employees through entry-level jobs in a given core process(develop orientation to cross-trainingand multi-tasking)

Challenge new employees withtraining in business ethics,customer service and productquality problems

Link skill building, performanceappraisal and social contactamong new employees andseasoned veterans

Involve executives in promotion,performance appraisal, goal settingand recognition activities

Require executives to be responsiveand available role models; practiceopen communication and usee-mail systems to talk to staff

Figure 9.1 Building a strong performance-oriented culture in the firm

Scores in this range indicate that you believe your company practises the social-isation steps noted earlier. If the company has an effective strategic plan andthe work-force is well balanced in terms of age and skill, culture will continueto reinforce the company’s strategy.

Average culture score: 18 to 32. You believe the company is inconsistent inits socialisation practices and upper managers are not good role models forperformance excellence. Top management is not reinforcing the core values ofthe business and there is evidence of an incomplete overall culture which tiestogether subunits and occupational groups.

Weak culture score: 0 to 17. You believe the company has a weak culture andineffective socialisation. Symptoms of weak culture include: 1) poor fit of incom-ing employees’ personal values and culture, 2) poor training of new employeesin the core aspect of the business, 3) reward and performance appraisal systemsdo not make performance behaviours explicit, 4) reward systems are not meritbased, 5) top managers are poor role models (and mentors) and 6) folkloreemphasises failure as much as success.



Table 9.1 Company commitment to a strong culture

Always Often Seldom Never

1 Can you state the company mission? 4 3 2 1

2 Do 90 per cent or more of your co-workersdisplay commitment to the companymission?

4 3 2 1

3 Do employees willingly place the company’sgoals ahead of personal interests ifrequired?

4 3 2 1

4 Are you personally committed to thecompany’s mission?

4 3 2 1

5 Can every employee describe the company’score areas of distinctive competence?

4 3 2 1

6 Are employees committed to high standardsof performance excellence?

4 3 2 1

7 Does the company reward and promoteemployees who excel in core areas of thebusiness?

4 3 2 1

8 Do customers, competitors and observersvalue your company’s commitment toproduct and service excellence?

4 3 2 1

9 Are employees thoroughly screenedto ensure a match with the company’scommitment to excellence?

4 3 2 1

10 Does the company deal swiftly with a newemployee’s lack of commitment by providingtraining or by dismissing the employee?

4 3 2 1

11 Do senior executives act as mentors to youngemployees who exhibit qualities valued inthe company culture?

4 3 2 1

9.1.4 Developing High-Performance Organisational Cultures

Organisations can develop strong cultures. We have noted that a strong cultureis not always a good thing in a company. The qualities of a company’s cultureare much more important than its strength. For example, a strong, change-resistant culture may impede growth, earnings and competitiveness. For years,IBM emphasised organisational secrecy, a multi-layered bureaucracy and anoutdated production and market emphasis based on its domination of the large,mainframe computer market. It watched helplessly as it lost over $7.5bn between1990 and 1993 while its stock fell 50 per cent. Throughout the plunge, IBMretained its strong culture. If companies pursue a high-performance culture theymust be concerned not only with the strength of their cultures, but also withthe degree to which the culture fits the company’s strategy. Company cultureshould: 1) support the sources of financial strength (key financial performancegoals) ; 2) fit the company’s strategic goals (market position, industry rankand product rankings) and 3) help the company adapt its core competencies tomarket conditions. These are discussed briefly below.



1 The company’s culture should strongly reinforce its long-term financialperformance. A strong culture forges powerful bonds among work-forcemotivation, company financial performance (ROI, ROE, ROA), companycontrols and organisational structure.

2 The company’s culture must align with strategic or market goals. If acompany pursues the low-cost producer strategy, its culture must supportprinciples of lean staffing, few management layers, decentralised decision-making and so on.

3 The adaptation aspect of culture emphasises flexibility and it encouragesthe work-force to adapt to the firm’s financial and market strategies.8

Using these three qualities of organisational cultures, researchers tested thethree perspectives on 207 companies from 22 industries between 1977 and 1988.They found partial support for the strength and fit hypotheses. The researchstrongly supported the adaptation aspect. Long-term financial and market suc-cess was strongly correlated with the adaptation aspect of organisational culture.8

Given these findings, the important managerial question becomes: ‘How can anorganisation develop a highly adaptive culture?’ Figure 9.2 lays out the generalthinking of culture experts who have pondered this question.

Founder/entrepreneur builds a business model onthe basis of a new product or service vision.

The firm succeeds

A strong culture evolves and it emphasises employeesmotivation and skills; ownership and shareholdervalue and customisation of services and products

The next generation of top management preserves the founder'svalues and business philosophy through innovation and change

of the firm's core values

Top management shows resilience and the will to change thefirm's business model if external business conditions change

Entrepreneur builds out the firm and establishes professionals inmanagement layers. Designs and customises service systems toreinforce employee honesty, commitment and loyalty to customers

Figure 9.2 How to build an adaptive work culture in the firm

As shown in the figure, the process starts with a charismatic founder whocreates a vision and strategy which fits neatly the context of the business.As the business succeeds and grows, its adaptiveness is nurtured by leaderswho emphasise service to key stakeholders (owners, customers and employees).



To sustain success, the leaders formalise high-quality service by adapting andchanging organisational systems and structures. Last, the leaders recognise theimportance of commitment to service and product excellence rather than rigidadherence to particular business strategies or techniques.

Since all organisational cultures have a natural tendency to evolve and toreflect changes in markets, products and technology, management should tryto influence this evolution to optimise the three fits. The developers of themodel in Figure 9.3 use the analogy of organisational culture being like a well-functioning family.9 They use the acronym HOME to represent history, oneness,membership and exchange. These indicators of change in organisational culturecan create a cohesive organisational culture which optimises the three fits notedearlier. An important underlying principle in implementing the HOME approachto culture improvement is management’s trust and respect for the work-force.Efforts to practise the methods in Figure 9.3 will be ineffective in organisationswith histories of labour–management strife.

Reduced cycletime

Methods of change

Make company history a subjectin new employee orientationprogrammes

Tell stories of employees whoexemplified strong firm values

Require all top managers to bementors

Do follow-up ethics and valuestraining for employees and managers

Design a reward system to givebonuses for excellent serviceto customers

Promote practices that emphasisejob security and work force flexibility

Conduct wall-to-wall training incustomer service and productquality

Empower self-directed teams andencourage participation in decisionmaking

I

Enliven and maintain the company’shistory in its current business activities

Create

firm’s work cultureIndicators of change to

shared expectations aboutthe meaning of the firm’s core

business values

H

O

M

E

Excellentcustomerservice

Outcomes

Improve co-ordination among employees,vendors, employees, distributors and

customers

High teamcohesiveness

Processinnovation

Raise the level of information sharingamong employees and their team

members

Figure 9.3 Ways to change a firm’s culture

The second principle supporting HOME is improving the quality of theemployment relationship in the company. When a company’s managementteam agrees to practise culture improvement by applying the HOME meth-



ods, it must seek competitive advantage in the market by improving the qualityof the employment relationship with its work-force. If HOME methods are basedon the two principles and applied throughout a company, the chances improvefor raising profitability, effectiveness and competitive advantage.

Figure 9.2 and Figure 9.3 show that the central aspect of organisational cultureis adaptation. Business strategies and top managers come and go, but successfulcompanies adjust to the driving forces in their industries. One of the ‘facts oflife’ for any company is its stage of development in the ‘organisational life-cycle’.As much as, or more than culture, this driving force influences the strategic andfinancial success of companies. We will take this subject up next.

9.2 Organisational Life-Cycle Theory

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

Table 9.2 The life-cycle of the firm

Features Inception andstart-up ops

Rapid growth andmarket expansion

Steady growth andmarket maturity

Consolidation anddecline

Structure No formal piecemeal Decentralised,morelayers

Centralised, formalmore layers

Rigid, top heavy,complex

Communicationpattern

Informal andface-to-face, fewbarriers

Budgets, audit trails,emerging rules andregs

Formal, long-range,formula-driven

Breakdown,poor downwardcommunication

Decision style Individual andentrepreneurial

Professional andmanagerial

Professional andmanagerial

Emphasis onprocess vs. results,boss-centred

Rate of growth Uneven, rapidor episodic(with productintroductions)

Rapid, positive andsustained by productline expansions

Slowing or stoppedand emphasis onprocess gains (costreductions)

Shrinking in corebusiness areas;profit and marketcapitalisation decline

Hierarchicalcomplexity

Low Increased verticalcomplexity

Excess verticalcomplexity andrising administrativecosts

Significantdelayeringand excessiveadministration costs

Age, size andresponsiveness

Young, small andflexible

Larger with separatedivisions (nodiversification)

Large, productdivisional structureand diversification

Shrinking andunwinding ofdiversification



The changes shown in Table 9.2 underscore the fact that organisations, asthey age, become more formalised, complex and differentiated. These qualitiesdescribe the three stages, but they need not cause decline. The table stressesthe related features of the duration of each stage and the types of changesexperienced by companies in a particular stage. Since the duration of a particularstage is highly variable, it is impossible to specify how long each stage willlast.10 Companies can have short life-cycles with missing or very short stages. Ifa company produces a single product that creates a fad, it may grow rapidly andthen decline quickly if it has not diversified its product line. Some companiesskip maturity and swoon directly into decline.

The types of changes experienced by organisations and their leaders alsodiffer according to the stage of the organisation’s development. For instance,Dell Computer is, now, after 11 years of unprecedented growth, a very differentcompany from the one founded by Michael Dell in his University of Texasdormitory room. The company started by Mr Dell began as a computer repairand components business run by the then-college sophomore. By 1994 Dellwas a $2.8bn company which was building and shipping PC clones world-wide through its highly successful direct marketing approach. By late 1994, thecompany was experiencing cash-flow problems and Mr Dell, at the ripe old ageof 34, was rethinking his management of the company and its structure andsystems. While he still is the company’s largest stockholder, CEO and Chairmanof the Board, he has created and filled numerous high-level executive positions.He has reined in general sales and administrative expenses and greatly improvedthe company’s cash flow. He has managed this while the company has risenfrom the fifth largest to the fourth largest maker of personal computers. Dellstock is trading at the top of its range and investors look forward to healthyearnings based on expanding domestic and global sales.

The example above highlights how the experiences of a highly success-ful entrepreneur and his company are very different during the late high-growth/maturity phase and the inception phase. By the time Apple ComputerCompany was a $1bn company, its founder, Steven Jobs was only a large stock-holder. Likewise, Mitchell Kapor, founder of Lotus Development Corporation,had walked away from Lotus, once it had about 1300 employees and world-wide sales of $275m. In 1995 IBM purchased Lotus for a record $3.6bn, payinga 65 per cent premium for all of the outstanding Lotus stock. These examplescan be linked by the idea that not all companies survive and prosper under theindividuals who founded them. Not infrequently, new, highly successful com-panies grow beyond the capacity of the founder to manage them successfully.Mr Dell seems to be the exception to this rule. He has the managerial skillsneeded to make his company successful during its continued high-growth phase.Other founders lose interest in the challenges of being an executive (instead ofa product innovator or designer) and major stockholders or creditors of thecompany force them to step down when the company encounters a period ofpoor performance. This was the case in the Mrs Fields Cookie Company exam-ple (Case Study 7.2, Module 7). More often than not, a restless entrepreneurwelcomes the change and simply goes on to build another successful company.



While decline is shown in the model, it is not an inevitability for maturecompanies. Rather, it may happen to any company which loses its adaptivenessregardless of its life-cycle stage. Managers who are alert to organisational declineshould watch for changes in these 14 factors:

1 Excess personnel (and excessive job classifications).2 Tolerance of incompetence (failure to dismiss poorly performing employees).3 Cumbersome administrative procedures (excessive red tape and regula-

tions).4 Unusually powerful staff who overwhelm line decision-makers and deride

them as conventional and unsophisticated.5 Form over substance, e.g., the planning system and its rules become more

important than the results of planning.6 Few clear goals and criteria for measuring organisational success.7 Reluctance to tolerate conflict or preferring harmony over disagreement in

spite of its potential damage to decision-making.8 Loss of effective communication and excessive centralisation of decision-

making.9 Outdated organisational structure.10 Increased scapegoating by leaders (a rise in political behaviour at the top of

the management hierarchy).11 Resistance to change.12 Low morale.13 Special interest groups become more vocal (resist changes in technology and

methods).14 Decreased innovation (fewer new products are developed and introduced

in the market).11

By monitoring the 14 indicators of decline, successful managers can try toprotect their companies against decline when the company is highly successful.The number one reason for organisational decline is a management team thatis over-confident and inattentive.12 Once an organisation is in decline, the man-agement team that presided over the decline will not be able to marshal peopleand resources to stop it. Building an adaptive company culture during the earlystages of the life-cycle is the best way to ward off decline.

9.3 Organisational ChangeWe all know from personal experience that organisations adapt and change. Forinstance, your favourite sports team adds new players, changes coaches or man-agers and convinces the city fathers to build the team a new stadium. Likewise,companies acquire undervalued or poorly managed firms and begin the processof removing unproductive managers, selling unprofitable assets and improv-ing customer service. This is the evolution of organisations. They are neithergood nor bad. However, the way the changes are implemented and managedis crucial for employees and the customers they serve. The implementation andmanagement of organisational change is the focus of this section of the module.



9.3.1 Why Do Organisations Have to Change?

All organisations must interact with a task environment composed of suppliers,customers, competitors, regulatory agencies and social interest groups. Thetask environment presents the focal organisation with the task of managingenvironmental uncertainty which is composed of environmental complexity andenvironmental change. Environmental complexity refers to the number andvariety of external constituencies which an organisation faces. Environmentalchange refers to the stability of the constituencies and whether or not they changerapidly or slowly over time. These two dimensions of the task environment canbe combined as shown in Figure 9.4.

LOW UNCERTAINTY LOW MODERATEUNCERTAINTY

HIGH MODERATEUNCERTAINTY

HIGH UNCERTAINTY

Beer distribution

Hotels

Legal services

Fashion design

Advertising

Public utilities

Government agencies

International finance

Computers

Telecommunications

Simple Complex

Environmental complexity

Stable

Environmental

change

Shifting

Environmental uncertainty

1

3

2

4

Figure 9.4 Understanding environmental uncertainty

Figure 9.4 shows that task environments create forms of uncertainty whichchallenge managers to develop plans for implementing and managing change.Moving from the upper left-hand corner to the lower right-hand corner of thefigure, environmental uncertainty increases at a geometric rate. Organisationswhich face high uncertainty must plan actively to manage change. Thus theymust have the ability to monitor and survey their environments constantly.Organisations must be engaged in a proactive search to anticipate rather thansimply react to environmental change. To meet the challenge of externallyinduced change, organisations can try several things.

1 Change goals and strategies. Organisations may introduce new productsand services, or segment markets. These are examples of changes in goalsand strategies. The development and marketing of the distance-learningMBA programme by Heriot-Watt University is an example of changinggoals and strategies.

2 Technology. The introduction of an e-mail system to facilitate communica-tion and to reduce the load of paperwork in an organisation is a change inorganisational technology. The displacement of 20 per cent of the work-forcein an insurance company due to the use of computer-based expert systemsis another example.



3 Structure. Organisations can modify themselves by changing from a func-tional to a product or territorial design while shifting from centralised todecentralised decision-making. Hewlett-Packard underwent a major struc-tural change when it moved many corporate employees to plant and fieldoperations to speed up its decision-making and customer service.

Change can also be provoked by shifts in the internal environment of theorganisation. Indicators of poor organisational health such as diminished pro-ductivity, increased customer complaints, increased absenteeism, increasedgrievance rates and strikes all point to problems which may emerge as anorganisation attempts to deal with its external environment. Organisations oftenimplement and manage change triggered by these forces by installing one or allof the changes noted below.

1 Job design. The work performed by individuals or teams can be modified toprovide more opportunities for satisfying the needs of employees. At eitherlevel, jobs can be altered to provide more variety, autonomy, feedback,significance and social interaction.

2 People. The organisation improves the quality of service and speeds updecision-making by developing a programme of employee empowermentbased on the use of self-directed teams. Significant expenditures are usuallymade in employee training to make these improvements succeed.

3 Control systems. The organisation can alter its performance appraisal andreward systems. These changes encourage new behaviours which employeesbelieve will result in their receiving rewards which they value.

Experts in organisational change agree that managing corporate transforma-tions requires changing the behaviour of employees and organisational culture.13

The belief is that successful firms adapt their cultures quickly to fit new internaland external environmental realities. Beer defines three conditions which mustbe managed to make a successful corporate transition.13

1 Dissatisfaction with the status quo among employees who must changetheir behaviour.

2 The need for a model or vision of the future, which will guide theredesign of the organisation.

3 The need for a well-managed process of change to help employees modifytheir attitudes and behaviour.

Planned organisational change has several qualities which distinguish it fromspecific techniques of organisational change. The major characteristics of plannedchange in organisations are shown in Table 9.3.14

9.3.2 The Planned Change Process

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



Table 9.3 Qualities of planned change in organisations

1 It focuses on a whole organisational unit (work group, department, division or the entireorganisation).

2 It is based on behavioural science knowledge at both the micro and macro levels.

3 It is not associated with business planning or forecasting.

4 It involves the creation and reinforcement of managed organisational change.

5 It uses strategy, structure and process changes in the organisation.

6 It has the primary goal of improving organisational effectiveness.

Unfreezing

Unfreezing occurs when employees feel dissatisfied with the old culture and pro-cesses in the organisation. Unfreezing represents the ‘constructive destruction’of ineffective company processes and features. It may also entail management’srealisation that the company’s work system, training and development system,performance appraisal system or structure do not fit strategy.

Organisational crises are especially likely to stimulate unfreezing because theydemand immediate attention. Likewise, unfreezing may be precipitated by formsof employee discontent which appear as labour grievances, work stoppages,discrimination lawsuits and whistle-blowing. In each case, management hasprobably overlooked an opportunity to reach a settlement. For instance, theMitsubishi Corporation of America is being sued by female workers in one of itsAmerican plants for sexual harassment. The company affirms its tough stand onharassment and refuses to co-operate with government lawyers. The 29 plaintiffsin the case claim that the pattern has been in place at the plant for five years.Mitsubishi’s one production facility has 4200 workers and about 800 of themare women. The $250m suit is the largest sexual harassment case in Americanhistory. This case is a serious threat to the company’s reputation in the USA.Losing this case would cost the company precious market share among Americanwomen and the company would be branded with an unsavoury reputation inthe industry.16

Changing

Changing occurs when an action plan is implemented to move the organisationand its members to adopt new behaviours and accept changes to culture. Aplanned change can be as simple as a product training seminar for sales staffor it can be a restructuring designed to shift the organisation from a centralisedfunctional design to a decentralised service oriented design. For changing tobe successful, the firm must have a model to explain improved organisationalfunctioning, and an employee-supported plan for adopting the model.

Refreezing

Refreezing occurs when newly developed behaviours, work designs, organisa-tional structures and processes are adopted and become permanent parts of thefirm and its culture. During refreezing, the change process can be examined forits subjective and objective successes. Refreezing also includes the transplantingof successful outcomes of the change process to other firm units and subsidiaries.



Key Issues for Managers in the Change Process

Successful management of change requires managers to be prepared to confrontseveral important challenges. Figure 9.5 shows the major elements of the changeprocess. Each aspect of this process and the typical management challenges ineach is discussed below.

Diagnosis

Resistance

Carry-over

Evaluate the results(of change)

Institutionalise change(new culture)

Diffuse the changeto subsidiaries

Thawing out the firm

Changing the firm's featuresand processes

Solidifying a newmodel of the firm

Recognising theneed for change

Selection ofchange methods

Figure 9.5 The key features of the organisational change process

9.3.3 Diagnosis

Diagnosis is the collaborative process between the organisation and a changeagent to bring organisational problems into focus. A change agent is an expertin the application of behavioural science knowledge to organisational diagnosisand change. Diagnosis is an integral part of the unfreezing process and it isusually triggered by an internal or external event which has created uncertaintyfor managers. Diagnosis need not be reactive. For instance, some companies use360-degree performance appraisal systems to uncover problems in self-directedteams. Data from this appraisal method detect problems before product orservice quality are affected.

An effective analysis of organisational problems requires the use of a multi-level diagnosis. This examines problem symptoms at the organisational, groupand individual/job levels of functioning. Using the multi-level approach to diag-nosis is reasonable because symptoms of ineffective organisational functioningappear throughout the firm. If the change programme planners fail to recognisethe symptoms of poor functioning in levels of the firm, then they run the risk ofdeveloping solutions that do not address all of the causes of poor functioning.Table 9.4 shows the features which should be diagnosed at each level of theorganisation.

A diagnosis can be made more effective if the change agent uses a steeringcommittee to guide it. A steering committee is composed of members who arehigh performers, are respected by their peers, have an interest in the effectiveness



of the firm and have excellent communication skills. It is indispensable forsustaining an effective diagnosis and for moving successfully through the stagesof planned change. The steering committee is temporary and it lasts as long asthe programme of planned change. It reports to upper management and it haslatitude to make decisions about the change process shown in Figure 9.5.

Table 9.4 Multi-level diagnosis in planned change

Diagnosis at the organisational level entails the examination of:

1 The history of the organisation including critical events which shaped it.

2 The product and service mix.

3 The nature of the external environment and those components on which the organisationdepends heavily.

4 The organisation’s resources in terms of capital, technical capability and people.

5 The strategic plan.

6 The extent of vertical and horizontal differentiation.

7 The extent of vertical and horizontal integration.

8 The characteristics of the organisational communication system.

9 The characteristics and number of output measures.

Diagnosis at the team level entails the examination of:

1 The basic tasks of work teams.

2 The systems in place to back up work team processes (performance appraisal, reward,goal-setting).

3 Teams which manage core processes.

4 The effectiveness of team problem-solving processes.

5 The management of conflicts among teams.

Diagnosis at the individual/job level entails the examination of:

1 The diversity of the work-force.

2 The leadership styles of key executives.

3 The motivational basis for job performance.

4 The level of job satisfaction.

5 The extent of employee empowerment.

9.3.4 Resistance

Resistance happens when employees fear that the personal and organisationalcosts of change will exceed the benefits. They feel that they or the organisationor both are threatened by the change. The other side of the resistance ‘coin’is preference for the status quo. It may be so comfortable that employeesfear any alterations, which might cause 1) economic uncertainty, 2) knowledgeobsolescence, 3) loss of personal power, 4) increased conflict or 5) changes inwork relationships. Resistance is usually asymmetrical in terms of organisationalpower. Those who resist the change are often better organised and more vocal intheir resistance than those who advocate change and improvement. The ‘burdenof proof’ falls upon the advocates for change and they have to convince everyonethat change is for the best.

Resistance to change can be reduced by involving those who are affected bythe outcomes of the planned change. A change strategy should emphasise the



importance of employees ‘taking ownership’ for the process and its outcomes.An effective steering committee helps make planned change participative. Excel-lent examples of managed employee participation in planned change include:1) designing performance appraisal systems, 2) setting up individualised fringebenefits programmes, 3) designing cost-saving programmes which generate workgroup bonuses for productivity gains, 4) employee empowerment programmesdesigned to improve service quality, 5) total quality management programmesand 6) installing self-directed work teams.

All change programmes need not be participative. Participation in changeprogrammes becomes less important if: 1) time is crucial or a crisis exists, 2) topmanagement has all the information necessary to make the decision to implementthe change, 3) the outcomes of the change programme will have little effect onemployees, 4) employee acceptance of the change is not crucial for changeprogramme success and 5) employee skill development is not a significant focusof the change programme. These aspects of participation management are atthe heart of the Vroom–Yetton–Jago Normative Model that was presented inModule 6.

9.3.5 Carry-Over to the Work Setting

Some change programmes are conducted off the work site and participatingemployees are supposed to sustain the behaviour change back on the job. Yourfirm may send middle managers to university-based training programmes tolearn just-in-time inventory control, total quality management, self-directed teamdesign and service quality improvement. In other cases, employees may be sentto other divisions to learn about new methods which the company expects theemployees to implement in their work units. For instance, one division may basepart of its employees’ pay rises on the new skills which they learn each year. Themethods for designing and implementing a ‘skill-based compensation system’may require several training sessions for employees who must implement it intheir divisions. In other instances, a company may send teams of managers toteam-building workshops where they improve their group’s problem-solving.

In these situations, the transfer of learning is imperilled if the newly learnedbehaviours, methods and procedures are not reinforced in the work settingwhere they are required. The key question is: ‘What must be done to cause theeffective transfer of new behaviours and learning to the work environment?’Research suggests that the successful transfer of new behaviours, knowledgeand attitudes to the work setting depends on:

1 The elements in the change process correspond to specific features of thework environment.17

2 The change is perceived to be immediately useful in the work environment.18

3 The changed attitudes or behaviours are supported by others in the workenvironment.19

To illustrate the three points, assume that management believes that a Scanlonprogramme needs to be developed to reduce waste and to improve productquality. The programme would have a greater chance of success if all affected



employees believed that waste and product quality were serious problems.Further, if employees think a set of measurement criteria could be developed toassess employees’ effectiveness in lowering waste and raising product quality,then the change would have a greater chance of success. Finally, if employeesand managers in other work units liked the programme and inquired about theireligibility for a similar one, the chances for success in all work units would rise.

The carry-over problem is solved by motivating newly learned behaviours.New behaviours learned in a change programme must be reinforced by man-agers and co-workers in the work setting. Thus, managers must understandand value the new behaviours and reinforce them in subordinates. This canbe accomplished by creating ‘assignments’ which are designed to extend pro-gramme learning to the work setting. The assignments involve manager andemployee teams who are responsible for implementing action plans developedin the off-site work. They bridge the gap between the ‘learning environment’and the ‘work environment’.

Overcoming the Carry-Over Problem

A number of companies have created their own methods to overcome thecarry-over problem. Motorola Corporation of Schaumberg, Illinois has created‘Motorola University’ to conduct all of its employee and executive training in-house. All Motorola employees receive 40 hours of refresher training annually.Motorola University customises its training programmes by simulating manage-rial systems, production methods, customer satisfaction systems and work teamprocesses. The faculty is made up of consultants, engineers, scientists and formermanagers. In 1993, the company spent $130m on education, or about 3.8 percent of total payroll. It is hard to argue with the results of Motorola University’ssuccess in training. Over the last five years the company profits have increased47 per cent and sales per employee have doubled. The company estimates thatevery $1000 spent on employee training returns $30 000 in increased productiv-ity over a three-year period. Such production upgrades and the elimination ofwaste resulting from training have produced savings of $3.3bn, and a highlymotivated and committed work-force.20 The example of Motorola University hasimplications that go well-beyond the solving of the carry-over problem.

9.3.6 Evaluation

Once organisations begin to benefit from change programmes, managers areoften so pleased with the results that they pay little attention to understandingwhy the successes occurred. Managers are often willing to judge a programme assuccessful on the basis of the ‘good reactions’ expressed by employees who par-ticipated in it. This is known as anecdotal success. While it is important, it tellsmanagement very little about the soundness of the improvement programme’sgoals or the quality of its implementation process. Additionally, managers arequick to try change programmes which have become popular in their industry.The adoption of such ‘fads’ never leads to thorough programme evaluation. Thisis particularity true since the fads are often installed in organisations withoutany diagnosis. At best, fads superficially ‘skim the surface’ of symptoms of



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

Table 9.5 How to tell if the OD programme did any good

Desired change areas Indicators of successful change

Employee attitudes andfeelings

Employees describe the programme as worthwhile andsatisfying

Employees show more work involvement

Employees are more committed to the firm

Employee knowledge Employees demonstrate new skills

Employees describe the co-workers as more skilled andcapable

Employee behaviour Employees say that they have new problem solving skills

Employees use new methods on the job

Customers Customers say service and quality are better

Better response times for service delivery

New forms of product and service customisation

The firm Rising productivity

Lowered absenteeism and turnover

Lower grievance rate

Improved quality, less waste and fewer defects

One final distinction regarding programme measurement is necessary. All ofthe outcomes shown in Table 9.5 refer to the effects of the planned change. Noneof them captures the effectiveness of the implementation process. Therefore, asteering committee would need to suggest the value of assessing the quality of aplanned change process. Such measurements might include cost considerations,the time necessary to meet programme milestones, employees’ satisfaction withthe nature of the change process and top management’s judgement of theprogramme’s ease of installation.

9.3.7 Institutionalisation

If a change programme achieves favourable outcomes, the firm will want tomake the change a permanent part of its systems, culture and structure. Whenplanned change achieves institutionalisation, it becomes part of operations inspite of managerial succession, attrition or other alterations in other aspects ofthe organisation. Institutionalisation becomes less likely if:



1 Formal evaluation of the programme is not conducted.2 The change programme is not multi-level (addresses lower, middle and

upper management issues) and multi-method (addresses individual/jobcharacteristics, group process issues and organisational design issues).

3 The change programme takes too long to complete.4 The change programme does not involve constituencies outside the organi-

sation.5 Promised rewards are not provided.6 The change programme generates employee expectations which cannot be

met (e.g., promotion opportunities do not increase).7 New members are not exposed to the programme, i.e., it ignores organisa-

tional culture.8 Key ‘idea champions’ who support the change programme leave the firm.9 The organisation’s environment changes in some way or profits decline and

cause management to abandon institutionalisation.

9.3.8 Diffusion

Most change programmes do not include the entire organisation. They startsmall and build momentum during the early project successes. Diffusion refersto the institutionalisation of the change throughout the firm. Walton has studiedthe diffusion process for change programmes in Volvo and Shell UK These pro-grammes were very extensive and broad based. The programmes’ characteristicshad several common features.

The work restructuring approach pursued in the companies embraces manyaspects of work, including the content of the job, compensation schemes, scopeof worker responsibility for supervision and decision-making, social structureand status hierarchy. The design of each element is intended to contributeto an internally consistent work culture: one that appropriately enlarges theworkers’ scope for self-management, enhances their opportunity for learningnew abilities, strengthens the sense of connectedness among workers, increasestheir identification with the product and manufacturing process and promotestheir sense of dignity and self-worth.21

Walton noted that diffusion is not guaranteed. The Volvo programme expe-rienced significant diffusion, and changes became an operating characteristic ofthe company’s culture. It also did not hurt to have the company president (PeyrGyllenhammar) fully behind the programme. He wrote a book entitled People atWork which detailed the Volvo experiment in work design for semi-autonomouswork groups. In this case, publicity and a high-level idea champion aided thediffusion process. Walton identifies seven factors which can undermine diffusion:

1 Low support and commitment from top management. In many cases,executives give permission for planned change, but they do not becomeinvolved personally.

2 The work methods in the focal unit differ from other units, promptingparticipants to conclude ‘It won’t work here’. If the programme uses asteering committee, some of these arguments can be headed off.



3 The change agent becomes preoccupied with diffusing a particular tech-nique rather than the goals for change which can be adapted to otherwork units.

4 No rewards are provided for successfully managing the change pro-gramme. This means that the company continues measuring performancethe old way and fails to recognise those employees who made the changeprogramme successful.

5 Labour undermines the programme because it believes the programmewill weaken its hold on employees. Placing labour representatives on thesteering committee avoids this.

6 Concern that projects begun in non-unionised locations will fail to beimplemented by unionised locations.

7 Conflict between the operating characteristics of the work unit undergoingthe change and the bureaucratic machinery in the rest of the organisation.A feature of many successful OD programmes is less bureaucracy. Thisoften proves to be a threat to ‘home office’ managers who do not believefield units can be effectively decentralised.

9.4 Methods of Change in Organisation Development

Organisation development (OD) is a science, an art and a set of methods forchanging how organisations function. Some of the confusion about OD occurswhen managers fail to recognise that all three elements must coexist. With thisdisclaimer made, the following definition of OD is offered: OD is a system-wideapplication of behavioural science knowledge to the planned development andreinforcement of organisational strategies, structures and processes for improvingan organisation’s effectiveness. A strong emphasis is placed on interpersonal andgroup processes.14 The definition stresses the application of behavioural scienceknowledge. This distinguishes OD from other change strategies which mightrely on the use of knowledge in accounting, engineering or marketing. It ispossible, however, that projects designed to change accounting, marketing orengineering procedures could also use behavioural science knowledge. The factthat change is planned differentiates OD from random, chaotic or disjointedevents in organisations. OD emphasises interpersonal and group processes.The field emphasises improvement in managerial style and the effectivenessof work group problem-solving. Finally, OD rests on the assumption that allorganisational change affects employee behaviour.

As we just noted, a change agent assists organisations in managing the changeprocess. Change agents are usually motivated by a set of assumptions whichunderlie OD itself. The assumptions are noted below.

1 Employees are growth seeking and they desire self-fulfilment.2 Employees can assume delegated authority and they try to contribute to

organisational goals.3 Open and honest communication in organisations is desirable.4 Most organisations can benefit from improved trust and co-operation.22



While these four items are often viewed as professional assumptions held bychange agents, other OD experts believe the change agents’ assumptions shouldbe less assertive and should focus instead on: 1) helping a firm to generate validdata about its current operations, 2) helping employees clarify their desiredoutcomes and 3) helping a firm make strategic choices based on a diagnosis (seeTable 9.2) of their current state and desired outcomes.22

9.4.1 Examples of Change Methods in OD

When organisations change themselves, there are many OD methods to choosefrom. OD change methods can be classified as: 1) interpersonal and group (OD’sorigin), 2) systemwide process changes and 3) Grid OD. Large-scale changeprogrammes in organisations often include methods from all three categories.

9.4.2 Interpersonal and Group Change Methods

Interpersonal and group-based OD techniques were initially developed by theNational Training Laboratories in Bethel, Maine in the late 1940s. Under thesponsorship of the Office of Naval Research and Massachusetts Institute ofTechnology, Kurt Lewin and his colleagues developed the T-group procedure.23

T-groups or sensitivity groups change methods concentrate on the interactionin face-to-face groups. These encounters are managed by a change agent (facili-tator) to provide members with realistic experiences in interpersonal relations.14

If the group’s purpose is to help members gain deeper personal knowledgeand development, then the group is referred to as an encounter group. Whileencounter groups are uncommon in industrial applications, they are widespreadin society. They are used in psychotherapy and drug rehabilitation programmes.Support groups are problem-focused groups which unite individuals and pro-vide support for a problem shared by its members. Examples of support groupsare Alcoholics Anonymous, Weight Watchers, groups composed of divorcedparents and groups of parents with handicapped children.

T-Group Procedure Used in Industry

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



However, most facilitators agree that some sustained level of anxiety is necessaryto cause change and personal learning. Table 9.6 shows the goals in most traininggroups. It also shows some of the problems that occur when firms try to improveworking relationships using T-groups.

Table 9.6 Why T-groups do not work in firms

T-group goals do not align with profit-making and other important goals:

1 Emphasise personal style and others’ feelings instead of profit and performance

2 Personal awareness is more important than improved work methods

3 Group influence process are changed without consideration of profit making andperformance relationships

4 Member satisfaction and cohesiveness may actually undermine the firm’s performance andgoal attainment

T-group applications may trigger these problems in profit making firms:

1 Negative, personal feedback among T-group participants may undermine existing workrelationships

2 The learning in the T-group environment may not transfer well to the work setting

3 There are few documented studies that show how firms have benefited from T-groupapplications

4 T-group applications are perhaps more useful in the limited area of stress managementpractices

Observers and T-group facilitators argue that the method can improve organ-isational functioning if four conditions exist: 1) the T-group must be structuredand problem-focused so that learning can be transferred back to the work set-ting, 2) the use of T-groups should be tied to an ongoing OD intervention, 3)T-group activities should probably be confined to the beginning of an interven-tion (to help unfreeze the organisation) and 4) the culture of the organisationmust support the use of T-groups.24 The organisation’s culture must support andencourage conflict confrontation (rather than suppression), employee empower-ment and information-sharing.

Team-building has been developed in response to the problem of carry-overin T-groups. It focuses on work groups, project teams or newly created workunits which must work together to achieve organisational goals. A task orientedmethod of work group process improvement, it emphasises the solving of realorganisational problems. Team-building objectives are summarised in Table 9.7.

Table 9.7 Objectives of team-building

1 Developing methods to make decisions and set goals.

2 Handling conflict between project teams and functional units.

3 Improving relationships between the group’s manager and its members.

4 Solving product or service quality problems.

5 Integrating new members in formal or project groups.

6 Clarifying job requirements and work expectations for members.

7 Attacking departmental or organisational co-ordination problems.



Typical Steps in a Team-Building Programme

There are several variations in the use of team-building. A typical applicationmight contain these steps:

1 Team-building workshop. Off-site structured group exercises unfreeze atti-tudes and prepare the groups to accept change.

2 Data collection. Team members fill out a questionnaire to measure culture,leadership styles and facets of job satisfaction.

3 Data confrontation. Change agents present work teams with step 2 data.Using group problem-solving, the teams develop lists of recommendedchanges.

4 Action planning. The teams develop specific plans to bring about thechanges isolated in step 3.

5 Team-building. Barriers to effective work group decision-making are iso-lated and solutions are developed.

6 Intergroup team-building. Teams with interdependent goals establish col-laborative methods to handle them.25

Organisations which regularly assess the fit between culture and mission,goals and strategy, find that team-building is an excellent tool for ensuringthe fit between these crucial elements in organisational effectiveness. Managersrecognise that team-building should be a regular process for diagnosing andattacking problems before they threaten integration in the firm.

9.4.3 System-wide Process Change

Survey feedback is a widely accepted form of system-wide process change. Itconsists of collecting questionnaire data from employees, summarising the data,feeding them back to employee groups and then using the groups to diagnoseproblems and develop action plans to solve them. The basic steps in the surveyfeedback method are as follows.

1 Top management sets up a steering committee to assist a change agentwho develops a valid organisational survey and interview procedure to beadministered to employees.

2 The survey is pilot-tested on the steering committee and selected employees.After modification, it is administered to the work-force to gather survey datain a specified period of time.

3 Off-site, the change agent analyses the data (to ensure the confidentiality ofparticipants).

4 Results are fed back to the firm by following a ‘cascading’ procedure. Thefeedback sequence is: steering committee; top management; division man-agers and department managers; self-directed teams or individual employ-ees.

5 The heads of work units and their employees construct action plans toaddress problems detected by the survey analysis.



6 Using the action plans, the change agent and the steering committee presenttop management with a list of change priorities.

7 The steering committee and change agent work with units to install actionplans.

8 Programme evaluation is conducted to assess change in employee reactions,learning, behaviour and organisational outcomes.

In survey feedback the steering committee can design a questionnaire with thehelp of the change agent; or a pre-packaged, standardised survey such as theSurvey of Organizations (developed by the Institute for Social Research, Universityof Michigan) can be used.26, 22

The Survey of Organizations covers communications, decision-making, leader-ship style, employee satisfaction and other organisational aspects. The dangerin using pre-packaged surveys is that they may overlook unique features ofthe firm under study and members may devalue the information from thesurvey because it misses key issues. Survey feedback is much more than thetechniques of questionnaire design, data-gathering, survey analysis and feedingback results. Effective survey feedback assumes that meaningful team-buildingactivities will facilitate the process through each step noted above. The biggestflaw in most survey feedback programmes is the mechanical application of eachstep. Change agents and steering committees sometimes respond to requeststo conduct a survey only to find top managers disregarding survey results.The illustration below shows how a survey feedback programme can lose itseffectiveness.

A team of change agents was asked by the partners of a small software manufacturerto help them improve company functioning. The change agents interviewed upperlevel managers which led to the preliminary diagnosis of ‘poor communication’ inthe company. In a meeting, the change agents encouraged managers to organisea steering committee of respected and concerned employees who had an interestin improved company-wide communications. The partners rejected this suggestionand encouraged the change agents to ‘develop a survey and gather data as quicklyas possible’. The change agents selected a pre-packaged ‘communications audit’questionnaire for use in the project. The partners found the device to be inadequatein several ways, but the decision was made to administer it anyway. None of thepartners filled out the survey.

Two months after the survey was administered, the results had been analysedand were ready for distribution. During that time, company sales had fallen sharplyand several key department heads had resigned. In spite of low commitment to thefeedback process, the partners continued to back the OD project and the feedbackprocess started. The change agents worked to convince employees and managementto accept the data and to take responsibility for change in their work units. Theyorganised the data by work units, fed it back, trained supervisors in how to developa plan to correct problems shown by the data, and kept the partners informedof project progress. Despite these efforts, a number of problems developed in thefeedback and planning stages.

1 Supervisors and department heads ducked responsibility for change. Theyrelied on the change agents to ‘tell us what to do’.



2 The change agents found themselves defending the project to work unitemployees at a time when the work units should have been working on actionsteps to correct problems.

3 During feedback sessions, employees were preoccupied with specific question-naire items and some expressed doubts about the survey’s validity.

4 Some supervisors expressed the opinion that the partners were not personallycommitted to the change process since they had not filled out the questionnairethemselves.

5 Some units complained about the fact that the feedback meetings lackeddirection.

The change agents did a post mortem on the project and reached several conclu-sions. First, they thought that they should have been more directive and insistedon the creation of a steering committee which would have taken responsibility fordeveloping a more relevant survey tool. Second, the change agents thought theyshould have insisted on top management’s direct involvement with the differentphases of the project. Third, they knew they should have used a questionnairemodified to fit the needs and language of the company. Fourth, they should haveadjusted the survey feedback process to reflect changes in sales and employeeturnover. More effort should have been made to involve middle management inthe project so that they would have a stake in the outcomes of the project.

The example illustrates how easy it is for change agents (and the organisation)to get caught up in the technology and milestones of a survey feedback pro-gramme and forget that survey feedback is really a programme of organisationalself-examination. The change agents also overlooked the importance of commit-ment and involvement at the crucial levels of top and middle management.When change agents are caught up in the ‘technology’ of survey feedback andtop management is looking for quick results, the self-examination portion of thechange process is lost.

9.4.4 Grid Organisation Development

Grid OD is a comprehensive, long-term effort directed at changing the entireorganisation. It was developed by Robert Blake and Jane Mouton of ScientificMethods Inc.27 The basic assumption of the method is that company success canbe achieved only if there is a simultaneous concern for high performance andthe maintenance of a psychologically healthy work environment. The Grid ODprogramme is called a pre-packaged OD method, because it follows a diagnosticprocedure which always leads to emphasis on concern for performance andconcern for people (see Figure 9.6).

Grid OD follows a six-step procedure. It may take a large organisation severalyears to complete all six steps. The first three steps are designed to removecommunication barriers while the last three are designed to foster better planningand goal-setting. The steps are briefly described below.

1 Grid seminar. This is a structured team-building activity designed toencourage unfreezing by having participants diagnose their own managerialstyles. Top managers usually attend the Grid seminar first.



2 Intragroup development. Work teams attend seminars designed to extendGrid concepts to improve team decision-making processes. This step includesan analysis of group decision-making capabilities and obstacles to effectivegroup decision-making.

3 Intergroup development. Work groups which have high co-ordinationneeds work through a set of structured activities to break down communi-cation barriers. The emphasis in this phase is on intergroup co-operation.

4 Development of an ideal strategic model. This phase focuses on deepeningunderstanding of co-ordination needs and on developing an ideal modelwhich represents where the organisation would like to be in terms offinancial goals, structural design and employee satisfaction. The model isdeveloped by top managers.

5 Attaining the ideal strategic model. Task-forces are created to develop aplan for closing the gap between the organisation’s current level of func-tioning and the ideal model developed by top managers.

6 Stabilisation and process critique. The results of changes are evaluatedusing quantitative data by internal evaluation project teams and external,independent evaluators.

The longevity of Grid OD suggests that it is more than a fad to practisingmanagers. However, there are potential problems in it. First, due to its pre-packaged nature, it may not suit all firms. Second, many firms do not finish allsix steps because key events can cause managements to suspend Grid work. TheGrid OD system is vulnerable since it does not account for such contingencies.Third, Grid OD has many phases and changes in each phase. This makes ithard to figure out which elements in the various steps have caused favourableoutcomes.

9.4.5 Does OD Work?

In the previous sections of the module, we have reviewed the characteristics ofseveral OD methods. A successful OD plan depends on matching the methodand the depth of the intervention. The depth of the intervention refers to howpersonal and behaviour focused (as opposed to impersonal and organisationfocused) the intervention is. Any management should be wary of the claims inall-purpose, pre-packaged OD programmes that ignore the depth of intervention.If the change required is broadly based (i.e., changing an organisation’s culture)then the OD programme must use several methods.

A review of OD programme successes indicates that multi-method approacheshave more positive effects on organisational effectiveness and employees’ needsatisfactions than single-method programmes.28 A review of T-group team-building, job enrichment and job-design programmes concluded that no onemethod was successful in all instances. Improvements in organisational func-tioning were obtained when methods were combined. A successful combina-tion of interventions might be one in which: 1) all employees participated ingoal-setting, decision-making and job redesign, 2) employee empowerment wascreated through self-directed teams and 3) the company was delayered.



Country Club ManagementAttention to needs of people forsatisfying relationships leads to afriendly work atmosphere.

Team ManagementWork accomplishment bycommitted people;interdependence througha 'common stake' in organisationalpurpose leads to relationships oftrust and respect

Organisation Man ManagementAdequate organisational performance ispossible through balancing the necessityof work with maintaining employee morale.

Impoverished ManagementExertion of minimum effort to getrequired work done while justsustaining organisationmembership.

Authority-ObedienceEfficiency in operations results fromarranging conditions of work in such away that human elements interfere to aminimum degree.

9,91,9

5,5

1,1 9,1

CONCERN FOR PRODUCTION

CO

NC

ER

NF

OR

PE

OP

LE

1 2 3 4 5 6 7 8 9

HIGH

9

8

7

6

5

4

3

2

1

LOW

Figure 9.6 The managerial grid

Effective use of OD techniques requires accurate diagnosing of problems,creating dissatisfaction with the status quo throughout the company, selectingthe proper combination of OD techniques and evaluating the outcomes of theprogramme.

Summary Points• Organisational culture is the shared beliefs and values which produce norms

for employee behaviour. It has external and internal aspects. Large firmshave multiple cultures and management must integrate them. Organisationculture is shaped by the founder or chief executive and perpetuated by thesocialisation process.

• Organisations learn to manage planned change because they face task envi-ronments with varying levels of environmental complexity and environ-mental change. Environmental complexity refers to the number and vari-ability of external elements while environmental change refers to the amountof change which external elements exhibit over time. When organisationsdetect environmental change, they alter goals and strategies, technologyor structure. If firms detect a change in their internal environments, theymay alter job design, select different people and train and develop or altercontrol systems like performance appraisal and compensation.

• A strong organisational culture must fit the organisation’s strategic andfinancial goals. The main feature of any strong culture should be adaptabil-ity.



• Organisational culture is reflected in the quality of the employment rela-tionship. It supports organisational culture through history, oneness, mem-bership and exchange.

• The life-cycle model covers inception, growth, maturity and organisationaldecline. Managers can detect and delay the symptoms of organisationaldecline.

• The process of planned change consists of unfreezing existing patterns andstructures in the organisation, changing them and refreezing the changes asnew organisational culture, methods and structure. For planned change tohappen, employees must be dissatisfied with the status quo, the organisationmust have a model or vision of the future and a well-managed process ofchange must be followed.

• Organisational diagnosis is a collaborative process between a change agentand an organisation to create solutions to pressing problems. It is a key partof the unfreezing process. Effective diagnoses are multilevel because theyexamine individuals and their jobs, work group functioning and organisa-tional attributes like structure, co-ordination and culture.

• Resistance to change is a widespread belief among employees that thecosts of change will exceed its benefits. Resistance may be based on: 1)knowledge obsolescence, 2) loss of personal power and 3) changes in workrelationships.

• The carry-over problem in planned change is the erosion of new learningin the work setting when it is not reinforced by managers and workers.The transfer of new learning can be increased if: 1) the change processcorresponds to the work environment, 2) changes are immediately usefuland 3) new attitudes and behaviours are supported by managers.

• Change programmes suffer from poor programme evaluation. Programmeevaluation should assess: 1) employee reactions, 2) employee learning, 3)employee behaviour change and 4) organisational outcomes.

• Institutionalisation is making a planned change a permanent part of theorganisation’s culture.

• Diffusion is the orderly transfer of planned change from one organisationalunit to another. It is jeopardised by low commitment to it by top managers,work unit variability, inversion of OD technique and OD goals, unavailabil-ity of rewards, union sabotage or red tape.

• OD is a system-wide application of behavioural science knowledge to theplanned development and reinforcement of organisational strategies, struc-tures and processes for improving an organisation’s effectiveness. It has astrong emphasis on interpersonal and group processes.

• Change agents are those behavioural science experts who assist organisa-tions in managing planned change and OD interventions.

• OD intervention methods can be classified as 1) interpersonal and groupbased, 2) system-wide process changes, or 3) pre-packaged and processfocused.

• T-groups are the origin of the OD field and they focus on the ‘here andnow’ of interpersonal relations in groups. This intervention is the mostpersonalised and it penetrates most deeply into the organisation.



• A more focused group-based change method is team-building. It is a morestructured method for improving the problem-solving effectiveness of workgroups. Team-building is an important feature of the changing and refreez-ing stages of planned change.

• Survey feedback is a system-wide process change method in OD. It empha-sises the construction of a steering committee, development of a ques-tionnaire, analysis of questionnaire data from employees, feedback of thequestionnaire data, and planning to solve problems brought to notice bythe questionnaire data.

• The Grid OD method is a highly structured, objective process which movesan organisation through six distinct phases in a long-term change process.The first three steps concentrate on improving communications in the organ-isation while the last three focus on planning and goal-setting. The GridOD method is not a passing fad; yet there is considerable confusion aboutwhich elements of the process create positive change.

Review Questions


9.1 The demographic features of a company’s work-force is a determinant ofcorporate culture. T or F?

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

9.3 When management focuses on the fit between organisational culture andstrategy, the property of adaptability is highly relevant. T or F?

9.4 If an acquired firm has a poor fit between its culture and its strategic plan,then it will be easier for the acquiring firm to alter the culture of the acquiredfirm. T or F?

9.5 If there is a good fit between organisational culture and strategic plan, thefounder or chief executive can be less concerned about his role in maintaininga strong culture. T or F?

9.6 From an operational standpoint, the centre of a strong organisational cultureis an emphasis on service to stakeholder groups. T or F?

9.7 Without effective training and development and employee orientation pro-grammes, it is still possible for a company to have a strong organisationalculture. T or F?

9.8 Since the quality of the employment relationship is a key contributor to anadaptive organisational culture, it stands to reason that downsizing and delay-ering may undermine organisational culture in the short run. T or F?



9.9 Organisational life-cycle theory suggests that managers must be alert to signsof organisational decline and that strategy must be developed to stave offindefinitely organisational decline. T or F?

9.10 Companies that maintain a strong culture have socialisation processes whichclearly exhibit the characteristics of the firm’s culture to new employees. T orF?

9.11 The ‘mentoring’ process can be a critical feature of a successful programme fortransmitting organisational culture from one generation of employees to thenext. T or F?

9.12 Organisational structure change is one response to external, environmentaluncertainty. T or F?

9.13 Altering job design and control systems would not be the planned changemethods selected when managers detect changes in environmental uncertainty.T or F?

9.14 Planned change can be successful without creating widespread dissatisfactionwith the status quo among employees in the work unit targeted for change. Tor F?

9.15 Resistance to change occurs in the ‘refreezing’ phase of the change process. Tor F?

9.16 An effective organisational diagnosis focuses on the organisational level whileignoring the group and individual/job levels. T or F?

9.17 If a planned change focuses on the individual/job level, it will still be necessaryto create a steering committee to manage the change process. T or F?

9.18 The most important component of evaluation in the planned change process isthe assessment of employee reactions to the change programme. T or F?

9.19 Team-building does not directly target the nature of interpersonal relations ina work group. T or F?

9.20 If employees judge the benefits of a change programme to exceed its costs,then diffusion has occurred. T or F?

9.21 In a unionised work environment, a change agent can help ensure diffusion ofplanned change by having a union representative serve on a steering committeein charge of overseeing the change process. T or F?

9.22 The T-group method enjoys considerable support as a method of organisationalchange. T or F?

9.23 The carry-over problem is more likely to affect interpersonal and group-basedchange processes than system-wide change processes. T or F?

9.24 Frustration venting is a feature of the process of change in the T-group method.T or F?



9.25 Team-building lessens the carry-over problems associated with T-group training.T or F?

9.26 Data collection is a feature only of the survey feedback approach to OD. T orF?

9.27 The ‘cascading of data’ in the organisation represents a critical aspect of surveyfeedback. T or F?

9.28 Survey feedback could be a standing feature in a programme to assess employ-ees’ acceptance of organisational culture. T or F?

9.29 If a change agent adopts a pre-packaged survey to assess current features ofan organisation, he is less likely to need a steering committee to govern thechange programme. T or F?

9.30 The Grid OD method is best for an firm with managers who already know whatthe key problems are in the organisation. T or F?


9.31 Which of the following is not an important component of organisational cul-ture?

A short history and recent changes.

B shared norms and organisational values.

C symbolism.

D employee socialisation and indoctrination.

E pervasiveness and durability.

9.32 Which of the following is probably not a function of organisational culture?

A shaping employee behaviours through social control.

B reinforcing corporate ethical values.

C building unquestioned employee support for new corporate goals.

D enhancing the value of social, group-based rewards.

E helping new employees make sense of organisational systems.

9.33 A strong organisational culture reflects:

A employee beliefs which are intense and positive about the organisation.

B a restriction on employee creativity and innovation.

C widespread bureaucratic rules and regulations.

D the value of intense competition among employees.

E the importance of personal traits commonly associated with leadershipsuccess.

9.34 The most unlikely basis for an organisation’s culture would be:

A the vision of the CEO or company founder.

B strong mentor–protege relationships throughout the organisation.

C the number and size of company retail outlets.

D reward and promotion systems throughout the company.

E the personal values and business ethics of the founder of the company.



9.35 An example of an external force for change is:

A an increase in the grievance rate among employees.

B an increase in the rate of requests for job transfers.

C government regulation.

D installation of a new system for selecting and hiring job applicants.

E a new organisational structure which relies on a matrix design.

9.36 A person who manages the process of change in an organisation is called a:

A project manager.

B OD Grid manager.

C group facilitator.

D change agent.

E consultant.

9.37 Organisation development:

A is a single-shot programme to change the way an organisation functions.

B is a systematic application of behavioural science knowledge to change theway an organisation functions.

C works primarily to change individual employee behaviour and attitudes.

D uses exclusively principles of OB modification to cause change in organisa-tions.

E is largely confined to interventions which alter either the structure or thestrategy of the organisation.

9.38 All of the following would be subjects in an organisational diagnosis except:

A job design.

B job analysis.

C organisational structure.

D organisational communication systems.

E pay and promotion systems.

9.39 When a change agent wants to reach as many employees as possible to assesstheir opinions about organisational functioning, he should use .

A management by objectives

B total quality management

C survey feedback

D team-building

E the managerial grid

9.40 When an outside change agent provides task oriented assistance to new teamsor project groups charged with achieving organisational goals, he is most likelyto be using .

A T-groups

B OB Mod

C job redesign

D group-based incentives

E team-building



9.41 A support group aims to:

A focus members’ attention on task performance issues and group workgoals.

B improve the quality of face-to-face interactions among group members.

C make the membership more stable by increasing cohesiveness.

D help members better handle a problem shared by all group members.

E broaden the level of co-operation among organisational groups which mustco-operate to get the job done.


9.1 Develop the term organisational culture. What are the most prominent featuresof the concept?

9.2 What differentiates a strong culture from a weak culture in an organisation?

9.3 Organisations adopt programmes of planned change when they detect changesin their task environments. Their responses can include changing goals andstrategies; altering technology; restructuring the organisation; setting up newwork systems; attracting and hiring new people; or altering the control sys-tems. Regardless of the approach taken, what fundamental characteristics mustunderlie any planned change programme?

9.4 Lewin’s change model stresses the three phases of unfreezing, change andrefreezing. Briefly describe the key problems which surface in each stage of hismodel of planned change.

9.5 Practitioners of organisation development (OD) are called change agents. Discussthe importance of the assumptions which govern change agents’ professionalwork relative to the module’s definition of OD.

9.6 The T-group method in OD has not been widely accepted as a successful wayto change organisations. Comment on why it has not.

9.7 How does survey feedback differ from the Grid OD programme?

9.8 Strategy should match competitive advantage and both should be stronglyreinforced by organisational culture. What are the primary fits between strategyand culture that help assure a hard-to-copy competitive advantage?

9.9 Entrepreneurship is probably most necessary during the inception and declinephases of the organisational life-cycle. Why is it usually less common during thedecline phase of the organisation’s life-cycle?



Case Study 9.1: A Turnaround at Tentex

Adrian is an expert in designing management systems. He works for Ten-tex, a manufacturer of computer software and peripheral computer equipment.Recently the company has been experiencing low sales growth, high sales man-ager turnover, quality assurance problems with products and stagnant marketshare. Adrian was placed in charge of a task-force with these goals: 1) improvesales, 2) cut sales manager turnover and 3) design a plan to reduce customercomplaints.

Adrian’s task-force investigated each of the problems by interviewing salesmanagers to get their view of the sales and turnover problems. They learnedthat salespeople and sales managers felt they had little control over pricing and‘too much red tape between them and customer complaints’. Sales personnelfelt it was inefficient to address sales problems by going through a customercomplaints department. Sales managers also believed that their pay systemwas unfair because many salesmen earned more than they could because thesalesmen qualified for commissions while managers could not. To correct thepay imbalance, many managers had gone back to sales or had left the company!They also noted that salesmen really had no incentive to act on customercomplaints because success in sales was not dependent on follow-up customersatisfaction.

The task-force conducted a number of interviews with departing sales man-agers. The major reasons given for leaving were: 1) frustration with the currentincentive system for managers, 2) low company responsiveness to the need forsales managers to act directly on customer complaints and 3) limited controlover pricing.

A Look at Plant Operations

The task-force interviewed plant employees to investigate product quality prob-lems. The interviews uncovered several problems: 1) raw materials scarcity andfrequent purchase of inferior component parts, 2) a ‘who cares?’ attitude amongequipment assembly personnel, 3) widespread belief that a lay-off was imminentdue to sluggish product demand, 4) distrust of management by employees and5) bitterness over a loss of incentive bonuses for rank and file workers. Produc-tion managers had received bonuses but they had been smaller than in previousyears.

After Adrian’s task-force had studied the problems in depth, it was decided toset up a planned change programme with several features. First, a set of ‘changecommittees’ was created with members who were especially interested in gettingthe various problems solved. For example, in the sales division, a committeewas constructed with five salespeople and two sales managers. Adrian also hadrepresentatives from five valued customers meet with the committees to provideinput. Another committee composed of sales managers and company officialswas created to address the related problems of sales manager turnover and payincentives. A production committee was created to address the problems notedby production employees.



Next, the task-force set up a planning task-force to study all of the ideas andproposals generated by the three decentralised committees noted above. Thework of the planning task-force was divided into two phases: 1) assessment ofideas in terms of their impact on the entire corporation and 2) organisation ofcompany resources to back approved change programmes.

Adrian’s group kept membership on the four teams to seven members. Hethen organised a two-day ‘task-force retreat’ with his group and the four teams.The groups spent the first day brainstorming their individual problem assign-ments. Adrian’s team considered all of the task-force ideas and produced asummary. During the morning of day two, the teams re-evaluated their ideasin light of the work done by the other teams. During the afternoon of day two,Adrian’s task-force managed separate sessions with each task-force to help themdevelop action plans for correcting the identified problems. At the end of thesecond day, the planning task-force was asked to present their reactions to theproposals generated by the two sales committees and the production committee.

Two weeks after the retreat, Adrian’s task-force issued a report detailing anaction plan for correcting all of the problems in sales and production as well asthe steps for achieving the goals given to his task-force at the beginning of theproject. The report was distributed to all members of the four committees aswell as those employees who would be affected by the outcomes of the proposedaction plans. Task-force recommendations are summarised below.

Sales Manager Compensation and Customer Complaints

1 Sales manager bonuses would be installed and tied to target goals formarket penetration, sales growth and specific annual targets for increasedlevels of customer satisfaction.

2 The customer complaints department would be abolished and its employeeswould be offered the opportunity to retrain as sales personnel.

3 Authority for pricing decisions would be decentralised and authorisation forprice changes up to five per cent would be made jointly by the salespersonand the sales manager.

Production System Changes

1 The production managers would design a programme to educate suppliersregarding: 1) delivery times, 2) acceptable supply defect rates and 3) pricingof parts. After suppliers completed the training, they would be given sixmonths to conform to requirements or they would be dropped from Tentex’slist of ‘preferred suppliers’.

2 A TQM programme was set up to address production quality and costcontrol problems. Production teams could earn team bonuses equal to 50per cent of the cost savings generated by their improvements.

3 The TENTEX WORLD newspaper was to be initiated in the production divi-sion. It would contain updates on sales, production output, compensationpolicies, success stories on quality circles, etc.



4 A liaison team composed of the plant manager and key production man-agers would be created to advise top management on the creation andinstallation of a productivity bonus programme.

The top management planning committee authorised all of the changes notedabove. Adrian’s team set up an evaluation mechanism which measured pro-gramme success in: 1) employee reactions to the programme, 2) employees’knowledge of all programme changes, 3) changes in employee behaviour and 4)changes in hard measures (turnover, sales and customer complaint rate).

The task-forces acted as liaison teams to the work units which were installingthe changes. The top management planning task-force was kept abreast ofprogramme developments by Adrian who became the change programme co-ordinator. The rest of his task-force members went back to their functional units.They were involved in implementation issues on an ‘as needed’ basis.

1 How is the organisational culture at Tentex impeding progress in sales andproduction?

2 How does Adrian’s change programme address the problems which usuallysurface in planned organisational change?

Case Study 9.2: One Man’s Values Force a Company IntoBankruptcy: The Story of Wang Laboratories∗

The story of Wang Laboratories makes for great theatre. Through the leadershipand vision of a Chinese immigrant named An Wang, Wang Laboratories rose to$3 billion in sales before it went through bankruptcy proceedings in the early1990s. The crash of the once high-flying computer company left unresolvedmany of the questions surrounding publicly held companies which were run asfamily businesses and the obligations that managing families had to employees,customers and shareholders.

After leaving Shanghai and earning a PhD at Harvard, An Wang inventeda magnetic storage device which became the centre of computers prior to theadvent of the memory chip. By 1964, his company had scored a huge mar-ket success with the first version of the desktop calculator. Wang personallyoversaw the development and market introduction of this product. With itssuccess, his judgement of products and markets would go unchallenged as hetook his company to public ownership and numerous sales records. Since hequickly understood the importance of the commodity-like qualities of calcula-tors (low margin, many competitive models with similar product features), hecreated a new product called the Wang Word Processing System. Aligning WangLabs hardware and word processing software gave the company an early andformidable lead in the software word processing wars which are still raging.Between 1977 and 1982 the company experienced unprecedented growth thanks

* Sources: A. Serwer, 1993. ‘Wang Laboratories – Can This Company Be Saved?’ Fortune (19 April): 86–90;‘An American Tragedy’, The Economist (22 August 1992): 56–8; C. Kennedy, 1992. ‘Fall of the House of Wang’,Computerworld (17 February): 67–8.



to the word processing system. During that period its sales grew tenfold andthe number of employees rose from 4000 to 25 000.

Wang’s optimism about his company’s potential was neatly captured by hisbelief that he would overtake IBM by the mid-1990s. During his company’shighly successful 1977–1982 run, he ignored his advisers’ warnings that heshould emulate IBM and produce an all-purpose computer which would runa variety of software besides Wang Labs products. Wang’s specialised wordprocessors and midsized-computers were soon to be smoking rubble due to the1980s onslaught of personal computers developed first by IBM and soon copiedby a host of lower-cost producers. Wang’s market share plunged and once-loyalusers of Wang products complained that they wanted computers which werecompatible with the products made by other computer makers. They were nolonger willing to buy Wang’s proprietary equipment which worked only withWang software. The computer hardware and software markets had changed sodramatically that Wang Labs never recovered from the erroneous judgement ofits founder.

Another critical An Wang mistake was traceable to Chinese tradition. Hewanted a corporate culture which reflected his Chinese, family-centred beliefs.‘As the founder, I would like to maintain sufficient control so that my childrenmight have a chance to demonstrate whether they can run the company,’ hewrote in his autobiography. In a management decision which symbolised histraditional values and his willingness to ignore the advice of the company’sboard of directors, he appointed his son Fred as president of the company in1986. Many board members expressed privately their belief that Fred lacked theexperience and maturity to handle the job. An Wang responded to the critics ofhis decision by saying: ‘He is my son, he can do it.’

In Fred’s short three-year tenure in the job, the magnitude of An Wang’serror became painfully clear. During this time, the company did not introducea single new product and it accumulated nearly $1bn in new debt. By 1989cash reserves had vanished, creditors resisted lending the company any moremoney and An Wang made a very tough decision. He fired his son. A year laterAn Wang died and analysts predicted the imminent failure of the once high-flying computer company. Most agreed that the Chinese tradition of keeping thebusiness, regardless of its size, in the family was a fatal mistake.

Richard Miller, a former high-level General Electric executive took chargeof Wang Laboratories and he immediately took steps to make the Wang Labsculture more flexible and adaptive. He sold non-core businesses, initiated thecompany’s first lay-offs and led the company into the production of compatiblepersonal computer manufacturing. In a deal struck with IBM, Wang Labs agreedto resell IBM machines in exchange for cash. After investors poured $25 millioninto this joint venture, funding was curtailed and Miller had no choice butto take Wang Laboratories into bankruptcy. That decision spelled the end ofMiller’s tenure as company CEO.

In early 1993, Joseph Tucci was recruited from Unisys Corporation to leadWang Labs. By 1993, the company had lost over $2bn and demand for itsproducts was at an all-time low. Tucci recognised that Wang’s tradition as amaker of integrated hardware and software was over. He is now trying to



reconfigure the company as a provider and servicer of imaging software capableof storing computerised documents. Presiding over a company now made up of1800 employees, he knows that he still must deal with the anti-change culturewhich was built by An Wang.

An Wang was a brilliant analyser of markets and developer of products. Hebuilt a successful company with a culture that revolved around his personalvalues and beliefs. That strong culture and its rigid values developed over 40years of leadership under Mr Wang. Many would argue that what made WangLaboratories so successful also caused its downfall.

1 Using the argument of culture fits, develop reasons why the culture in WangLaboratories became dysfunctional.

2 Use the symptoms of organisational decline to prove that Wang Laboratorieswas headed for bankruptcy.

3 How closely does Wang Laboratories conform to the life-cycle theory oforganisations? Please explain.

References

1 Smircich, L. (1983) ‘Concepts of Culture and Organizational Analysis’, AdministrativeScience Quarterly 28: 339–58.

2 Johns, G. (1988) Organizational Behavior: Understanding Behavior at Work, 2nd edn.Glenview, IL: Scott-Foresman.

3 Gregory, K. (1983) ‘Native-view Paradigms: Multiple Cultures and Cultural Conflictsin Organizations’, Administrative Science Quarterly 28: 359–76.

4 Lorsch, J. (1986) ‘Managing Culture: The Invisible Barrier to Strategic Change’,California Management Review (Spring): 95–109.

5 Bray, N. (1996) ‘Merrill’s British Marriage Causes Angst’, Wall Street Journal (19 April):B2.

6 ‘A Straight Talking Tycoon Becomes a Superstar’ (1985) Time (1 April).

7 Pascale, R. (1985) ‘The Paradox of Corporate Culture: Reconciling Ourselves toSocialization’, California Management Review (Spring 1985): 26–41.

8 Kotter, J. and Heskett, J. (1992)Corporate Culture and Performance. New York: The FreePress.

9 Gross, W. and Shichman, S. (1987) ‘How to Grow an Organizational Culture’, Personnel(September): 52–6.

10 Lorange, P. and Nelson, R. (1987) ‘How to Recognize and Avoid OrganizationalDecline’, Sloan Management Review (Spring): 47.

11 Baardwick, J. (1991) Danger in the Comfort Zone: From Boardroom to Mailroom – How toBreak the Entitlement Habit That’s Killing American Business. New York: AMACOM.

12 Cameron, K., Whetton, D. and Kim, M. (1987) ‘Organizational Dysfunctions ofDecline’, Academy of Management Journal: (March): 126–38.



13 Beer, M. (1987) ‘Revitalizing Organizations: Change Process and Emergent Model’,Academy of Management Executive 1: 51–5.

14 Cummings, T. and Worley, C. (1993) Organization Development and Change, 5th edn. St.Paul. MN: West.

15 Lewin, K. (1951) Field Theory in Social Science. New York: Harper & Row.

16 Sharpe, R. (1996) ‘Fighting Back, A Mitsubishi US Unit is Taking a Hard Line inHarassment Battle’, Wall Street Journal (22 April): A1, A6.

17 Gagne, R. (1962) ‘Military Training and Principles of Learning’, American Psychologist18: 83–91.

18 Goldstein, A. and Sorcher, M. (1974) Changing Supervisor Behavior. New York:Pergamon.

19 Fleshman, E., Harris, E. and Burtt, H. (1955) Leadership and Supervision in Industry.Columbus, OH: Ohio State University, Bureau of Educational Research.

20 Henkoff, R. (1993) ‘Companies that Train Best’, Fortune (23 March): 62–8.

21 Walton, R. (1975) ‘The Diffusion of New Work Structures: Explaining Why SuccessDidn’t Take’, Organizational Dynamics (Winter): 3–22.

22 Jick, T. (1993) Managing Change: Cases and Concepts. Homewood, IL: Irwin.

23 Marrow, A. (1967) ‘Events Leading to the Establishment of the National TrainingLaboratories’, Journal of Applied Behavioral Science 3: 145–50.

24 French, W. and Bell, C. (1978) Organizational Improvement. 2nd edn. Englewood Cliffs,NJ: Prentice Hall.

25 Kimberly, J. and Nielsen, W. (1975) ‘Organizational Development and Change inOrganizational Performance’, Administrative Science Quarterly 20: 191–206.

26 Taylor, J. and Bowers, D. (1972) Survey of Organizations: A Machine-Scored Standard-ised Questionnaire Instrument. Ann Arbor, Mich.: Center for Utilization of ScientificKnowledge. Institute for Social Research, University of Michigan.

27 Cummings, T. and Worley, C. (1993) op. cit., 253–4.

28 Nicholas, J. (1982) ‘The Comparative Impact of Organizational Interventions on HardCriteria Measures’, Academy of Management Review 5: 531–42.


Appendix 1

Answers to Review Questions andWorked Solutions to Case Studies

Contents

Answers to Review Questions A1/1

Worked Solutions to Case Studies A1/24

Answers to Review Questions

Module 1

Answers to True/False and Multiple Choice Questions

1.1 T. 1.7 F. 1.13 T. 1.19 F. 1.25 B.1.2 T. 1.8 F. 1.14 T. 1.20 T. 1.26 A.1.3 F. 1.9 F. 1.15 F. 1.21 B. 1.27 B.1.4 F. 1.10 T. 1.16 F. 1.22 A. 1.28 C.1.5 T. 1.11 F. 1.17 F. 1.23 C. 1.29 E.1.6 T. 1.12 F. 1.18 F. 1.24 C. 1.30 B.

Answers to Short Essay Questions

1.1 These employees may not be promotion oriented because of their beliefs thatpromotions (and pay rises) are based on luck and being in the right place atthe right time. They may also believe that promotions and other rewards arebased on favouritism and not performance. They would be less compelledto argue strongly for their points of view in the face of opposition. They mayrespond more quickly in a positive manner to organisational announcementswhich they believe affect them in a favourable way. Finally, they may blamethemselves more quickly when a project or a task fails.

A supervisor can influence an employee’s locus of control by changing: (a)work rewards; (b) job challenge; (c) the relationship between job perform-ance and job satisfaction; and (d) the amount of participation in decision-making that he expects from subordinates.

Organisational Behaviour Edinburgh Business School A1/1

Appendix 1 / Answers to Review Questions and Worked Solutions to Case Studies

1.2 Current analysis of the relationship between performance and job satisfac-tion emphasises that performance indirectly causes job satisfaction throughthe mediating effects of rewards and the perceived equity of rewards.This analysis posits that job satisfaction is an outcome of employee judge-ments about the fairness of rewards provided by the organisation (extrinsicrewards) and by the task at hand (intrinsic rewards). The link is easilybroken if employees believe that: (a) intrinsic or extrinsic rewards are inad-equate; (b) performance is measured poorly; or (c) rewards are unfairlydistributed.

A supervisor can encounter problems if he believes that happy workersare productive workers. He may unduly emphasise social and job securityrewards over direct extrinsic rewards such as pay and bonuses. Also he mayde-emphasise the assessment of performance in favour of employee satis-faction. Those employees who are highly motivated by challenging tasksexpect regular feedback on their performance (they have high achievementneeds). If it is not forthcoming and regular, their satisfaction may drop.Finally, the supervisor who emphasises job satisfaction over performanceforgets the importance of organisational productivity. Ultimately, organisa-tional productivity is a function of individual performance on the job.

1.3 The need for power is the most powerful socially acquired need from theorganisation’s perspective. There are two aspects to the need for powermotive. It can be personalised or socialised. The expression of a person-alised need for power in the organisation leads to disruptive work rela-tions, favouritism, nepotism, distrust among co-workers and deteriorationof employee confidence in organisational systems such as goal-setting, per-formance appraisal and compensation. A manager with the personalisedpower need expects subordinates to be personally loyal to him and he islikely to interpret organisational events in personal as opposed to task-related terms.

A manager with a socialised need for power is more inclined to motivatesubordinates by expressing confidence in their abilities, delegating authorityto them and acknowledging their success with recognition and praise. Itshould be noted, however, that the manager with a socialised need forpower can resort to the tactics above if he is frustrated in obtaining theinfluence he desires in the organisation.

1.4 The most fundamental change in the manager’s job is the shift from control-ling the behaviour of subordinates to supporting and facilitating the workof interrelated, self-directed work teams. The old version of the manager’sjob stressed traditional supervisory work such as performance review, workscheduling, designing budgets and so on. Now, most of these activitieshave been delegated to self-directed teams. The managers who remain indelayered organisations will focus their work on integrating the work ofteams, designing information systems that give teams real-time performancedata and improving the quality of products and services.

A1/2 Edinburgh Business School Organisational Behaviour


1.5 The company’s mission statement can be a business-like expression of termi-nal and instrumental values. The emphasis on these values will vary fromcountry to country, and manager to manager. If the company’s missionstatement is to be relevant across the cultures of countries where it conductsbusiness, then time and effort must be expended to train all managers whoare involved in international transactions. Only through training will man-agers who accept international assignments be able to uphold the companymission’s terminal and instrumental values.

Module 2

Answers to True/False Questions

2.1 T. 2.2 T. 2.3 T. 2.4 T. 2.5 T.


2.1 Complete freedom from stress is death. Low stress levels in jobs encour-age employees to sleepwalk through their work and careers. Low-stresswork environments may occur in organisations that are too bureaucraticand ignore the motivating aspects of employee discretion in work. For-malised work systems usually limit employees’ autonomy and workersmay experience less job satisfaction as they psychologically withdraw fromwork. This outcome erodes worker productivity, but it may also encourageunder-stressed (stimulated) employees to abandon dead-end jobs for morechallenging work. The less productive workers settle into a work routineof low accountability and mind-dulling organisational detail. Ambitiousemployees who expect more challenging work will head for the door.

2.2 Managers and supervisors who are responsible for helping other employ-ees or are responsible for their career progress can experience job burnout,especially if downsizing is the method of cost reduction preferred by man-agement. While responsibility for physical assets may be significant, it isusually far less stress inducing than the responsibilities that managers feelfor the employment security and careers of their subordinates. Managersin downsizing companies trying to reduce costs or to raise earnings oftenexperience little accomplishment, emotional exhaustion and depersonali-sation. Managers with these reactions experience job burnout especiallystrongly if they are frequently called upon to create or implement down-sizing plans. Their sense of helplessness to protect their subordinates’ jobsand careers (let alone their own) undermines their internal locus of controland they find their jobs to be chaotic and uncontrollable. This is a potentmixture that can immobilise an effective manager and cause him to becomefatalistic about his own career and economic security. When managers andtheir employees experience these effects, it is not surprising to find thatthey are self-absorbed and ineffective at improving output productivity orservice quality.



2.3 Corporate stress-management strategies seem to break down into two types:problem-focused and emotion-focused interventions. Problem-focused stressinterventions practised by individuals include time management, gettinghelp from a mentor and clarifying work expectations. When the organi-sation installs problem-focused interventions it may be designing a solu-tion for specific symptoms of employee job dissatisfaction or job stress.For example, job redesign and rotation, enhanced job security, flextimeand firm-sponsored day care can all be used to reduce job-caused stress.Emotion-focused interventions try to help employees cope more effectivelywith job stress (as opposed to trying to lower the level of job stress invarious aspects of the job). These strategies can be called individual andorganisational coping strategies. For individuals, emotion-focused interven-tions include exercise, meditation, social support and counselling.

Organisationally, stress-coping strategies can include on-site wellness pro-grammes, sabbatical leaves for eligible employees and employee assistanceprogrammes (EAPs). Employers are trying to create incentives to motivateemployees to participate in wellness programmes. Such programmes maybegin with a full-scale profile of the employee’s health risk factors in termsof lifestyle, driving habits, diet, exercise, weight, cholesterol level, bloodpressure, use of alcohol and so on. Some employers then use these data toidentify employees who are ‘at risk’ and they make an effort to encouragethose workers to adopt healthier habits. Some observers believe that suchprogrammes can lead to decisions that may discriminate against employeeswho do not fit the company’s ‘profile of a healthy employee’.

Module 3


3.1 F. 3.7 F. 3.13 F. 3.19 F. 3.25 C.3.2 F. 3.8 F. 3.14 T. 3.20 C. 3.26 B.3.3 F. 3.9 T. 3.15 F. 3.21 D. 3.27 B.3.4 T. 3.10 F. 3.16 F. 3.22 B.3.5 F. 3.11 T. 3.17 F. 3.23 D.3.6 F. 3.12 F. 3.18 F. 3.24 D.


3.1 The expectancy theory suggests a number of useful managerial actionswhich could substantially improve motivation and performance on thejob for those employees with sufficient job abilities. These actions wouldinfluence the motivational force to perform, expectancy, first level outcomes,instrumentality and the availability of second level outcomes.

A Carefully define the meaning of good performance on the job. Consultwith employees to see if the definition of good performance fits withtheir understanding of their job demands.



B Determine the rewards which employees value by using a survey oremployee interviews.

C Set attainable goals for performance.

D Provide timely and meaningful feedback about performance.

E Administer rewards for performance gains.

F Make sure no negative second level outcomes are associated with highperformance.

G Check to make sure that the motivational system operates equitably,in that high performers on the job receive significantly larger rewardsthan good or acceptable performers on the job.

3.2 Herzberg’s content theory of motivation draws heavily on Maslow’s hier-archy. Maslow’s theory is a general theory of motivated behaviour whichapplies to a variety of life situations. Herzberg’s theory addresses largelythe causes of job satisfaction and job dissatisfaction. To a lesser extent,Herzberg’s theory is a theory of employee motivation.

The physiological, safety and social needs of Maslow’s hierarchy representlower order needs which ‘maintain’ the individual when they are satisfied.These needs are finite and organisations address them with money andforms of fringe benefits and guaranteed employment. Herzberg’s ‘hygienes’correspond closely to the maintenance level of Maslow’s hierarchy. Herz-berg’s hygiene factors include money, good working conditions, fair com-pany policies, fair supervision and amiable co-workers. The growth ele-ments of Maslow’s hierarchy consist of the two facets of self-esteem andself-actualisation. Herzberg’s ‘motivators’ are analogous to the growth ele-ments. Herzberg contends that these factors trigger motivation and sustainhigh levels of job satisfaction. Representative examples include: increasedauthority, recognition, promotion, job challenge and achievement.

3.3 Both theories are process theories of motivated behaviour. They explain thesame phenomena from different perspectives. Expectancy theory is a cogni-tive process theory which emphasises the significance of inner psychologicalstates which channel and focus behaviour to meaningful personal ends. BMod avoids psychological explanations for behaviour and relies exclusivelyon articulating the role of the environment in shaping motivation andbehaviour. The B Mod approach could be labelled deterministic.

With their common process orientation, the two theories share other sim-ilarities. Both suggest that the connection between behaviour and its con-sequences is extremely important for sustaining motivation and perform-ance. Both theories emphasise rewards. While rewards are called positivereinforcers in the B Mod formulation, and second level outcomes in expect-ancy theory, they function in exactly the same way in both theories. Athird similarity is the relationship between a contingency of reinforcementand instrumentality. In a contingency of reinforcement the relationship isbetween behaviour and its consequences (positive, negative or neutral). A



contingency of reinforcement suggests the degree or strength of the connec-tion between behaviour and its consequences. This relationship is similarto the connection between first level and second level outcomes in instru-mentality. Instrumentality has a decided cognitive quality. In B Mod, acontingency of reinforcement is simply the connection between behaviourand the environmental consequences it induces. Cognitive interpretationshave nothing to do with a contingency of reinforcement.

3.4 Working from employee-based issues to organisation-based considerations;the first concern would be that employees must have sufficient abilityto do the work. Managers’ should find out if performance deficienciescan be linked to employee abilities. Second, employees must have properunderstanding of their job demands so that they are not confused about themeaning of good job performance. Closely related to this is that employeesmust be capable of gathering performance feedback information and actingon it with the help of supervisors to correct performance deficiencies. Afourth consideration in B Mod programme success is that the target jobsshould not be heavily machine paced. If employees have no control overthe pace of work or work procedures, then they will have little latitude fortrying different methods to improve performance. Fifth, employees must beconvinced that work hygienes are in place and acceptable. Hygienes include:fair pay, likeable co-workers, decent working conditions, fair supervisionand reasonable company policies. It is pointless to develop and install a BMod programme if employees are dissatisfied with current hygiene.

The sixth consideration is the willingness of supervisors to trust employ-ees and involve them in the design of the B Mod programme. Employeesare the ‘true job experts’ in any performance improvement programme.Their expertise must be directed toward the design of a meaningful pro-gramme that helps them achieve the rewards they value. The success ofa B Mod programme pivots on the level of employee commitment to it.Their involvement in programme design strengthens their commitment toits goals. The last consideration concerns managers and supervisors them-selves. They must also be committed to the programme. Their behavioursmust be consistent with the underlying values of B Mod. For instance, theymust create meaningful performance goals prior to the baseline audit; theyshould encourage employee participation to solve performance problems;and they must find new ways to reward excellent performance. They mustbe willing constantly to re-evaluate programme design to make it moremeaningful to employees and to the organisation.

3.5 The first employee should experience felt negative inequity while hiscolleague probably experiences felt positive inequity. We could expectemployee number one to do any or all of the following:

A Work three fewer hours per week or cut his effort level if he stays onthe job for 41 hours per week.

B Ask for an assistant to help him manage his work load.



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

D Choose some one else to compare to.

E View the imbalance as temporary and speak to the boss about it.

F Convince his colleague to slow down.

Module 4


4.1 F. 4.9 F. 4.17 F. 4.25 T. 4.33 B.4.2 F. 4.10 T. 4.18 T. 4.26 F. 4.34 A.4.3 T. 4.11 F. 4.19 T. 4.27 F. 4.35 B.4.4 T. 4.12 F. 4.20 T. 4.28 F. 4.36 B.4.5 T. 4.13 F. 4.21 T. 4.29 F. 4.37 E.4.6 T. 4.14 T. 4.22 F. 4.30 E. 4.38 D.4.7 F. 4.15 F. 4.23 F. 4.31 A. 4.39 B.4.8 F. 4.16 T. 4.24 F. 4.32 B. 4.40 A.


4.1 All three errors are made by supervisors (raters) who are not properlytrained to make accurate judgements about their subordinates’ performance.These errors occur because supervisors are poorly trained observers of theirsubordinates’ work behaviour; if the firm does not emphasise the importanceof performance appraisal; or because supervisors are not rewarded to beeffective in their performance appraisal work.

The three errors noted in the question are all threats to the validity of theperformance appraisal system. Halo effect refers to the problem of makingjudgements about performance dimensions based on a general impressionof the subordinate. Recency error occurs when the supervisor bases a per-formance evaluation on recent work behaviour, rather than considering allrelevant employee work behaviour during the time between appraisals.Similarity error occurs when the supervisor gives undue emphasis to sub-ordinate performance qualities which resemble those of the supervisor.

4.2 A job analysis improves the content and empirical validity of the perform-ance appraisal system. One of the results of a job analysis is the creationof job descriptions. They improve employee understanding of job demandsand the skills necessary to be effective in the job. They also have addedvalue in communicating work expectations to new employees. So too, theycan be used as hiring and training tools. A job analysis identifies taskinterdependencies. Knowledge of these task interrelations can improve co-ordination and integration among employees. Finally, a job analysis leads tobetter performance appraisal administration procedures through the devel-opment of specific guidelines for managers to follow in their observationand rating of employee performance behaviours.



4.3 The manager must begin by considering the environmental issues whichaffect the quality of goal-setting. The primary concerns are the clear spec-ification of the goals to be achieved and the description of the intrinsicand extrinsic rewards available for successful goal achievement. Second,the nature of the goal-setting process must be specified. This entails con-sideration of participative, autocratic or generalised goal-setting procedures.Third, the attributes of goals must be developed. Thus, the manager mustset clear, difficult and challenging goals with ample formal and informalfeedback. Fourth, the level of employees’ commitment and acceptance ofgoals must be determined. Last, the desired levels of performance, jobsatisfaction and job motivation should be discussed.

4.4 The dichotomy is useful because it shows that rewards in organisationshave different origins and effects. Extrinsic rewards occur in the context ofwork while intrinsic rewards originate in the content of work. While it maybe difficult to differentiate intrinsic and extrinsic rewards clearly for eachemployee, the motivational impact of the rewards is heightened by recog-nising the differences between them. When a manager tries to make thisdistinction, he is emphasising the importance of raising motivation and per-formance levels by adjusting rewards to the individual differences amonghis subordinates. Making the reward distinction also leads to finer distinc-tions among extrinsic rewards, such as: direct, indirect and non-financialcompensation. In turn, the organisation can then establish meaningful writ-ten policy to control the allocation of extrinsic rewards. Managers whodifferentiate extrinsic and intrinsic rewards are making a useful refinementin the motivational and performance systems.

4.5 The organisation should be most concerned with rewarding performancewhich is measured with a valid and reliable performance appraisal system.However, organisations often have other reasons for distributing rewardswhich are not always related to performance. They are:

A Effort. While it may be commendable to recognise effort, there may notbe a dependable relationship between effort and performance.

B Seniority. Often the organisation rewards tenacity to stay with a job.While loyalty and staying power may be admirable employee qualities,again, they may be unrelated to performance.

C Equality. Many managers escape difficult employee pay decisions bygiving all their subordinates the same pay, bonuses and rises. Thisupsets the experienced pay equity of high-performing employees.

D Power and influence. Some groups of employees are able to increasetheir reward levels at the expense of less powerful or less well-organisedgroups. Obtaining guaranteed pay levels then becomes an indicator ofeconomic power to influence organisational decisions.

4.6 A gainsharing plan is a group-based reward system which gives employ-ees bonuses when they achieve cost savings. Gainsharing plans require



dependable information about production costs in terms of time and capitalresources. In gainsharing plans, employees and the firm ‘share’ cost savingsbased on a pre-established formula. It is possible for employees to obtainbonuses during periods of declining company sales because they may con-tinue to find ways to reduce costs. These plans rely heavily on employeeinvolvement to find more efficient means of production.

Profit-sharing plans are more passive forms of group-based reward systems.They depend on the firm’s success in the market instead of its success incontrolling the cost of production. Profit-sharing is usually done once a yearwhile gainsharing may operate on a monthly cycle.

Four key elements to consider in the design of a gainsharing plan are:

A The ability of the market to absorb more output.

B The extent to which seasonal demand for output exists.

C The number of employees in the production unit to be covered by theprogramme.

D The quality of labour–management relations.

The plan must interest employees and they must understand it. The employ-ees’ knowledge of the plan should strongly relate to their knowledge of thecompany’s financial and strategic goals. The plan should minimise delaysbetween excellent performance and receiving of the financial incentives. Topmanagement should be able to show that performance, product quality andservice quality have all risen due to the improved pay plan.

4.7 The principal advantage of the Rucker Plan over the Scanlon Plan is thefact that the former does not require the creation and maintenance of ascreening committee and its supporting production committees throughoutthe company. In this way, the Rucker Plan is less reliant on the creation ofa hierarchical reporting mechanism tasked with creating, cataloguing andevaluating employee productivity improvement suggestions. The RuckerPlan seems to be more decentralised which may make it more useful incompanies which are using self-directed teams to improve responsivenessto customer needs.

4.8 The immediate negative effects of downsizing and delayering may out-number the positive effects. Despite the fact that the firm may create thepotential for an increase in its net income in the wake of taking these twodecisions, the cost of the decisions, in terms of severance packages foreligible employees, may create a substantial charge against current earn-ings. In the longer term, the decision to downsize and delayer may reducesubstantially the pool of talented employees who could perform well insenior management positions. This undermines the morale of employeessince management must rely on executive search firms (with much highercost structures) rather than install and use a ‘promotion-from-within’ policy.As delayering and downsizing cut through a firm, high value product andservice development projects may be abandoned or ignored by employees



who suddenly have job security fears. After these two decision have beentaken, customers may find it more difficult to obtain service and productinformation from less well-trained and knowledgeable employees. In thenear-term, any rises in customer dissatisfaction may trigger declining rev-enue and marketshare.

Module 5


5.1 F. 5.7 F. 5.13 T. 5.19 T. 5.25 C.5.2 F. 5.8 F. 5.14 T. 5.20 B. 5.26 A.5.3 F. 5.9 T. 5.15 F. 5.21 A. 5.27 C.5.4 F. 5.10 F. 5.16 T. 5.22 B. 5.28 A.5.5 T. 5.11 F. 5.17 F. 5.23 C.5.6 T. 5.12 T. 5.18 T. 5.24 B.


5.1 Job designs based on scientific management ‘fail’ in the sense that they donot take into account higher-order needs. Application of scientific manage-ment creates jobs which are highly specialised. The approach can disruptexisting social relationships, causing employee dissatisfaction with opportu-nities to interact in the work setting. Since the approach emphasises workfractionalisation and machine pacing, employees may also experience lesschallenge, less personal accomplishment and less knowledge of the resultsof their work. These conditions may cause them to become bored and torust out on the job.

While there are a number of ways to deal with the negative psychologicalimpact of jobs designed through scientific management, four commonlyaccepted approaches are: (a) flextime; (b) job rotation; (c) job enlargement;and (d) self-directed teams and employee empowerment. The first inter-vention allows employees to decide their arrival and departure times fromwork. In this system, employees must work the core hours of 10 a.m. to2 p.m. and they must also meet the hours requirement for the standardwork week. Job rotation consists of the managed circulation over time ofemployees through a cluster of related jobs. Job enlargement refers to theaddition of related task activities to the employee’s core job activity. Finally,self-directed teams integrate the social and technical aspects of work so thatteam effort is the focus of the job design effort.

5.2 Evidence now indicates that not all employees prefer to have jobs whichprovide opportunities for higher-order need satisfaction. For instance, someemployees may not be interested in greater challenge, opportunities for per-formance feedback and more delegated authority. For a variety of personalreasons, they eschew these outcomes in their work because they have lowgrowth need strength. It is questionable whether or not such employees



will respond positively to increases in job range and they certainly will notrespond positively to changes in job depth. Thus, organisations must assessemployees’ growth need strength prior to initiating new job designs basedon improvements in job range and job depth.

5.3 QWL refers to planned efforts to create greater opportunities for employeesto satisfy their personal needs through work experiences. These programmesoften rely heavily on employee empowerment. The relevant forces are:

A Greater work-force diversity. Reduced barriers to labour flows acrossnational boundaries have expanded the diversity of the European labourforce. The labour force has also changed to accommodate migrationtrends, more minorities and higher worker expectations about the influ-ence of work on life satisfaction.

B Greater acceptance by unions of employers’ efforts to improve QWLfor workers. Frequently, new labour management contacts make roomfor QWL interventions.

C A better understanding by managers and their organisations of theimpact of QWL programmes on productivity. The pioneering effortsof Volvo and Saab-Scandia have inspired other organisations to installQWL programmes. The efforts of these firms to document the resultsof their QWL programmes aid decision-makers who are investigatingthe feasibility of QWL programmes for their firms.

D The support by governments which creates a climate which favoursthe proliferation of QWL programmes. Tax incentives for labourretraining help create the conditions for greater use of job rotationand job enlargement practices. Success with these programmes canlead to more concentrated efforts in QWL.

5.4 Flextime systems allow employees to control decisions regarding workarrival and departure times. Giving employees control over this impor-tant decision is an example of increased autonomy. Increases in autonomylead to an increase in experienced responsibility for work decisions.

A flextime system can have beneficial effects on organisation–employeerelations. Virtually all employees will respond positively to flextime becauseit allows them to integrate their personal and work lives more successfully.Thus, it can be an important first step in the process of increasing thegrowth need strength for all employees in an organisation. When a firminstalls a flextime system, it is showing its employees that they are trustedto work effectively under conditions of greater personal control over workdecisions.



Module 6


6.1 F. 6.8 T. 6.15 F. 6.22 F. 6.29 A.6.2 T. 6.9 T. 6.16 F. 6.23 F. 6.30 B.6.3 F. 6.10 F. 6.17 F. 6.24 F. 6.31 E.6.4 F. 6.11 T. 6.18 F. 6.25 F. 6.32 C.6.5 T. 6.12 T. 6.19 F. 6.26 A. 6.33 A.6.6 F. 6.13 T. 6.20 F. 6.27 C. 6.34 C.6.7 F. 6.14 F. 6.21 F. 6.28 D. 6.35 D.


6.1 Project teams work best under these conditions: (a) the problem or itssolution affects the entire organisation; (b) the usual decision hierarchyhas not adequately resolved the problem in the past; (c) the solution willrequire commitment from most or all of the organisation’s members; (d) topmanagement values employee participation and development; (e) sufficienttime exists to arrive at a satisfactory solution; and (f) top managementintends to involve many employees in the implementation of the solution.

The management requirements for project teams are: (a) keep the team’s lifespan short; (b) rely on voluntary participation; (c) select members for theirexpertise and keep the process simple; (d) co-ordinate the team with topmanagement to ensure prompt management review of project work; and (e)keep support staff small and operating systems simple.

6.2 The manager can choose to influence cohesiveness by controlling factors increating a work group or by influencing the group after it is formed. Inthe first situation, the manager could (a) influence group composition byaltering member similarity or diversity; (b) manage the size of the workgroup; or (c) control the basis for interpersonal attraction (proximity, attitudesimilarity, attractiveness of group goals and activities).

Once a group is formed, the manager still has the capacity to influencethe level of cohesiveness exhibited by the work group. He can: (a) clarifygroup goals and activities; (b) handle disturbances quickly; (c) create acommon enemy for the group to compete with; and (d) carefully timepositive feedback to match work group successes.

6.3 No. Managerial experience and research evidence agree that high cohe-siveness in teams can be related to either high or low performance. Thefactor which integrates these inconsistent findings is the degree of agree-ment between the team’s norms and the organisation’s team performancerequirements. When a team is cohesive, and its performance norm is consis-tent with the organisation’s standard for team performance, then the teamwill be a high performer. On the other hand, if a cohesive team has aperformance norm which counters the organisation’s performance standard,then it will not be a high-performing team.



6.4 Groupthink occurs in work groups which are highly cohesive, value con-formity and lose their capacity to criticise their decisions. These symptomsindicate its presence: (a) members believe the group is invulnerable; (b)members believe the group cannot fail; (c) some members function asmindguards to prevent negative, external information from reaching othermembers; (d) the group’s position can be justified on morality alone; (e)those opposed to the group’s actions are characterised as insensitive, igno-rant and ineffective; (f) pressure is applied to dissenters; (g) members areafraid to speak out because they believe they are the only ones to disagreewith the ‘majority view’; and (h) the absence of criticism is mistaken forunanimity.

6.5 In the most basic sense, the group begins with a keen preoccupation withits composition, structural characteristics and maintenance activities. Workgroups in their early development may have members who believe the costsof membership clearly exceed its benefits. During forming and storming,work groups tend to focus on their composition, appropriate roles, developnorms and solidify the leadership position (if the group starts as a ‘leaderlessgroup’). These activities greatly reduce the group’s experienced processlosses through maintenance activities.

In the norming and performing stage, the emphasis on task activities contin-ues to grow and process losses subside. Actual group performance beginsto rise. As the work group refines its abilities to detect process losses andits task activity emphasis consistently exceeds its emphasis on maintenanceactivities, then it becomes a mature group.

Work groups in the last two stages of development must prevent groupthinkand maintain norms in the face of task changes and group compositionchanges. In conclusion, the mature, performing group must devote someof its energies to membership stability and socialisation of new memberswhile maintaining a strong task focus. If membership declines or becomesturbulent through the addition of new members, or if the environment orthe group’s tasks change in some way, the mature group can be pushed outof the performing stage.

6.6 This answer can be found in Table 6.6. It is important to note that a workgroup experiencing the problems noted in Table 6.6 could not be definedas a mature, stage 4 group. The 12 items noted all represent process losseswhich undermine creativity and innovation in a work group. These prob-lems surface in immature groups which have not developed a norm aboutthe importance and value of deviance (creativity). Thus, members whodemonstrate creative flair (and who value it personally) may be censoredby members with more personal and positional status.

6.7 Groups tend to be very undisciplined in creative problem-solving since theyoften evaluate the first creative suggestion offered. Once the evaluationprocess has started (deferral of judgement is suspended) in a group, fur-ther creative contributions diminish in number. The group has prematurely



jumped to idea evaluation. If the suggestion were made by a group memberwith high personal and positional status, participation becomes ritualised asless powerful members ‘rubber stamp’ the suggestion. If the group is alsohighly cohesive, the conditions for groupthink are created. Without a normabout the importance of deferral of judgement, work groups face seriousprocess losses.

6.8 The methods noted in the question are somewhat ‘stylised and ritualistic’methods for enhancing work group creativity. A manager will improvehis group’s creativity if he: (a) carefully defines the work group’s task orproblem; (b) develops a norm to separate idea generation from idea evalua-tion; (c) monitors process losses and avoids groupthink; (d) gains approvalfor making merit-based rewards available to members who make substan-tial contributions to group success; and (e) gains approval for distributinggroup-based rewards contingent on the group’s contributions to organisa-tional success. Work group creativity is very dependent on the availability ofrewards as well as the composition of the group and the task(s) it performs.

6.9 Determining the proper level of team involvement in decision-making isinfluenced by: (a) the time available to make the decision; (b) the signifi-cance of quality in the decision; (c) the extent to which the subordinates’commitment to the decision is critical to implementation; and (d) the extentto which the group has information that can influence the decision’s quality.

6.10 Such organisations will have to integrate complex information flows thatwill keep groups apprised of their real-time performance. Some of that per-formance will reflect how well they serve the needs of other self-directedteams in the organisation. For instance, teams in procurement will have towork closely with customer service representatives who simultaneously: (a)diagnose product problems; (b) order repair parts; and (c) dispatch field ser-vice representatives. The high levels of interdependence among work teamsthat are all focused on delivering superior products backed by excellent ser-vice will require organisations to maintain a very flat organisational struc-ture. The structure facilitates horizontal communication and co-ordinationin a management system that favours decentralisation of decision-making.This arrangement removes barriers between customers and the company’sself-directed workteams.

Module 7


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




7.1 The project team is a highly productive group that places little emphasis onthe expression of legitimate and coercive power. The team manager musthave expertise and referent power because the team’s characteristics willneutralise his opportunities to exert authority. The high level of cohesive-ness, previous team successes and skill of members will reduce opportunitiesfor exercising legitimate power, coercive power and perhaps reward power.Opportunities to exhibit legitimate power are reduced because the projectteam is protected from the rest of the organisation. Coercive power wouldbe inappropriate and unnecessary because the team is highly cohesive andhas a record of success. The level of professionalism and members’ interestin product development may mean that members find the design work itselfto be a more important reward than any rewards controlled by the projectmanager.

7.2 The difference between personal and positional power is the most importantdistinction to understand relative to a person’s power at work. This differ-ence shows the significance of developing personal power (expertise andreferent) to gain the respect of subordinates, peers and superiors. Since per-sonal expertise is problem focused in areas valued by the organisation, theperson in question will be sought out by other employees. This will aid himin the acquisition of referent power. In career and promotion terms, thesetwo sources of power will translate to more positional power (legitimate,reward and coercive power).

7.3 You must address the extent to which marketing (or sales) influences stra-tegic management outcomes. In general, strategic management outcomescan be influenced by a department in the organisation if it: (a) can success-fully compete with other departments for scarce resources; (b) is a boundary-spanning unit which reduces uncertainty for other organisational subunits(manufacturing, product development and sales); (c) conducts work activ-ities central to production of goods and services (generating informationon market projections, customer needs and competitors’ strategies); and(d) prevents other subunits from offering substitute services (erects barriersaround its activities).

7.4 Politics is inevitable in organisations. The major objection of top execu-tives is not to politics per se. Rather, they object to the use of power toachieve unapproved outcomes by unapproved methods. This occurs whenindividuals pursue personal gains by unauthorised methods. In such cases,the organisation usually loses. The insider trading scandals which rockedWall Street during the 1980s are excellent examples of the effects of politicalbehaviour driven by greed.

7.5 Managers are individuals who are responsible for the performance andproductivity of one or more subordinates in a work unit. Leaders are indi-viduals who influence others to pursue goals. Managers tend to perform



various roles while dealing with diverse demands which compete for theirtime at a moment’s notice. The manager’s job is at times chaotic as heshifts from interpersonal to informational and decisional roles. The effectivemanager is able to detect when he must shift from one role to another.Leaders and leadership deal with much broader issues. For instance, theleader is concerned with the motivation of subordinates and the preserva-tion of the values which define the organisation’s culture. Leadership is amuch broader phenomenon than management in the organisation. Theo-ries of leadership are complex, especially those which try to integrate theleader’s personality, behaviour and the demands of the leadership situation(contingency theories of leadership). No integrated theories of managementexist. Instead, the roles of the manager have been articulated.

7.6 The study of leadership first addressed the analysis of leader traits. It thenshifted to consideration of leader behaviour or style. The last phase ofleadership analysis has tried to integrate the two previous approaches withthe demands of the leadership situation. The trait approach to leadershiphas been abandoned as a ‘pure’ explanation for leader and organisationaleffectiveness. This occurred because the traits were not empirically relatedto organisational effectiveness and they were hard to measure. The traitapproach survives as a contributor to understanding how the leader’spersonality interacts with the leadership situation. The leader behaviouror styles approach shifted the emphasis in the study of leadership fromtraits of leaders to leader behaviours which focused on group perform-ance (initiating structure) and group morale (consideration). While leaderbehaviours are observable, the styles approach still suffers because it doesnot adequately consider the situation the leader confronts. The contingencytheories of leadership pay particular attention to the leadership situationwhile considering the leader’s motivational pattern (Fiedler’s theory) orthe behaviours of the leader (path-goal theory). Fiedler’s theory empha-sises the importance of matching the leader’s motivational pattern to thefavourableness of the leadership situation. Path-goal theory focuses on taskcharacteristics and subordinate characteristics. It implies that leaders canbecome skilful at the various behaviours called for by the leadership sit-uation. Fiedler’s theory posits that the leader’s motivational pattern (taskoriented or relations oriented) is not susceptible to change. This negates theusefulness of leadership training.

7.7 The recommendations noted below do not exhaust all the options availableto a firm which wishes to help its employees be more entrepreneurial.Rather, they suggest a pattern to be developed and nurtured if the firmwants to be more effective at adapting to change by training and rewardingemployees to be more innovative.

A Do not attempt to profile entrepreneurial qualities and select newemployees or give employees project assignments on that basis alone.

B Create a policy which specifies how much time employees can devoteto special projects and new ideas. Make this concept a part of theorganisation’s culture.



C Create organisational arrangements which challenge employees toexplain their innovative ideas to other employees with proven recordsof innovativeness. Create innovation review teams with the resourcesto back new product and service ideas.

D Give innovative employees an entrepreneurial stake in the success oftheir product or service (the company joint ventures with the innovativeemployee).

E Decentralise product and service development as much as possible bycreating special units with the freedom to innovate. The managers whorun these units should have excellent political skills for shielding theunits from bureaucratic interference while providing technical informa-tion about customer needs.

F Ensure that top management knows that it must act quickly on newproduct ideas generated by innovative teams. This also means thatthe work of the teams should be presented by team members to topmanagement. This highlights the importance of high-quality feedbackin innovation.

G Allow innovation groups to develop their own work norms.

H Let leadership in innovation teams develop based on expert powerand referent power. Try to minimise the use of legitimate and coercivepower in innovation teams.

7.8 By definition, a start-up company is highly entrepreneurial and it is proba-bly headed by an individual who is opportunity oriented. The company’sculture will be highly adaptive and employees would be comfortable withfew rules and little formality. If the company tried to create formalised,administrative systems before it had solved product and service innovationproblems and marketing and distribution activities, it would cede its com-petitive advantage to its more nimble rivals. Therefore, there is a periodof time for the start-up company when it would be a mistake to over-administer the natural growth of the company.

7.9 Upward management is important in downsized organisations because hier-archical control will probably be less emphasised in the delayered anddownsized organisation. Further, managers’ spans of control are much widerin the flattened structure of downsized companies. For instance, it wouldnot be unusual for spans to widen from 9–11 subordinates to as many as60–70 subordinates in fully downsized organisations. Since managers’ jobswill be transformed from exerting hierarchical control to integrating andfacilitating the work of self-managed teams in most downsized companies,more information about performance problems and decision-making willhave to flow upward.



Module 8


8.1 T. 8.11 T. 8.21 T. 8.31 F. 8.41 A.8.2 F. 8.12 T. 8.22 T. 8.32 T. 8.42 A.8.3 F. 8.13 T. 8.23 T. 8.33 F. 8.43 C.8.4 T. 8.14 T. 8.24 T. 8.34 F. 8.44 E.8.5 F. 8.15 T. 8.25 T. 8.35 T. 8.45 C.8.6 T. 8.16 F. 8.26 T. 8.36 T. 8.46 A.8.7 F. 8.17 T. 8.27 F. 8.37 B. 8.47 A.8.8 F. 8.18 T. 8.28 T. 8.38 A. 8.48 B.8.9 T. 8.19 T. 8.29 F. 8.39 C. 8.49 A.8.10 T. 8.20 F. 8.30 T. 8.40 D.


8.1 Europa was right in creating a product divisional structure to focus companyresources on related groups of insurance products and services. However,its external environment has become more turbulent with well-financedcompetition and demands from customers for more responsive policy designand service. To meet these challenges, Europa must preserve its productorientation while developing a much stronger customer orientation. Thecompany can do this by overlaying a customer and territorial design on itscurrent product design. It could restructure its product/service divisions toinclude a dual emphasis on territorial operations and specific classificationsof customers. Thus, each product division must have territorial componentswhich focus on countries and their regions. Also, the firm might assignresponsibilities for various customer classifications to managers who aredesignated as ‘product and service group’ managers. These changes wouldbenefit Europa by making it much more responsive to customer needs andhelp it meet competition in various countries.

8.2 Delegation of authority is a prerequisite to successful management. This istrue because managers must work through their subordinates to accomplishgoals. Phillip must realise that first he must understand the work of hissubordinates and he must be able to set realistic expectations for their work.He might want to consider these guidelines:

A Subordinates must be given authority to match their responsibility.

B Decisions should be delegated to the work level where a knowledgeableemployee can act responsibly on behalf of the organisation.

C The superior should become involved in subordinate decision-makingonly when a work exception is encountered.

D Superiors must ensure that employees know how to discharge theirresponsibilities.



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

8.3 The first issue is division of labour which is related to how the work ofthe organisation should be broken down. The second issue is delegation ofauthority, i.e., how much latitude employees are given to make decisionson behalf of the organisation. The third issue is departmentalisation whichconcentrates on grouping the work and the employees of the organisation.The last design issue is span of control or the number of subordinates whoreport to a given manager.

8.4 Employees can experience job frustration and work ambiguity when they areworking on problems which require guidance and resources from employ-ees in other product divisions. The product divisional structure is designedto focus communications and efforts inside divisions on specific productissues. This design does not help to preserve or enhance communicationand co-ordination between product divisions. Employees could experiencecareer obstacles if they worked in product divisions which produced ‘lowerstatus’ products or if their divisions were not generally recognised as beinga proving-ground for top management talent. Heightened political game-playing can also occur in the product-division structure since many organ-isations structure their product divisions as profit centres. This creates theconditions for the ‘transfer pricing’ problem. This problem occurs when onedivision has transactions with another and the organisation must establisha cost-based or market-based price for these transferred products/services.

8.5 Organisations operating in complex and intensely competitive environmentsare interested in the answer to this question. Successful project and pro-gramme managers must:

A Be able to co-ordinate their work with the work of functional managerswho provide employees to work on the project and programme teams.

B Be effective disturbance handlers since the organisation has delegatedconsiderable authority for project resources and tasks to them. Theprincipal sources of disturbances are most likely to come from cus-tomers, other project managers, functional department managers andproject team members.

C Be able to eliminate job uncertainty for project members in the areas ofmerit-based performance rewards and performance appraisal.

D Be very effective advocates for their projects so that higher managementis constantly aware of project benefits and need for immediate decisions.

E Have considerable project expertise and the ability to translate projectfeatures into the business languages of marketing, R&D, accounting,finance, behavioural management and operations management.



8.6 Managers always have responsibilities for outcomes. Organisations are ratio-nal entities which thrive and grow by reducing uncertainty and removingexceptions from the processes of producing goods and services. Centralisedorganisational designs create a more pervasive feeling of uncertainty reduc-tion than decentralised designs. As you move further into the centralisedorganisation (away from boundary functions like marketing research, legaland contractual relations), the more numerous are the opportunities to cre-ate centralised management systems. Indeed, if the boundary functionsperform their work effectively, the more protected and internal produc-tion process departments can operate in a centralised fashion. Over time,managers from boundary-spanning departments and those from productionand control oriented departments develop different views on the valuesof decentralisation. Organisational and managerial ambivalence about thecentralisation–decentralisation issue surfaces because the nature of workchanges from the boundaries to the centre of the organisation.

8.7 Co-ordination is a set of mechanisms which managers employ to verticallyand horizontally link the actions of organisational subunits. Co-ordinationmechanisms help organisations process information which can quickly over-whelm the vertical hierarchy if the external environment is complex andunstable. Control is a set of mechanisms used to keep the actions of employ-ees within pre-determined limits. Control can be obtained by standardisingproduction processes or by pre-specifying outcomes or results.

Poor process control can cause employees to experience job frustration,confuse documentation with action, work under unrealistic managementexpectations and lower their performance and effort if management raisesstandards in a unilateral fashion.

8.8 Conglomerates create ready internal markets for the products and servicesof subsidiaries. Further, if a conglomerate is composed of subsidiaries thatoperate in cyclical and counter-cyclical industries, then some spread of riskmay be achieved by the parent company. Other benefits may be loweredtransaction costs if the conglomerate has a financial subsidiary that canreduce borrowing and expansion costs by providing below-market financ-ing. Finally, employees and managers may have more job and career optionsin the conglomerate.

8.9 The very high value of the yen in relation to other key currencies forces thekeiretsu to demand price concessions from suppliers in order to maintainalready narrow profit margins. As the yen strengthens in value, it requiresmore price rises for Japanese products sold in global markets. Price ceilingsin those markets may inhibit Japanese producers from raising prices even asthe yen strengthens. Thus, Japan’s exporting keiretsu turn to their suppliersand they expect them to lower their prices. There is every reason to believethat supplier companies are expected to support the exporting subsidiariesin the keiretsu. The profits of these suppliers would be used to offset currencyexchange losses caused by a strong yen. Through an extended period ofa strong yen, the co-operative fabric in the keiretsu would indeed fray.



The orderly world inside the keiretsu is also being disturbed by bargain-hunting Japanese consumers. Price discounting is more common in Japanand consumers there are more conscious of product value and price. Smaller,less efficient firms are failing in record numbers. This depletes further thepool of firms that, like pilot fish, swim alongside the huge keiretsu.

8.10 Organisations are simplifying their structures and reducing the number oflayers. Middle management layers are eliminated and manager spans arewidened through the use of empowerment and self-directed work teams.Support staff are being reassigned to operations in plants and distributionfacilities. This is a trend that further thins the corporate staff and increasesall employees’ contact with customers. Work-force empowerment increasesthe delegation of decision-making authority to employees who have beentrained to improve product and service quality. The goal of empowermentis reduced labour costs and shorter cycle times in such activities as customerservice, vendor activities and product development. Team-based work sys-tems are designed to replace middle managers and their control over oper-ational activities. Thus, the team becomes the centre of decision-making forwork-scheduling, budgeting and quality improvements.

Module 9


9.1 F. 9.10 T. 9.19 T. 9.28 T. 9.37 B.9.2 F. 9.11 T. 9.20 F. 9.29 F. 9.38 B.9.3 T. 9.12 T. 9.21 T. 9.30 F. 9.39 C.9.4 T. 9.13 T. 9.22 F. 9.31 A. 9.40 E.9.5 F. 9.14 F. 9.23 T. 9.32 C. 9.41 D.9.6 T. 9.15 F. 9.24 T. 9.33 A.9.7 T. 9.16 F. 9.25 T. 9.34 C.9.8 T. 9.17 T. 9.26 F. 9.35 C.9.9 T. 9.18 F. 9.27 T. 9.36 D.


9.1 Organisational culture was borrowed from anthropology and applied toorganisations. It refers to the shared beliefs and values which producenorms for employee behaviour. It is recognisable by employees and topmanagement is responsible for ensuring that it fits with the organisation’smission, strategic plan and goals. The most prominent features of cultureinclude: (a) it is a pervasive feature of the organisation taken for grantedby employees; (b) it is stable over time and resists changes; (c) it has aninternal and external component; (d) it can be measured; and (e) it can bemanaged closely or it can evolve in a random fashion.



9.2 A strong culture develops because top management fully understands itsguidance function in sustaining the clarity of culture. Part of the guidancefunction is the review of systems designed to instil the culture in newemployees and reinforce it in veteran employees. This brings the importanceof the socialisation process into sharp focus in the strong culture. In strongcultures, the introduction of the organisation’s culture to new employeesbegins before they are hired, with realistic job previews. Once hired, newemployees learn humility and find themselves being trained in the coreareas of the business. Further, employees receive rewards for documentedperformance success in core business areas. All employees in the strongculture are exposed to folklore which reminds them of how key predecessorsadvanced the enterprise and senior executives find and groom proteges whoexhibit personal qualities which reinforce the organisation’s culture. Thestrong culture concept cannot be left to chance.

9.3 Firms need to recognise three fundamental properties which govern thesuccess of planned change: (a) the programme must create employee dissat-isfaction with the status quo in the firm; (b) top management is committedto the process and helps develop a vision of the firm for the future; and (c)a well-managed change process must be implemented to show employeeshow they can alter their behaviour and work attitudes.

9.4 The key problems facing firms going through change are: (a) diagnosis;(b) resistance; (c) carry-over; (d) evaluation; (e) institutionalisation; and(f) diffusion. Diagnosis occurs in the unfreezing process because it is thebasis for gathering objective information about the symptoms and causesof organisational problems. Diagnosis is most effective when it is multi-method and multi-level. Resistance occurs because employees prefer tokeep the status quo. They may also resist planned change because they fearjob loss, knowledge obsolescence, loss of personal power or disruption ofsocial relations at work. Carry-over is the absence of support for changein the existing work environment. Carry-over losses can be minimisedby making the process participative, ensuring that the planned changesclosely parallel specific features in the work environment and by requiringmanagers and supervisors to support the changes. Evaluation refers to thesystematic assessment of the change programme’s effects at four levels: (a)employee reactions; (b) employee learning; (c) employee behaviour; and (d)organisational outcomes. Institutionalisation refers to the absorption of thechange programme by the organisation’s culture. Finally, diffusion occurswhen change programmes are modified to fit the needs of other work units.

9.5 OD is a system-wide application of behavioural science knowledge to theplanned development and reinforcement of organisational strategies, struc-tures and processes for improving an organisation’s effectiveness. Since thedefinition stresses behavioural science knowledge, OD practitioners wouldhave to espouse organisational humanism as a guiding philosophy in theirwork. There are other assumptions that should support the work of thepractising change agent.



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

B Most employees want more authority and they want to contribute toorganisational goals.

C Open and honest communication in organisations is desirable.

D Most organisations need more trust and co-operation.

9.6 Training group methods may be the origin of OD but they have not faredwell in business applications. They fail because they probably penetrate toodeeply and force organisational members to confront personal issues whichare too anxiety producing to be helpful in the formal work relationships inbusinesses. They may also fail for the following reasons:

A The method often appears to be ‘aimless’ because the facilitator does nottake charge of the process and set priorities and goals for improvementin the T-group.

B The carry-over problem is a significant threat to T-group learning whichmay be intensely personal. New behaviour based on such learning maybe quickly extinguished in the existing work environment.

C T-group training failure to influence decision-making, productivity, effi-ciency and absenteeism is well documented.

9.7 The survey feedback method relies on a careful diagnosis which consists ofa multi-level and multi-method appraisal of current organisational function-ing. A diagnosis is guided by a change agent and a steering committee tooversee the process. The Grid OD method begins with a seminar which usesT-group methods and team-building. Further, the Grid OD method assumesthat organisational ineffectiveness springs from poor communication, poorplanning and poor goal-setting. Thus, it is a pre-packaged programmewhile survey feedback is not. Survey feedback methods use high levels ofemployee participation to: (a) generate an empirical profile of organisationalfunctioning; (b) respond to the data generated in the diagnostic phase; and(c) plan action steps to correct organisational deficiencies in effectivenessand quality of worklife. The Grid OD method begins with top managementparticipation to unfreeze the organisation in the Grid seminar. At a laterstage, top management is again the focus of attention when it develops anideal strategic model for the organisation. It is therefore true that the GridOD method reflects the existing hierarchy of authority in the organisation.This is less true for survey feedback.

9.8 The organisation’s culture should fit the company’s financial performancegoals. All work units should have financial targets that support companygoals for return on assets, return on investment and earnings per share. Theculture should align or fit with the company’s business environment. If akey market performance strategy is improved service after the sale, then theorganisation’s culture should possess strong customer oriented values. Theculture of the organisation should stress the value of adaptation so that thework-force has more flexibility to seize emergent key success factors in themarket.



9.9 Several internal factors depress entrepreneurial forces in declining organi-sations: (a) organisational structure has become too rigid and complex (toomany layers); (b) communication systems have become too formalised andthey tend to filter out ideas that deviate too much from established norms;(c) decision-making processes favour form over substance and there maybe widespread groupthink; and (d) the organisation is shrinking in termsof talented people and available resources. From an industry standpoint,entrepreneurial behaviour is also limited by the existence of standardisedproducts and processes that are widely understood by companies through-out the industry.

Worked Solutions to Case Studies

Module 1 Case 1.2

1 In very large organisations, employees, with fraudulent motives, can manip-ulate systems and payment methods for long periods of time before theyare detected. Also, decentralised decision-making in widely dispersed busi-ness units emboldens employees with graft on their minds. Barings Bankcertainly discovered this painful fact too late once Nick Leeson’s huge trad-ing loses were detected. In small organisations, all employees know eachother and due to necessity they are more cross-trained because specialisationtends to be a costly luxury in very small firms. Thus, in small operations,everyone knows what everyone else is doing.

2 His delay tactic may have had several origins. He may have feared for theloss of his job in spite of the protections provided by the False Claims Act.Managements often view whistle-blowers as complainers or malcontentswho openly question current business practices and executives’ motives.Perhaps Mr Walsh may have felt that the internal controls would have beeninsufficient to allow him to perform his job once he made his allegationsknown. Being a meticulous person, perhaps he felt that he needed anoverwhelming case and four years of data gathering was necessary to builda strong case.

Did he gain by delaying . . . ?

Being a bit of an economist, he may have reasoned that his reward wouldbe larger if he delayed his announcement. Thus, he stood to increase hisreward by waiting longer to report it. Of course he may have thoughtthat someone else knew about the scheme, therefore he had to make hischarges when he did. Perhaps he gained some satisfaction from providingdocumentation of fraud which was so overwhelming that GE would not beable to avoid punishment and criticism.

3 Perhaps the False Claims Act should be changed to limit the amount of areward to a set sum. As it is now written, the whistle-blower has a pow-erful incentive to delay making any charges because the award increases,



the longer the wrongdoing continues. Firms should strive for strong cul-tures which value ethical behaviour. Ethics training should be requiredfor all new employees and refresher training should be given periodi-cally to employees. Ethical practices should be codified and written down.When employees conduct business in an exemplary manner, they should beacknowledged and recognised. Likewise, employees with seniority shouldbe recognised for their commitment to the company and their high personalstandards of honesty and integrity. When a company does uncover evidenceof wrongdoing punitive action should be swift and fair. Companies shouldcreate dependable audit systems to track costs, payments and managementdecision-making.

Module 2 Case 2.1

1 Sam and Nora’s lives match closely the stressors that are shown in Figure 2.2.Economic uncertainty has become a factor in their lives because Sam cannotfind work as a plumber and Nora is strongly contemplating quitting herjob. Sam experiences technological uncertainty as he strives to complete histraining in computer service and repair. While his knowledge of plumbingis not obsolete, his poor employment prospects in that field force him toretrain so he can gain access to a more dynamic labour market. Nora’sjob creates for her difficult task and interpersonal demands. She resentswork that she must do that is not teaching related. She also feels physi-cally threatened when she has to perform hall monitoring work. Her recentepisode with the irate parents shows the extremely stressful nature of herinterpersonal job demands. Both Sam and Nora are under pressure to raisetheir two small children on a dwindling income. Household and childcareresponsibilities are wearing them both out, particularly Sam.

2 Sam and Nora’s stressors will not resolve themselves quickly. Their plightshows the precarious nature of a family’s existence in the 1990s. Both ofthem are hard working and ambitious. Sam’s work as a plumber offersbleak possibilities because of typical long-term swings in the business cycleand the commercial construction industry in particular. Nora’s fearfulnessand dissatisfaction with her teaching job reflects the general coarsening ofprofessional life for many teachers in public schools. The social problemsthat infest families rapidly invade schools and threaten all but the mosthardy teachers with job burnout. Sam and Nora are probably on the righttrack. Sam is working to retrain himself and he’ll probably be able tofind a good job once he achieves his certification as a computer servicetechnician. Nora’s job stressors are more pressing because she is rapidlylosing her will to continue as a teacher. She should take advantage ofthe school system’s employee assistance programme and seek professionalcounselling. She should also reach out to other teachers and her superiorsfor help and support. If she fails to take these positive steps, she mayquickly find that she cannot work.



Module 2 Case 2.2

1 This company appears to have toxic brew of stressors that touches all ofits employees. The case shows how more complex task demands combinedwith a smaller work-force doing more work create widespread job over-load for the survivors of downsizings. When these effects are added tothe demands of instantaneous communications created by cellular phones,electronic and voice mail and beepers, managers and employees are easilyovercome with work overload. In addition, those managers who remain inthe company have much wider spans of control because technology-basedcommunication advances make it possible for them to oversee the work ofmany more subordinates. The net effect for managers is more interruptions,less ability to escape from work and longer work weeks.

2 The inherent danger in downsizing is that its benefits are entirely temporaryand is easily copied by rivals. Downsizing may reduce costs that are risingdue to excess capacity in an industry created by declines in total sales ornew entrants (less regulation or lower entry barriers). If an industry is madeup of rivals that wish to be low-cost producers, the industry will experienceperiodic rounds of downsizings and very intense price competition or pricewars to rectify the capacity problem.

Companies that try to sustain low costs with fewer employees flirt withlosing their best customers because those employees who provided the bestservice may be the ones who were laid off. Intellectual capital and know-how disappear through downsizing. In service-based companies customerswill quickly switch to competitors when they detect the inevitable servicedecline, especially if service is outsourced.

The combined negative effects of lost employees and more reluctant cus-tomers may overwhelm any improvements in the cost structure of the com-pany. These effects can also neutralise any short-term productivity gainscreated by fewer workers using more complex technologies.

Module 3 Case 3.1

1 The company is addressing both lower-order and higher-order needs ofaccounting personnel. The quiet hour improves employees’ satisfaction forsecurity and safety needs. It affords some ‘privacy’ to work on meaningfultasks which tie in with employees’ higher-order needs. The accountingdepartment allows its employees to use the hour to work on jobs that aremore conceptually complex and challenging than the routine work of thedepartment. If the programme lasts, some of the accounting employeesmay experience improved satisfaction with the job itself. This outcome isassociated with challenging and meaningful work.

It is evident that the AMP programme addresses hygienes and motivatorssimultaneously. The hygienes of co-worker and supervisor relations have



been improved in the programme. Since the AMP programme focuses oncreative and complex projects that require concentration, accountants mayhave improved higher-order need satisfaction in their work.

2 The programme could affect the effort to perform and instrumentality ofemployees in other departments. This would happen because employeesfrom other departments would perceive the AMP programme as a rewardavailable only to the accountants. Five hours of ‘quiet time’ each weekis a reward that offers considerable freedom and escape from the usualjob interruptions. Since the AMP programme is not yet company wide, itwould not be surprising if employees from other departments consideredcutting back on their effort levels. In addition, their beliefs about dependablerelationships between performance and rewards may deteriorate. Some highperformers from other departments may believe that they too should have aquiet hour each working day. To the extent that Lancaster does not soon gocorporate wide with the programme, the instrumentalities of employees notcovered by the programme will weaken. At the margin, the company couldlose some high performers. More likely, however, is reduced performanceand motivation and increased job dissatisfaction for employees not coveredby AMP. It is also likely that relationships between accounting and otherdepartments may deteriorate, thus adversely affecting critical co-ordinationneeds.

Module 3 Case 3.2

1 Mr Rodgers makes a point to differentiate equitable treatment of employeeand rewarding employees for their documented goal achievement. He statesthat equity ‘refers to adjustments in that raise to more closely align salariesof equally ranked peers’. Some pay experts would equate this statementwith ‘equal treatment’ and not with equitable treatment. Let’s suppose thata Cypress executive hired a new manager at a pay level which was 10 percent higher than current managers who performed similar work. Underthe Cypress system, over time, the pay of these managers should ‘catchup’ with the manager who was hired at the top of the pay bracket. Givenhis statement about merit, however, the manager in question may actuallywiden the pay gap with respect to his peers because he qualifies for heftymerit awards. No matter how fair the pay system, those managers withhigh performance and lagging salaries will experience felt negative equity.

Secondly, Mr Rodgers seems to ignore the fact that employees make equitycomparisons not only about outcomes (adjustments in raises) but also aboutinputs (level of effort, years of training, past performance). His company’sgoal-making and tracking system is so outcome driven that it ignores thecritical issue of placing the right person in the right job. If a poor matchis evident (an employee with no goals or a high deficiency rating), someeffort is made by managers and executives to aid the ‘deliquent’ employee.However, he does not comment on what eventually happens to such anemployee. A computerised and constantly updated goal-setting system does



not ensure that accurate and valid equity comparisons will be made byemployees subject to the system.

2 The system appears to be widespread and well understood as a criticalcomponent of the management information system. The various reviewsand updates would seem to indicate that there are serious efforts madeby the company to help employees set effort levels that lead to goodperformance (no goal deficiencies). Over time, this should stabilise andraise the expectancies of employees, as long as management does not placeundue pressure on them to create more goals than they can reasonablyhandle. Likewise, instrumentalities should be in the high positive rangebecause Mr Rodgers states that merit rewards are linked ‘to the qualityof past performance’. In turn, the need for achievement of employeesshould be strengthened, and over time, employees would develop beliefsystems that are consistent with an internal locus of control. Feedback toemployees about their goal accomplishment would help them create realisticexpectancies and instrumentalities.

The importance of feedback in this system cannot be over-emphasised.Since employees formulate their own goals, they are expected to makereasonable decisions about their levels of effort. There seem to be safeguardsagainst some employees creating too many goals or creating goals that areunrealistic. All of these forms of feedback should raise levels of employeepersistence if the board creates a ‘raise budget’ which is widely seen asfair (distributive fairness) as well as fairly distributed (procedural fairness).Clearly, the company could have inadequate results in the market throughno fault of the work-force. Presumably the board of directors would lowerthe ‘non-negotiable’ raise budget to reflect less-than-adequate corporateperformance. Management would still have to adhere to the principle ofinstrumentality in reward allocation under lower company performance.

The Cypress goal-setting, tracking and reward-allocation system isadmirable because it merges very important motivation principles withcomputer-based control and communication. If the system also contains ele-ments to prevent the abuse of employees (work overload without adequateresources to get the job done), then it should support performance andquickly generate information which leads management to good decisionsabout promotion, termination, training and development and so on.

Module 4 Case 4.1

1 This question can be answered directly from the theory of goal-setting.The performance appraisal system is a direct pathway to valued extrinsicand intrinsic rewards. If the company’s goal is the construction of a newbehaviour oriented appraisal system, it will be necessary to consult withemployees who perform the jobs that will come under the new system.These employees are certainly knowledgeable about critical work activities,and they most certainly are affected by the information generated by the



system. Therefore, to deepen their motivation to perform effectively, theiractive involvement in the design of the system will enhance their commit-ment to the new system and deepen their acceptance of the informationproduced by it. On balance, the involvement of employees in the designof a behaviour oriented appraisal system leads to higher performance, jobsatisfaction and job motivation. The company must avoid the temptation toapply a single BARS system to widely different groupings of jobs. If that isdone, the validity of the system will be compromised.

2 The steering committee was a temporary project group which lasted as longas the design and implementation phase for the new appraisal system. Itfunctioned as a powerful communication mechanism which legitimised thecreation of the new system. All the members had a deep interest in perform-ance appraisal, so it is possible that they would become staunch advocatesfor a new way of conducting this important organisational task. Committeemembers also functioned as project experts who could answer employees’questions about the new system. In this way, employee expectations aboutthe new system were kept in line with the development of the behaviouroriented system. The steering committee smoothed the transition from theold system to the new performance appraisal method. It is also importantto note that members of the steering committee became knowledgeable ineffective performance appraisal practices. This would make these individ-uals valuable to the organisation because their expertise could be used torefine the performance appraisal system.

Module 4 Case 4.2

1 A number of factors could cause a gainsharing programme to be suc-cessful in a joint venture. First, the Winshare programme has convincedemployees that there is a clear connection between the profits of thecompany, employee suggestions for improvement, team implementation ofproductivity-enhancing improvements and quarterly gainsharing bonuses.This is the expression of the line-of-sight principle which means employeesknow there is a clear pathway between their performance efforts and theprogramme’s rewards.

A second factor related to programme success is the high employee par-ticipation. It is channelled and focused through the work of empoweredWin Teams that ensure the review of all improvement suggestions and theimplementation of the suggestions. A third success factor is the group-basedincentive system that is based on decision-making and empowerment. Aportion of the programme’s success is probably due to the fact that par-ticipation and empowerment are more important than group-based finan-cial rewards. The programme pays much closer attention to performanceenhancement through team decision-making than to a complicated rewardscheme. Employees know that if they can improve profitability by improv-ing internal operations, then they will benefit financially on a quarterly



basis. Finally, the full backing of top management and executive involve-ment in programme design signalled to employees that this was a serious,long-term programme to improve the competitive strength of the subsidiary.

2 The principles of effective reward system management most evident in thiscase include:

A The plan captured the attention of employees. Evidently employeeshave taken ownership of the programme and they expect it to remainsuccessful.

B The management team understands the plan and they can explain howit works. The workers know what they must do to earn the incentivesthrough their suggestions and group-based decision-making.

C The plan pays out incentives when it should. The quarterly bonusmechanism allows employees to see the connection between their sug-gestions, team decision-making and company profitability.

D The company is performing better as a result of the plan. Increases ingroup decision-making budgets and the company’s return to profitabil-ity are clear indicators of programme success.

3 The gainsharing bonuses increase employee motivation and performancebecause they are first contingent on performance enhancement and thendelivered when the performance gain is documented. Expectancies andinstrumentalities are strengthened and maintained because the programmedevelops and implements employee suggestions through group-based deci-sion processes. The emphasis on group decision-making adds the addi-tional force of peer group pressure to the suggestion generation process.Creative team members will surely begin to help less inspired co-workersproduce solid contributions to unit performance so that quarterly bonusesare not jeopardised. Employee participation plays a fundamental role inemployee motivation and performance by producing solutions to produc-tion problems. Further benefits are derived from information-sharing andde-emphasis on the chain of command as a source of approval for actionsteps. In the Winshare programme, management oversight and control issubordinated to effective employee suggestion production, analysis andsolution implementation.

4 Suggestions for constructive change include:

A Anchor gainsharing bonuses to tangible improvements in productivityand product and service quality.

B Firmly connect the reward system to quantified unit performance data.

C Make the system highly participative in design, implementation andimprovement.

D Ensure that the programme’s design is promoted and explained toemployees by top managers who are sincerely committed to long-termprogramme success.



E Make the programme team-based.

F Ensure that the interval between bonuses is short so that teams ofemployees can realise the benefits of their hard work.

Module 5 Case 5.1

1 Herzberg’s job design principles provide an answer to this question. Theoriginal repairman’s job configuration offers little opportunity to satisfyhigher-order needs. The only time repairmen are able to do this is when theyattend the annual training seminar which focused on new repair methods.Their experienced levels of job motivation, satisfaction and involvementwent up during training. Their job frustrations can be removed by: (a)giving them more control over work resources; (b) making them accountablefor customer relations; (c) providing them with better performance feedback;(d) allowing them to control the scheduling of their work; and (e) providingthem with real opportunities for achievement and professional development(teaching in the training seminar and helping select new employees).

2 It certainly does. From the standpoint of job depth, the repairmen’s job hasbeen stripped of job content. All of the necessary hygienes are in place andrepairmen seem to possess a high growth need strength. Thus, the idealconditions are created for improving job content factors (job depth) whichshould lead to improved repairmen work attitudes and quantity and qualityof service. The ‘experiment’ performed on the London repairmen bears outthis hypothesis. All of the suggested job changes add to experienced jobdepth for the London territory repairmen.

3 The sequence of steps followed by the job design expert indicates thatparticipation was an important component of the programme. The expertinterviewed employees at three levels in Alton’s hierarchy: (a) the directorof field services; (b) the supervisors of repairmen; and (c) the repairmen.His use of ‘job expert’ groups also deepened employee participation in theprocess (employees suggested all of the changes adopted in the job designexperiment). Finally, he conducted a pilot study which created furtheropportunities for the London repairmen to be involved in the project. Theseforms of participation had a positive impact on company work culture andthey provided opportunities for employees to be involved in several deci-sions of broader organisational scope. Therefore, the programme itself wasan example of increased job depth for all those employees who participatedin the job design process.

Module 5 Case 5.2

1 Probably the first order of business for the experts is to recognise thattask issues must be subordinate to learning those aspects of Derdian culturewhich affect gender, social and group relations. It is clear from the comments



of Derdians that they found the experts to be patronising and ignorant oftheir culture and customs. The experts, in their cultural ignorance, erectedcommunication barriers which prevented them from building any sense ofteamwork among the Derdians. The experts failed miserably to link the threefundamental aspects to the problem in the exercise: (a) foreign expertise intower construction, (b) local or domestic appreciation for towers and (c)domestic customs which precluded easy communication and co-operation.

Once the ‘experts’ recognised that there were more aspects to the problemthan simply constructing a tower, they should have asked the Derdians togive them a brief explanation of their local customs in relation to Derdianworking relationships and organisational task groups. This brief explanationwould have illuminated various Derdian taboos and customs. From there,the experts could have created Derdian work groups which would havemade it possible to create towers without trampling on local customs andtaboos.

2 The most common approach used by contracting companies is to useteams of company employees to perform the in-country work. This usuallyinvolves all construction, installation and testing. Once operational integrityis achieved, the contracting company might train local personnel to operateand maintain the installation or facility. In some cases, the contracting com-pany is required to support a technical group that performs the operationaland maintenance functions for the client organisation or government.

Such arrangements seldom produce an outcome that merges the economicor technological improvement with local customs and cultural expectations.People in the country with the improvement may appreciate its benefits,but there is often a widespread feeling that ‘foreigners designed, built andmanaged the facility’. In some quarters there may be resentment towardforeign contracting companies which are perceived by locals as greedyand insensitive to local customs and practices. If political circumstances inthe country in question change, and the improvement is a joint ventureor strategic alliance, then the foreign-owned portion of the asset may benationalised or expropriated by the government in power. Currently, thefeelings and sentiments described above are widespread in Russia andsome of the new countries making up the former Soviet Union.

Module 6 Case 6.1

1 The group possesses considerable diversity and high interpersonal attrac-tion. The members of ‘Ean’s patrol’ are drawn strongly to the group’s taskand its goals. Thus, the norms of the group favour high individual effortand acceptance of the group’s work methods and activities. The group alsohas a norm about creativity which encourages risk-taking while allowinggreat variability in members’ work styles. This is obvious from the amountof latitude that members have for setting their work schedules. While Eanhas high positional and personal status, the rest of the members are not



particularly motivated by positional status. Personal status associated withindividual expertise appears to be much more important to the group’smembers.

The group has high cohesiveness and it appears to be able to minimise itsprocess losses. It is a small group that has developed a number of techniquesfor efficiently discussing creative problems. Ean is more of a mentor thanformal leader. When particularly troublesome creative problems emerge,the group selects a temporary leader who has expertise that matches theproblem at hand. Each member has developed role skills that are matchedto the everyday demands of completing projects on time.

2 The group was formed, and remains together, because of interpersonalattraction. The components of interpersonal attraction which initially drewthe individuals to the group were the nature of the group’s tasks andgoals. All members are still motivated strongly by their opportunities tobe creative in these two areas. Indeed, each member has personal valueswhich emphasise strongly the values of innovation and creativity. Since therest of the organisation (including Ean) expect the group to be creative, itdoes infuse its work with considerable creative energy.

While the group’s goals and activities may have attracted the employeesto the group initially, attitude similarity has also developed to make thegroup highly cohesive. Assuming there is no turnover in membership andthe group’s tasks do not change; it should remain a highly cohesive stage 4group.

Ean showed considerable understanding of the basics of group structureand decision-making in his selection of employees for the group. He hasinsulated the group from much of the day-to-day routine in the business andhe has controlled the group’s normative structure to encourage tolerance forindividuality. He also maintained some project group characteristics in thegroup by: (a) keeping its systems support simple; (b) connecting the groupdirectly to top management; and (c) protecting the group from the rest ofthe organisation.

3 First, he kept the group small so that average productivity per memberwould not fall off due to social loafing. Second, he controlled the normativestructure of the group (by being a good role model) and moved it to maturityquickly. This minimised process losses, which is a necessity in a creativegroup. Third, he selected members with high creative energies and strongvalues for risk-taking and innovation. Fourth, he shielded the group fromroutine matters in the business. Fifth, he allowed the group considerablefreedom and he encouraged the development of personal work styles. Sixth,he taught the group how to brainstorm. This is a critical process which helpsa group defer judgement in the process of creating ideas, solutions, effects,outcomes, etc.



Module 6 Case 6.2

1 Clearly, the ‘hands-off’ practices followed by Allister had returned a measureof control and autonomy to the supervisors and their production teams.The fact that Rudy was absent during this period may have presentedthe supervisors and employees with an opportunity to demonstrate thatthey were perfectly capable of outstanding work without Rudy’s restrictivepolicies and practices.

Knowing that Allister had a personal interest and belief in autonomy andteam-based control, the supervisors and work teams probably concludedthat they could persuade Allister to undo some of Rudy’s policies duringhis absence. Apparently they were right because Allister agreed to suspendthe policies of detection and locker checks in exchange for close monitoringof the use of company tools and equipment. Finally, Allister had suspendedthe burdensome mandatory overtime policy.

He had done this as a response to the work-force’s outstanding efforts toeliminate company back-orders while improving product quality. In effect,supervisors and workers knew that Allister would be a fair-minded listenerand that he would implement facility improvements if they met productionrequirements.

2 Without question, Allister should show Rudy the production results achievedduring his absence. He should also review with Rudy the decisions onsupervisor control, overtime, suspension of locker searches and use of metaldetectors. Since Rudy had just attended a company-sponsored, month-longleadership seminar, Allister might consider having Rudy develop a plan formaking future production management changes based on the results of histraining, company goals for the production facility and input from the threeshift supervisors.

These three requirements would present Rudy with a problem not unlikethose specified by the Vroom–Yetton–Jago Normative Decision Model.According to this model, the problem presented by Allister would causeRudy to select combinations of consultative and group-based decision-making to complete his plan. He would be compelled to seek input andadvice from the shift supervisors and from employee work groups andtheir informal leaders. This activity would redirect Rudy’s managementstyle in such a way that he could be more effective in group-based decision-making. Also, when understanding of Rudy’s activities reached the super-visors and work groups, they would perceive his work as being consistentwith a group-centred system of managing the production facility. Finally,this assignment would better align Rudy’s management style with Allister’s.

In summary, Allister should not make a case to eliminate Rudy’s job. Thataction would be inconsistent with his practice of listening to people anddeveloping their ideas and potential on the job. In some respects, thisdecision is an act of ‘faith in people’. To make it, Allister would be bankingon changing Rudy’s management style in such a way that even higherproductivity and product quality would result.



Module 7 Case 7.1

1 From the standpoint of Fiedler’s contingency theory of leadership it isapparent that the favourableness of the leadership situation has deterioratedbadly. Wexley’s leadership orientation is not well matched to the demandsof the work situation in the production division. He has been trying touse a task oriented style in a moderately unfavourable situation. Fiedler’smodel would predict that a relations oriented style would be most effective.Wexley also relies too heavily on legitimate and coercive power which act toreinforce his task oriented style of leadership. Employees did not trust himvery much nor did they have great confidence in his management expertise.He would have been much more effective had he used a more relationsoriented style.

The path-goal theory of leadership would predict Wexley’s failure to bean effective leader. According to the model, he is underestimating theabilities of his subordinates and he assumes that they have no achievementmotivation (he may be right). Second, the work in production has highclarity and routineness and low challenge. These subordinate and taskcharacteristics predict that a leadership style emphasising supportive andachievement oriented behaviour would be most effective. He errs by relyingsolely on directive behaviour.

The situation can be improved by allowing foremen to work out newwork procedures with their employees. Second, Wexley must stop his taskoriented or directive behaviour and focus more on encouraging employeesto accept goals which they learn about from Mr Lenton. To this point, uppermanagement has not been involved in the problem. This is an abdicationof the leader, monitor and disseminator roles. Mr Lenton must lend hiscommitment and involvement to prevent the situation from deterioratingfurther.

2 Mr Lenton should recognise that he must be able to shift roles to beeffective as a top manager. He must take the lead in informing employeesabout the competitive capacity of the company which is impaired by lowproductivity in production. Mr Lenton is also quite uninformed about thecurrent problems in production. No one is listening to employees and nomanager with legitimate authority is functioning in the disturbance-handlerrole. Mr Lenton must become the disturbance handler and negotiator. Onlyhis involvement can correct the existing problems in production.

It is also apparent that no managers with expertise and referent powerare actively involved in seeking a solution acceptable to employees andmanagement. Thus, the liaison role which should link operational employ-ees and top management is not being performed. Until managers step inand function effectively in the roles mentioned, the problems will only getworse.



Module 7 Case 7.2

1 Clearly Mrs Fields has a high need for achievement. Evidence in the casesupports this because she: (a) visited stores unannounced; (b) oversaw allaspects of operations; (c) took over problems in stores by herself; (d) madeall management decisions concerning expansion through debt financing; and(e) refused to build a company with a coherent management structure filledwith professional managers. While the company was small, with perhapsfewer than 50–75 outlets, she could single-handedly manage operationsand the regional growth of the company. This meant that she personallyoversaw all store manager hiring decisions and all decisions to select newstore locations. During the company’s early survival her enthusiasm andstrong control were instrumental to the success of the company.

Once the company was larger and multi country in scope, her hands-onmanagement style became an obstacle to further growth and profitability.Clearly, without sound management advice, she made ill-considered andcostly decisions to expand into markets and countries which she did notfully understand. The absence of sound management advice and informa-tion was reflected by her unwillingness to build the kind of organisationthat was staffed by seasoned professionals. Staying too long with a highlyboss-centred leadership style proved to be the primary factor that forcedher out as CEO and president of the company that she founded.

2 Mrs Fields seemed to rely on several sources of interpersonal power. Hervery strong orientation to achievement caused her to rely heavily on expert-ise power. She was able to design the organisational systems to build rapidlya successful company with 543 outlets in six countries. When she detectedoperational problems in retail stores, she quickly took over operations andcorrected the problems. These behaviours represent reliance on legitimatepower. Finally, she used referent power to convince lenders, employees, stu-dents and admirers that she had developed a highly successful formula for‘growing’ a business from scratch. Her popular book did much to advanceher image as a charismatic entrepreneur who relied heavily on the threeforms of interpersonal power noted above.

Mrs Fields used several strategies to gain power as she expanded hercompany. Clearly, she cultivated an image of success through her speakingengagements and successful autobiography.

She was an entrepreneur who thought carefully about ways to expanda business while minimising risk. She was less successful at controllingbudgets and managing the use of supplies throughout her far-flung cookieempire. Likewise, she performed poorly at controlling the financial resourcesof the firm. Her over-reliance on debt to fuel growth was clearly a weaknessin her financial management strategy.

Leadership principles also surface in Mrs Fields’ management practices. Forinstance, she is strongly initiation-structure oriented. She place the highestpriority on continued growth through market expansion and increasing the



number of retail outlets. This strategy dominated her approach until thecompany’s debt load threatened her control. Once she perceived the threatcreated by too much debt, it was too late to build a professional organisationto control growth and guard company assets. The licensing agreements weremerely speed bumps on the road to her loss of control of the company.

Mrs Fields exhibits several strong entrepreneurship qualities. In buildingher company, she was tenacious and willing to make personal sacrifices. Itappears from the case that she was a tireless promoter of the organisationand its premium products. She was highly directive problem-solver becauseshe would step in and stabilise faltering retail outlets and she shoulderedpersonal responsibility for the continued growth and success of the business.She possessed an internal locus of control and she never seemed to waiverin her belief that the company would prosper. Perhaps she took too manyrisks without having the ability simultaneously to minimise the chance thatshe would lose control of the business to its creditors. Giving control of thebusiness to its creditors may have been an important lesson for Mrs Fields.Most observers of successful start-up firms would agree that building acapable organisation with a focused niche business strategy might havekept Mrs Fields at the helm.

Module 8 Case 8.1

1 Before the change at the Manchester plant, Tobric was a functional organ-isation which was highly centralised. It had very mechanistic design withhigh formalisation and standardisation. The full burden of co-ordination fellon the vertical hierarchy and little horizontal co-ordination took place.

In the pilot programme the design was shifted to a more decentralisedform. The creation of the general manager position at the Manchesterplant (Lucien’s position) signals an attempt by top management to delegateauthority. If the new design takes hold, the senior vice-president and theother vice-presidents should be more successful at planning the directionof the company. Further, Tobric’s other plants would eventually have theirown general managers to accelerate the decentralisation process in the firm.

For the design change to be successful, the vice-presidents in London mustgradually remove themselves from involvement in day-to-day decision-making in the management of the Manchester plant. It is uncertain whetheror not the design plan will be effective, since top management has notspelled out the new role for the Manchester plant manager. The presidentand his senior vice-president must do this immediately. Also, they mustclarify their expectations for the vice-presidents’ responsibilities in the pilotdesign. Failure to do this quickly will allow the vice-presidents to adopta variety of management practices in their dealings with their functionalsubordinates at Manchester and at other company manufacturing locations.This condition would lead to overloading of the management hierarchy andthe president would probably abandon the pilot programme and return tothe former, and less effective, design.



2 Lucien is new to the general manager’s job. His position is a departure fromestablished authority relationships and communication channels. Lucien hasformal authority on paper (the new organisation chart) but he will have toearn the respect of his subordinate managers and the vice-presidents inLondon. To consolidate his position, he might consider several horizontalco-ordination mechanisms that might slowly lessen the plant departmentmanagers’ dependence on the vice-presidents in London. He could alsosuggest that several vertical co-ordination mechanisms be used to help thevice-presidents learn their new roles in the more decentralised design.

To improve horizontal co-ordination among his department managers, Luciencould create temporary liaison roles which would help integrate workflowbetween plant departments. This would lessen the departmental managers’dependence on the vice-presidents in London. Also, a horizontal task-forcecomposed of department managers and Lucien would help iron out inte-gration issues formerly handled by vice-presidents.

Vertical co-ordination could be increased by the formation of a collateralorganisation. It would be managed by a steering committee of selectedvice-presidents, Lucien, and perhaps several managers from the Manchesterfacility. This group could deal with co-ordination and workflow problemsstemming from the new organisational design. It could also focus on theorderly diffusion of the new design to include the company’s other produc-tion facilities.

Module 8 Case 8.2

1 Even though Messrs Hewlett and Packard had removed themselves fromday-to-day management decisions in the company, they saw that the com-pany they had founded had grown too centralised and complacent. As majorrivals began to stumble due to their top-heavy and centralised designs,Messrs Hewlett and Packard took decisive steps to greatly reduce bureau-cratic rigidities that had crept into the company under the leadership ofMr Young. By talking to employees from all divisions, Messrs Hewlett andPackard soon realised that HP had lost its ability to meet changing customerneeds in the market-place quickly. It could no longer develop products orpolicies without the meddling of countless committees.

The two founders did not deliberately create a boundaryless organisation,but they certainly applied organisational principles which encourage thatform of organisation. For instance, by transferring corporate-level employ-ees to field operations, they attacked directly the task boundary whichhad previously prevented swift product development and pricing changesbecause corporate employees and field operations personnel could not co-ordinate effectively. By strengthening the divisions and eliminating layers ofmiddle management, the founders attacked directly the political boundarywhich had significantly slowed product development and market orientedpricing decisions. Wider management spans and employee empowermentgreatly sped up product development and market-based decision-making.



Finally, by attacking the identity boundary, Messrs Hewlett and Packardeliminated some barriers which had caused employees to overemphasisetheir loyalty and commitment to their departments at the expense of theircommitment to effective product development processes and market-baseddecision-making.

Messrs Hewlett and Packard were able to create a key aspect of a boundary-less organisation in HP: they planted the seeds for organising around coreprocesses instead of functions. By shifting personnel to field operations,eliminating layers of management and changing leaders, they restructuredHP around the core processes of product development, sales and fulfilment,customer support and field operations. The founders recognised that simplydownsizing the company would not accomplish the transformation of HPto a highly responsive organisation.

2 HP has created a distinctive competitive advantage which will serve it wellin the years to come. A competitive advantage is a strength in a companywhich cannot be easily duplicated by its competitors. HP now has severalstrengths which cannot be easily copied by rivals. For instance, it dominatesthe laser printer market because it maintains a pipeline of product inno-vations which cannot be matched by rivals. Thus, it has greatly improvedits product development strength. By applying its product developmentstrengths to PCs while embracing and improving direct marketing conceptspractised by its rivals, it has displaced Apple as the number three producerof PCs in the US.

The company’s successful downsizing of middle management coupled withits focus on core processes greatly sped up product development and low-ered unit costs by spreading less overhead over more products. HP hasnot let decentralisation go too far. If product development rates fall off andoverhead per unit produced rises, then HP will most likely experience around of downsizing aimed primarily at divisions which have grown toolarge and bureaucratic. It is much less likely that corporate headquarterswill be allowed to grow unchecked through a process of recentralisation.Future enhancements of competitive advantage will most likely occur withinHP’s strategic business units.

Module 8 Case 8.3

1 Figure 8.7 of the OB text can be used to show how these companiescould return to competitiveness by strengthening their abilities to customiseservice. The diagram shows some of the steps that a firm can followto merge re-engineering, delayering, new work force management practicesand service improvement to strengthen competitive advantage. The diagramillustrates the process as a fairly rapid, if not always smooth, transition to adelayered, responsive organisation having a competitive strategy based onan improved service emphasis. That rosy theme probably will not be borneout in practice. Such a dramatic shift in a company’s methods of operations



may require key executives and board members to overrule some entrenchedmanagement and board member factions who still believe that a strongeremphasis on cost control (the manufacturing efficiency paradigm) is theright pathway to higher net income.

To generate the cash necessary to support the overhaul of work forcemanagement practices such as wall-to-wall training it may be necessary tosell less profitable company assets. Finally, those employees and managerswho fail to embrace the new approach to service probably should get thesack. Shareholders cheer on managers who raise profits and share price. Thediagram’s service improvement actions will strengthen a firm’s competitiveadvantage, especially in industries that are mature and producing productswhich are standardised. The diagram’s steps may be absolutely necessaryin industries with razor-thin profit margins and intense competitive rivalry.

Create strategic focuson service quality asa central feature of

competitive advantage

Assess all companyprocesses and control

systems in terms of valueadded to service quality

(re-engineering)

Eliminate control systems andhierarchical levels that add novalue to service (re-engineer

and delayer)

Organise control systemsto track and emphasise

results in serviceimprovement

Modify human resourcespractices to develop a work

force that is trained,motivated and rewarded to

deliver excellent, customisedservice

Create service quality trackingsystems that show employeeshow well their service unit is

performing (line of sight)

Create service improvementgoals and use incentivesto reward managers and

service delivery personnelfor gains

Delegate authority toemployees to customise

service and to suggest im-provements to service and to

support systems (empowerment)

Revise support systems andhuman resources practices asneeded to sustain competitive

advantage

The diagram suggests that firms should strongly consider ignoring down-sizing’s lure as a ‘quick-fix-to-profit woes’. In downsizing’s most dangerousform, the across-the-board version, customer and vendor relations are oftenbadly damaged and more price and service-driven rivals quickly scoop updisgruntled customers (and employees). As the vignettes suggest, down-sizing often fails to improve service or integration among units that aremerged to save money. After downsizing, the employees who remain in thenew unit are those who, for whatever reason, failed to take, or were noteligible for a fat severance package or buyout offer. Often those who grabsuch offers are employees who understand how service quality improves



competitive advantage. Their new, less expensive replacements may requireextensive training and experience before they have the knowledge that leftwith their more highly paid, but mobile predecessors. Do not expect theoutsourcing of portions of the sales or service functions to always be costeffective. The Northern Natural Gas example underscores this conclusion insharp relief.

Module 9 Case 9.1

1 Company managers have not focused on developing a good fit betweenmission, strategy and goals and the culture of the organisation. The absenceof adaptability and fit surfaces in the symptoms of sales manager turnover,rising customer complaints, stagnant market share and frustration amongemployees in the sales division. A similar pattern exists in the produc-tion division. A strong culture emphasising product quality and excellentemployee–management relations has not been developed. Tentex has beennegligent about developing an overall, company-wide value of consistentexcellence. The firm’s policy of no commissions for sales managers has hadthe effect of removing the motivation for managers to monitor sales workclosely. Likewise, managers in production have not put pressure on suppli-ers to deliver high quality materials on time. Since raw materials variabilitycontributes to constant production and assembly problems for employees,they are bound to become frustrated with their work and develop a ‘whocares’ attitude. Finally, the absence of consistent communication betweenthe top and the bottom of the organisation contributes to rumour prolifer-ation. Since most of the rumours are negative, they too have a depressingeffect on the motivation of production employees.

2 The diagnosis was thorough in that it identified several symptoms andcauses of problems in sales and production. The diagnosis relied solelyon interview information collected from employees by Adrian and mem-bers of his task-force. Interview information is highly informative, but hiscommittee missed a chance to lessen resistance to change (and increase thechances of institutionalisation and diffusion) by utilising a survey feedbackmethodology. The inclusion of survey feedback would have created wideremployee participation by the gathering of survey data. In turn, this wouldhave broadened the basis for programme institutionalisation and diffusion.The creation of the focused task-forces along with the use of team-buildingduring the managerial retreat helped build top management commitmentand involvement in the change process.

Adrian’s programme is also noteworthy because he provided for the carefulassessment of programme changes. This ensures that the programme willbe thoroughly evaluated relative to: (a) employee reactions; (b) employeeknowledge of the programme; (c) actual changes in employee behaviour;and (d) changes in organisational performance measures.

The programme targeted very specific problems identified during theunfreezing phase. Adrian’s group should be commended for its wise deci-



sion to involve valued customers in the change process in the sales division.Also, the production task-force was right on target with its programme toimprove the quality of supplies and the timeliness of their delivery. Thesechanges are quite likely to be institutionalised and diffused in the pro-duction division because employees will experience much less frustrationin their production and assembly work. The timely introduction of theTQM and bonus programmes will change the culture in production andensure institutionalisation (as long as top management remains visible andcommitted to the changes).

Module 9 Case 9.2

1 Under Dr Wang’s management, Wang Laboratories’ culture became a reflec-tion of his personal beliefs. The company’s culture was extremely strongand it reflected Dr Wang’s beliefs about the central roles of Chinese familytraditions, business excellence and product quality.

During the first 30 years of the company’s existence, its culture clearlyreflected the strength perspective because employees and Wang familyexecutives could show a strong correlation between long-term financialperformance and the culture of the company. During this extended period,employees demonstrated high motivation and strong commitment to thegoals of the company and the company had controls and structure whichwere adequate to ensure profitability and success in the market.

The fit perspective also applies to the first 30 years of Wang Laboratories’operations. Dr Wang had an unusual ability to perceive changes in marketsand how customers used computers and software prior to the developmentof memory chip-based personal computers. His entrepreneurial insightskept new products and services flowing to the market at a rapid clipand his company had spectacular growth. His unbroken string of newproduct successes blinded him to growing weaknesses in the company.And this threatened his control of the company at a time when he wishedto follow Chinese traditions and turn the now publicly owned companyover to his oldest son. He allowed his family values to subvert his businessjudgement and the company’s strong culture became a heavy drag onproduct innovation and structural realignment in the company.

The adaptation perspective in organisational culture was not evident underDr Wang’s last few years of managing the company. And it certainly wasnot present under his son’s leadership of the company. Once investors andcreditors wrenched control of the company from the Wang family, it was toolate to adapt it to changing business conditions and to stave off bankruptcy.While the company did become more adaptable under successive leaders,it still remains to be seen if Wang Laboratories can chart a new mission foritself.

2 Wang Laboratories exhibited many symptoms of organisational decline.Given the information in the case, it is clear that the company began its



downward trend after about 30 years of financial and strategic success. Atits high point, it employed 25 000 people and had world-wide sales of nearly$3bn. It had done this well before companies like Microsoft and Intel hadrisen to prominence. As noted earlier, Dr Wang’s centralised managementstyle and belief that Chinese family traditions should infuse the company’sculture sowed the seeds for failure. However, well before the downfall ofthe company, there were early warning signs of future business difficulties.

A Fear of embarrassment and conflict probably kept key executives andmanagers from challenging Dr Wang’s views on products and manage-ment succession.

B Linked to this would be the loss of effective communication. Dr Wang’ssubordinates probably told him what he wanted to hear, especiallyduring the period of the company’s unprecedented growth. Thus, DrWang was probably complacent about the company’s future at a timewhen he should have been re-evaluating its fundamental mission.

C An outdated organisational structure reflected Dr Wang’s product inspi-ration driven management style. Like many entrepreneurs who are alsotalented product innovators, Dr Wang created products or stuck withexisting products before thorough market research was performed. Hefollowed this logic: ‘We can make and sell this product, so let’s createa division to make and market it.’ This approach leads to inefficientorganisational designs which duplicate resources and drive up generalsales and administrative expenses.

D Resistance to change was also a symptom of Wang Laboratories underDr Wang’s leadership. He listened less to his customers than he shouldhave. He ignored market trends which favoured highly flexible personalcomputers which could run any type of software. Finally, over theobjections of his board, he installed his son as president of the company.

E Special interest groups became more vocal and demanded changes inWang Laboratories. Creditors refused to extend lines of credit and once-loyal customers refused to buy Wang systems which would only runWang software.

F Decreased innovation also occurred in the company as it sped towardsbankruptcy under the management of Fred Wang.

3 Prior to decline and bankruptcy, Wang Laboratories seems to representmostly the inception stage of the life-cycle theory. The company neverachieved any of the characteristics of the maturity stage. It did not becomedecentralised, it failed to create a professional managerial level, and itdid not seem to use advanced planning methods with intermediate timehorizons (three to five years). Wang Laboratories remained in the inceptionphase even though it became a $3bn company with 25 000 employees.Through Dr Wang’s personal beliefs and management style, the companywas plunged into bankruptcy because it could not survive the managementtransition forced on it by Dr Wang.



From the information in the case, it is clear that the company never devel-oped a cadre of professional managers who could better ensure the com-pany’s orderly adaptation to new markets and customer product expecta-tions. Dr Wang precipitated a crisis by installing his son as the companypresident at a time when the computer industry was undergoing a fun-damental shift to personal computers. In graphic fashion, the case pointsout how the once-brilliant company founder can be fatally out of step withmarket requirements and orderly succession planning. In the case of WangLaboratories, Dr Wang made the decisions which drove his company intobankruptcy.


Appendix 2

Practice Final Examinations andWorked Solutions

Contents

Practice Final Examination 1 A2/2

Worked Solutions A2/11

Practice Final Examination 2 A2/17

Worked Solutions A2/30

This appendix contains two practice examinations which are indicative of thetype and level of material which appears in the Heriot-Watt University finalMBA degree examination. Students will note that there are minor differencesbetween the two examinations provided. In each case, however, the level ofdifficulty, the total of marks awarded and the passing standard are the same.

The duration of the examination is 3 hours. The points value of each section isshown. Within the total time of 3 hours students may allocate their time amongsections as they see fit. The pass mark is 50 per cent.

There is no choice in the selection of questions to be answered. In the objectivequestions, no points are deducted for wrong answers.

For each question, a solution is provided which will allow students to assesstheir performance. The examination serves two purposes: to test understandingof the course and to provide information on standards required to pass theuniversity final degree examination.

The rationale for providing two examinations is that students who haveworked through the course, have taken the first practice examination and, onthe basis of their performance in that examination, are not satisfied that theyhave attained mastery of the material, will be able to study the course againand have a second opportunity to test themselves. Where the first examinationis satisfactory, the second may be used for additional practice.


Appendix 2 / Practice Final Examinations and Worked Solutions

Practice Final Examination 1

Scoring Your Exam

The Organisational Behaviour examination is in TWO sections:

A: Objective Questions

Questions each worth two points.

Total points available: 30 × 2 = 60.

B: Essay/Problem Questions

Questions each worth 60 points.


Total points available for examination: 240.

Pass mark = 50% × 240 = 120.

Section A: Objective Questions

Each question is worth two points.

1 Which of the following components of a manager’s job are most oftenrewarded by the organisation?

A human and conceptual.

B technical and human.

C technical and conceptual.

D organisational and conceptual.

2 Why does organisational behaviour focus so strongly on the issues ofemployee attitudes and employee behaviour on the job?

A human nature plays a permanent and significant role in organisationalproductivity and goal accomplishment.

B the long history of unionisation in organisations has created this per-spective in organisational behaviour.

C researchers who study work dynamics focus on how employee attitudesand behaviour influence productivity.

D customers expect high quality service that is customised to their needs.



3 Which of the following most improves job satisfaction once lower-orderneeds for employees are satisfied?

A challenging, demanding jobs.

B increased clarity in job descriptions.

C lengthening time delays between performance and feedback about per-formance.

D improved employment benefits.

4 Which of the following is correct? Managers can develop organisationalcommitment by all of the following EXCEPT:

A supervising closely and requiring the employee to focus on the task athand.

B creating work designs which emphasise team-work.

C acknowledging performance with meaningful rewards and prompt per-formance feedback.

D participatively creating goals which achieve important organisationaloutcomes and simultaneously develop the employees’ skills.

5 In the short run, which factor is LEAST related to the need for achievement?

A taking moderate risks in completing the job.

B requesting immediate feedback about performance.

C needing a promotion or a pay rise.

D pursuing meaningful goals at work.

6 Which of the following is correct? Expectancy is:

A a subjective belief that some level of effort on the job will lead to agiven level of performance.

B a subjective belief that a given level of effort will lead to a desirablereward.

C a subjective belief that a given level of performance will lead to aparticular set of rewards.

D the degree to which an employee believes that his superior will provideclear task instructions.

7 A soccer player, threatened with suspension from the game, stops usingfoul language with the game’s umpires. He therefore avoids any unpleasantconsequence. What is this an example of?

A positive extinction.

B negative reinforcement.

C punishment.

D shaping behaviour.



8 Which of the following statements does not support behaviour modificationtheory?

A the theory focuses on changes in psychological states.

B the theory emphasises the importance of providing timely feedback toemployees about their performance.

C the theory stresses the measurement and analysis of observableemployee behaviour.

D the theory relates to employees’ beliefs about connection between per-formance and rewards.

9 Which of the following is correct? Skill-based compensation:

A discourages employees from seeking training.

B makes part of the employee’s compensation contingent on his acquisi-tion of new job-related skills.

C rank orders positions in the firm relative to their difficulty and educa-tional requirements.

D ties the acquisition of new job-related skills to increases in the cost ofliving.

10 Why was scientific management so widely adopted by managers and theirorganisations?

A it provided a way for companies to make work more interesting andappealing without dramatically raising labour costs.

B it showed that financial incentives could be used to boost productionin jobs that were designed to be performed in the most efficient way.

C it was an accepted way to improve the communication of companygoals to rank and file employees.

D it proved to be a method of job design that could be used to greatlyreinforce competitive advantage based on superior service delivery.

11 Which of the following is correct? Gainsharing programmes:

A attempt to control labour costs through a formal system which helpsemployees install labour-saving innovations.

B tend to work only when an enterprise is benefiting from expandingsales.

C do not require employees to achieve better understanding of how theirwork units contribute to the cost of goods sold.

D do not require a history of good labour–management relations in com-panies to be successful.



12 An employee has just designed a new piece of software and completed thedebugging process on it. Which job content factor is MOST related to theabove statement?

A task identity.

B feedback.

C skill variety.

D task significance.

13 If employees get feedback about their performance by completing varioussteps in their work, which of the following should they experience?

A responsibility for task completion.

B meaningfulness of work outcomes.

C knowledge of results.

D job satisfaction.

14 Characteristics of a self-directed team are:

I it can make decisions about changes in work methods.

II it creates its production schedules within unit goals.

III it is responsible for cross-training its members.

Which of the following is correct?

A I only.

B II only.

C I, II and III.

D Not I, II or III.

15 A team leader starts a meeting with the production team. In his introduction,he notes the importance of high trust levels among team members andwhy team members should be comfortable with providing and acceptingperformance feedback among themselves. What stage of group developmentis characterised by the leader’s comments?

A storming.

B norming.

C performing.

D forming.



16 Which of the following is correct? All of the following are properties ofgroup norms EXCEPT:

A a member may privately disagree with some aspect of work methodsin the group.

B the leader spends more time supervising the group if it has strong,focused norms.

C norms develop for central and important beliefs of the group’s mem-bers.

D some members of a group have more rights to deviate from establishedgroup norms than other members do.

17 A workteam meets in its own time after its work shift. In the meeting theteam devises a plan to have members of the group explain their contribu-tions to production method’s improvements at the team’s weekly meetingswith the plant supervisor. What aspect of individual team member behav-iour would be less likely once this plan was implemented?

A social loafing or failure of team members to contribute resources to thegroup.

B maintenance activities designed to make new members feel comfortablein the team.

C task-structuring activities designed to increase team output.

D individual creativity in areas other than production methods.

18 Which of the following is correct? When members of a group assume thatall other members are in favour of the group’s course of action, we say thatthe group is suffering from:

A mindguarding.

B self-censorship.

C illusion of unanimity.

D illusion of invulnerability.

19 How are the symptoms of groupthink in a project team different from thedefects in the decisions it makes?

A the symptoms of groupthink apply to group decision-making processesand the defects in its decisions are tied to social loafing.

B the symptoms of groupthink apply to the composition or make-up ofthe team while the defects in its decisions are tied to generating toofew solutions to a problem.

C the symptoms of groupthink apply to faulty decision-making processeswhile the defects in its decisions may or may not result in a baddecision.



D the symptoms of groupthink are unrelated to characteristics of theteam leader while defects in its decisions are directly related to teamcharacteristics.

20 Nominal groups:

I are highly structured.

II focus on personalities of group members.

III pressure members to reach consensus in decision-making.


A I only.

B I and II only.

C I, II and III.

D I and III only.

21 Which of the following activities resolves interpersonal conflict among groupmembers?

A process.

B task.

C job.

D maintenance.

22 Which of the following is correct? Leadership consideration behaviour ismost closely related to:

A initiating structure behaviour.

B building strong relationships with subordinates.

C having employees participate in decision-making.

D entrepreneurial behaviour.

23 According to the path-goal theory of leadership behaviour, a leader’s job isto:

I clarify the path to work goals.

II reduce or remove obstacles in the path of employees who are trying toperform well enough to obtain valued rewards.

III where appropriate, involve employees in decisions.


A I only.

B III only.

C I and II only.

D I, II and III.



24 Neutralisers of the effectiveness of the leader’s initiating structure behaviourare:

I subordinates’ expertise and job knowledge.

II task confusion and conflicting work expectations.

III flexible rules and non-routine work demands.


A I only.

B I and II only.

C II and III only.

D Not I, II or III.

25 Which of the following forms of departmentalisation helps develop special-ists or experts?

A product.

B matrix.

C functional.

D territory.

26 Which of the following is correct? The matrix design would be least effectivewhen:

A special projects need to be done.

B the organisation needs to energised.

C the company’s market is stable and unchanging over time.

D co-ordination needs are complex in the company.

27 Diagnosis in organisational development is:

I expensive.

II time consuming.

III vulnerable to management’s desire for quick action.


A I only.

B I and III only.

C II and III only.

D I, II and III.



28 The Xlogic Company decided to start a process to reduce the time necessaryto assemble component parts. A task-force of employees managed by anindividual performed the following problem-solving activities: (a) recog-nise and define the problem; (b) develop problem-solving processes; (c)implement the proposed change; and (d) measure and evaluate the resultsof the change programme. In OD terminology, what would the managingindividual be called?

A a task-force manager.

B a consultant.

C a senior programme manager.

D a change agent.

29 A company has changed its assembly-line-based production system to acomputer-based system that uses self-managed teams to do all productiontasks and set production schedules and deal directly with customers. Asthe programme implementation went on, managers organised a group toget clarification about their changing responsibilities, job training and jobsecurity from the plant’s top managers. As a change agent responsible forthe programme, what type of problem might you suspect will come fromthe group of supervisors and department heads?

A weak or ineffective diagnosis.

B poor problem recognition or definition.

C resistance to change.

D failure to institutionalise change.

E groupthink.

30 An externalising employee who is experiencing job burnout would increasehis job performance the most if:

A his supervisor gave him more job-based authority to make decisions.

B his co-workers evaluated his performance.

C he was extensively cross-trained.

D his supervisor created highly structured work assignments with regularperformance feedback meetings.

E his supervisor introduced flextime in the employee’s department.

Section B: Essay/Problem Questions

Each question is worth 60 points.

1 ‘Organisations have to meet the challenge of change by adopting sev-eral strategies.’ Describe these strategies. Consider what qualities a good,planned change programme has and outline the steps in the planned changeprocess.



2 Identify the important features of employee involvement in decision-makingand discuss the issues which managers must take into account if they wishto use more effectively employee involvement in decision-making.

3 Ulie Nemer is a 56 year-old financial planner in a investment servicesbusiness in London. Her company has long supported its numerous veteranplanners who wanted to lessen their efforts at attracting new clients infavour of using their skills to retain the firm’s existing customers as theyapproached the end of their careers. Recently the board hired a new CEO,in his late 40s, and he promptly changed this policy. In a staff meetinghe said: ‘It is growth or else, and there is no room for long-term, seniorplanners to ease up as they approach the end of their careers.’

What would likely organisational and employee effects of this new policy?



Worked Solutions

Section A: Answers to Objective Questions

1 C. Organisations place the greatest value on the manager’s technical andconceptual skills. These skills determine who gets hired and who getspromoted. The skill area often overlooked in hiring and promotion decisionsis human resource management.

2 A. Organisational behaviour tries to explain the effects of human behaviour,motives and attitudes on the performance and effectiveness of organisations.

3 A. Since the employees’ maintenance needs are satisfied, choices B andD can be ruled out because they refer directly to lower-order need sat-isfaction. Choice C is illogical. Choice A is preferred since it emphasisesthe importance of job challenge which is a higher-order need related toself-actualisation.

4 A. The definition of organisational commitment stresses: (a) willingness toexpend personal effort on behalf of the organisation; (b) a personal belief inthe values of the organisation; (c) the desire to preserve membership in theorganisation. These three qualities would be heavily supported by choicesB, C and D.

5 C. Choices A, B and D are all behavioural characteristics of an employeewith a high need for achievement. While pay rises and promotions wouldbe very important to him in the long run, he would be much more involvedwith intellectual challenge, meaningfulness and risk-taking in the short run.

6 A. Expectancy is the subjective belief that a given level of effort (motiva-tional force to perform) produces a given level of performance. Choice B ismeaningless because it does not specify the nature of the first-level outcome.Choice C refers to instrumentality while choice D is unrelated to the conceptin the question.

7 B. Since the avoidance behaviour is strengthened, negative reinforcementhas occurred. The player has learned how to avoid the unpleasant conse-quence of suspension from the game.

8 A. Behaviour modification predicts and controls behaviour without referenceto inner states of mind. The person’s environment gets credit for strength-ening or weakening behaviour by virtue of the consequences it providesfor behaviours. The other three choices are highly applicable to behaviourmodification.



9 B. Skill-based compensation provides an economic incentive for acquiringmore job-based skills. The organisation gives a pay rise or a bonus whenan employee completes a training programme which makes him a moreversatile employee. Choice A is irrelevant while choice C refers to anelement of job analysis. Choice D is also meaningless.

10 B. It appeals to managers who believe that organisations can be machine-like and manufacturing efficiency can be raised by using piece-rate paysystems. It implies that the control (and motivation) of the work-force is amatter of effectively using financial incentives.

11 A. Gainsharing programmes use teamwork and innovation to lower labourcosts by finding more efficient and effective production methods. Employeesearn team-based bonuses when their work units produce a given level ofoutput at a given level of quality with fewer man-hours. The typical bonuscycle is one month.

12 A. Doing a job from beginning to end represents the reverse of job speciali-sation according to the Job Characteristic Model. Task identity is the relevantjob content factor. The other three choices represent other job content factorsin the model.

13 C. This question ties job content factors to critical psychological states in theJob Characteristic Model. The psychological state which goes with feedbackis knowledge of results.

14 C. Autonomous work groups (self-directed teams) have all three character-istics. These three are not exhaustive. Module 5 describes many other formsof autonomy which may be assigned to them.

15 B. These comments show the emergence of norms governing behaviourin a group. Personal issues are still relevant (being open to performancefeedback). The leader emphasises trust, which is the building block for allnorms about collaboration.

16 B. A key function of norms in groups is to summarise and streamlinethe influence process. If a group has a rigorous structure of norms thenthe leader would have to spend less time closely supervising members’behaviour. Choices A, C and D are all properties of group norms.

17 A. Team members want the full effort of all members so a special norm iscreated for members’ contributions in the weekly meeting with the plantsuperintendent.

18 C. When a group loses its ability to evaluate alternatives it is too cohesive.Conformity is stressed too heavily by the group. This condition leads togroupthink. The assumption of consensus by individual members underconditions of groupthink represents the illusion of unanimity.



19 C. Any project team may be deeply mired in groupthink. However, theproblem-solving potential of the team may be so high that actual decisionsare excellent in spite of the groupthink

20 A. Nominal groups are formed to follow a very structured procedure toidentify the fundamental features of a problem. It: (a) is highly structured;(b) ensures participation; (c) prevents dominance by key group figures; and(d) prevents conformity.

21 D. Maintenance activities in groups prevent process losses triggered by inter-personal conflict and disagreements. Formalising the role of the interper-sonal conflict resolver allows the group to get back to performance-relatedmatters.

22 B. Leadership consideration behaviour is leader behaviour which focuseson the personal needs and welfare of subordinates. It includes open-doorpolicies, encouraging esprit de corps in groups and helping subordinateswith personal problems. Such behaviours would certainly create strongrelationships with subordinates. The other three choices are legitimate leaderbehaviours, but they do not directly relate to leadership consideration.

23 D. All of these leader behaviours are components of the path-goal theoryof leadership. These outcomes may occur when a leader selects the fourbehaviours shown in the theory.

24 A. Subordinates’ expertise and their job knowledge neutralise the leader’sinitiating structure behaviour. Choice A is another way of saying thatemployees can create their own successful work methods.

25 C. Functional designs group jobs together by common work activities. Oncean employee is assigned to a particular function, he will have ample oppor-tunity to learn all the nuances of work in that function. This design providesthe greatest opportunity for an employee to specialise in a particular aspectof work in the organisation.

26 C. Matrix designs purposely create heterogeneous project or product teamsto handle the turbulence in dynamic, unstable and uncertain business envi-ronments. They are highly effective when special projects need to be doneor the organisation needs to be energised because it is not effectively com-peting.

27 D. Diagnosis in OD helps separate the causes of organisational problemsfrom their symptoms. If the diagnosis is thorough, it will be costly, timeconsuming and vulnerable to management’s need for quick results. Thiscan lead to treating the symptoms of problems instead of their true causes.

28 D. This person is a change agent because the task-force’s steps are elementsof the process of planned change.



29 C. A change agent would have to be prepared to address the supervisors’concerns about their job security, economic security and positional authority.These managers have good reason to be worried.

30 D. The externalising employee is experiencing so much job stress thathis performance is rapidly deteriorating due to the combined effects ofpsychological withdrawal from work and his declining coping capacity.More structured work with specific instructions from the supervisor couldsignificantly reduce the level of stress he experiences and his performancewould return to an acceptable level. At the same time, his symptoms of jobburnout would probably vanish.

Section B: Answers to Essay/Problem Questions

1 In order to survive, organisations must adapt and change. These changesmay be good or bad but the way they are introduced is crucial, especially forthe profitability of the company and the morale of the work-force. Organi-sational change may occur in response to either external or internal stimulior both. To meet the challenge of externally induced change, organisationsmay follow several courses of action. First, they may change their goalsand strategies. This could comprise offering a new product or service ortargeting new markets. Second, they may introduce new technology alongwith downsizing to reduce costs and work redundancy. Finally, the organ-isation may redesign itself from a functional to a product-design structure.This change strategy may also involve decentralising into smaller operatingunits.

When the stimulus for change is triggered by internal forces such as low pro-ductivity, high absenteeism, high labour turnover and increased grievanceand discipline problems, organisations use other means. These may includeredesigning jobs to include more variety, autonomy, feedback, significanceand social interaction. The organisation may alter its recruitment policiesto bring new blood into the company or try a retraining programme tochange the skill mix of its work-force. Finally, the organisation might alterits appraisal and reward systems to encourage new employee behaviours.

Companies which can change their cultures quickly enough to meet newbusiness requirements are likely to survive and prosper. However, there arethree conditions which must be fulfilled in order for a successful corporatetransition to be implemented. First, employees must be dissatisfied withthe status quo. Second, the organisation must have a vision for the futurewhich will guide the redesign process and give the work-force a sense ofpurpose and direction. Third, the process of change has to be well managedin order to exploit the potential of the other two conditions.

Successful planned change has several characteristics. For example, it isfocused on a whole organisational unit. The ‘knock-on’ effect of changes toa subunit can be counter-productive if other parts of the unit are affected in



ways which were not foreseen. It is also based on behavioural science know-ledge. Change managers have to be aware of how the content, pace andextent of changes will affect and be affected by the behaviour of employ-ees. Finally, the change requires its primary goal to be the improvement oforganisational effectiveness.

Lewin has suggested that the planned change process should follow asequence of organisational events. These events are unfreezing, changingand refreezing. Unfreezing occurs when people in the organisation realisethat the current systems do not achieve strategic goals. Often the CEOdecides the time is right for a change. This is a top-down approach andits focus is on putting procedures in place to involve the work-force in thechange. However, sometimes the push for change comes from employeesand it may have been uncovered during a regular employee attitude survey.Once unfreezing occurs, action plans are developed to move the organisationand its work-force towards a new model. Refreezing occurs when the changeis fully functional and it is at this point that the company needs to reviewthe whole process.

2 Employee involvement in decision-making is rapidly widening to almost allissues of productivity, performance, product quality and customer service.Any of these decision areas requires that employees demonstrate the threeaspects of effective participation in decision-making. The first is that theemployees are mentally active in the decision-making process so that theycan think creatively and experience job involvement for meeting job chal-lenges in the areas noted above. When these higher-order needs are beingsatisfied they are unlikely to indulge in avoidance behaviour or social loaf-ing. The purposeful element in participation is in itself a motivating deviceand is a second dimension of participation (intrinsic motivation). It canencourage employees to make personal contributions to their organisation.

When the organisation’s social system meets the employee’s belonging needsand the technical work system presents him or her with challenging andmeaningful work, the conditions are right for creating the motivation tocontribute. This employee motive can be improved through delegation ofauthority to employees or their self-directed teams. The third dimensioninvolves shifting managerial authority to influence. Employee involvementworks best in delayered, System 4 organisations. In them, employees musthave a larger zone of indifference to managerial initiatives. Their zonesof indifference expand when managers use influence rather than author-ity. When employees experience the greater control which accompaniesempowerment they (or their self-directed teams) are more willing to acceptdelegated authority.

Leaders of self-directed teams should use the diagnostic questions fromthe Vroom–Yetton–Jago Normative Model. These question areas include: (a)the importance of quality in the decision; (b) the amount of informationpossessed by the leader; (c) the importance of time pressure impingingon the decision; and (d) the extent to which subordinates’ support for the



decision is related to its success. Employee empowerment cannot be suc-cessfully installed in organisations that have histories of labour unrest orpoor relations with unions. Installing participation and employee empow-erment is generally easier to do in start-up operations but it can still bedone in established operations if managers and employees are committedto the principles of System 4 organisations. If the culture of the organisationvalues adaptiveness, then empowerment and participation will be embracedby the work-force. Managements should have a plan in mind that showshow empowerment and participation will increase competitive advantagethrough these more enlightened work-force management practices.

Employees must view empowerment and participation as central to theirwork and not as an intrusion. If they work in self-directed teams they mustreceive the cross-training to tackle any problems in their team’s work. In thedelayered organisation, team members must also receive training in thoseskill areas that improve team problem-solving in areas such as product andservice quality and production process control.

Finally it is important that neither managers nor employees feel that empow-erment and participation are simply management attempts to cut costs bymaking self-directed teams do more work. It is inevitable that various inter-est groups, for example trade unions, may view employee empowermentwith some fear of its consequences; but once the company has embarked onempowerment there will not be an opportunity to return to the status quo,and managers need procedures to anticipate and deal with any problems.

3 There are a number of predictable outcomes that would affect Ulie and herfellow, senior employees. The most prominent effect would be an immedi-ate decline in job satisfaction because veteran planners would experiencedeclining motivation as they realise that there now much less performancebenefit from providing excellent service to the firm’s existing clients. Veter-ans’ satisfaction with intrinisic and extrinsic rewards would taper off andserious damage would be done to their previously high levels of organi-sational commitment. Equity theory predicts that senior planners like Uliewould be extremely dissatisfied with their treatment under the CEO’s policy.The veterans would place high value on their skills and wide experiencebase compared to the rewards they receive while more aggressive but lessqualified junior employees would receive higher pay and bonuses.

The unbalanced equity situation noted above could trigger an exodus ofsenior employees if the firm hit a slow sales period and had to offer anattractive retirement package to reduce its high fixed costs. The seniorplanners are already smarting from the obvious age discrimination thatis evident in the firm. If the firm had to reduce its labour costs, theseemployees would jump at the chance to quit if they were offered even amodest severance package. Once they are gone, the knowledge of the seniorplanners would have gone with them. This could seriously undermine theloyalty of long-term clients to the firm. In a downward spiral, the firm couldwatch helplessly as valued clients (and their future investments‖ depart thefirm thereby triggering more downsizing and service cutbacks.



Practice Final Examination 2

This exam is constructed to be of the same standard as the first mock exam.You will find a short bonus case at the end of the exam. It has 8 multiple choicequestions that are each worth two points.

Scoring Your Exam

A: Objective Questions



B: Essay/Problem Questions

Questions each worth 50 points.


C: Case Study



Total points available for examination: 240.

Pass mark = 50% × 240 = 120.

Section A: Objective Questions

Each question is worth two points.

1 Organisational behaviour is considered a:

A discipline.

B field.

C science.

D philosophy.

2 What feature(s) of the field of organisational behavior make(s) it a valuablecontributor to the knowledge bases of managers who must increase theperformance of their organisations?

A it explains the relationship between an organisation’s strategy and itsstructure.

B it concentrates on transaction costs that influence the relationshipbetween companies and their rivals.



C it concentrates on how organisational effectiveness is influenced by thebehaviour of individuals and groups and the structure or design of theorganisation.

D it concentrates on how resources are deployed throughout the organi-sation to take advantage of market opportunities.

3 The matrix design does not respond to induced uncertainty.

A internal

B external

C technologically

D motivationally

4 Which of the following forms of departmentalisation will help developspecialists or experts?

A product

B matrix

C functional

D territory

5 Motivation refers to:

A needs experience of people.

B goal-directed, purposeful behaviour that is expressed by the individual.

C the direction of behaviour after a need has surfaced.

D the amount of functional analysis experienced by an individual.

6 The expression B = f (P, E) means:

A behaviour is a function of physical arousal and effort.

B behaviour is a function of physical arousal and environment.

C behaviour is a function of person and environment.

D behaviour is a function of processes and energy.

7 MBO is a(n):

A theoretical interpretation of expectancy theory.

B practical application of expectancy theory.

C practical application of behaviour modification.

D application of job enrichment techniques.



8 Punishment is a questionable scheme for changing work behaviour becauseit is:

A painful.

B necessary to follow it with a desired reinforcement to be effective.

C necessary that valued rewards be taken away from people.

D a cause of apprehension and leads to a tension-filled work atmosphere.

9 A mid-range approach to job design that would fit the differences that existamong employees is to:

A consider the importance of higher-order and lower-order needs.

B develop job descriptions and encourage employees to move to moresatisfying jobs within the organisation.

C partition jobs into discretionary and non-discretionary tasks.

D match the employee’s job interests with a job’s requirements.

10 A company will normally resist the idea of a job enrichment programmebecause:

A many employees prefer jobs which are routine and specialised.

B job enrichment is a short-term strategy.

C few studies support job enrichment’s claim of higher employee satis-faction and motivation.

D implementation tends to be weak and individual differences are ignoredin job enrichment schemes.

11 In the Exeter company the following conditions have surfaced:

(a) morale is low; (b) the grievance or complaint rate by employees isrising; (c) production delays are mounting; (d) rumours of a downsizing arecirculating; and (e) absenteeism is increasing.

To improve the situation management should:

A establish open communication with top management so that employeescan have their questions answered honestly.

B replace employees who are regularly absent.

C spend more time visiting employees at their job sites.

D start a programme of employee involvement to improve employees’opportunities to satisfy higher-order needs.



12 A new product development team exhibits the following characteristics:(a) members do not voice their concerns about product safety featuresto other group members; (b) the members believe that the company’scompetitors are less innovative and slower to develop new products; and(c) members believe that their company’s dominant market share in theproduct’s category is not vulnerable to rival firms. What is the problem thatthis team suffers from?

A failure to achieve the motivation and commitment stage of group devel-opment.

B the members of rival organisations are social loafers.

C the product development team wishes to avoid risk.

D the product development team exhibits groupthink.

13 High Machiavellian managers tend to:

A believe that some people are inherently better than others.

B emphasise the effects of rules and regulations on others.

C have well-developed higher-order needs.

D take advantage of others if it suits their needs.

14 Which of the following is true about expectancy theory?

A ability has a variable effect on performance.

B people are motivated by the probability that feedback will occur.

C people are motivated to choose behaviours which will help them satisfytheir needs.

D people are motivated to satisfy their expectations.

15 John has been ill for six weeks. He is back at work, but is still feeling theeffects of illness. His annual review is scheduled for next week. The reviewshould:

A be postponed until he has caught up with his office work.

B be held as scheduled, but his superior should acknowledge that hisillness has affected his performance.

C disregard his recent illness, because it could jeopardise his future pro-motion.

D disregard his illness, since performance reviews concentrate on produc-tivity and performance.



16 A company starts to cross-train employees to make them more effective asmembers of self-managed teams. Along with this training, the companyalso improves the safety of working conditions and makes them less hotand humid. Finally, the company instals a review and appeal system toconsider any employee’s performance review if the employee thinks it isunfair. What is the organisational development classification that ties thethree programmes together?

A process organisational change.

B task-technological change.

C group and individual change.

D horizontal job loading and quality of work life programmes.

17 Behaviourally anchored rating scales emphasise:

A individual performance skills which influence performance.

B actual job behaviours which represent aspects of effective and ineffectivejob performance.

C the transferability of job skills from one job to another.

D the importance of evaluating employees for needed training.

18 One of the disadvantages of open-salary information is that it:

A increases employee job satisfaction.

B exaggerates pay perceptions.

C overcomes the pressure to pay all employees the same.

D is time consuming to implement and maintain.

19 Which types of power are non-transferable?

A expert and referent power.

B reward and referent power.

C coercive and legitimate power.

D expert and legitimate power.

20 A group of executives is discussing the general characteristics of the self-managed teams in the company’s subsidiaries. One executive describeda team in these terms: (a) the members have a clear understanding of theteam’s mission and purpose; (b) members evaluate each other’s performanceand they take corrective actions based on these evaluations; and (c) the teammembers have agreed to rotate the responsibilities of team leadership. Whattype of group is being described by this executive?

A a formal group.

B a mature group.

C project team.

D a total quality management team.



21 Designing and implementing a BARS performance appraisal system wouldbe an example of a(n) organisational development intervention.

A individual level

B system-wide process

C unit-level process

D group-based

22 The manager of an information systems unit found that his self-managedteams were having trouble in several work areas. For instance, he oftenfound himself being asked to attend meetings to help several teams setgoals and manage priorities. For two teams he had to intercede to resolvepersonal conflicts among their members. If you were a change agent, whatorganisational development method would you recommend to him to attackthese types of problems?

A team-building.

B quality of work life programme.

C incentive system management.

D T-group approach.

23 Which of the following is not true about team-building?

A it often takes a long time to be successful.

B it shares methods with the training group approach.

C it requires a facilitator.

D it focuses on actual problems which confront the task group.

24 The task-force in charge of an OD programme designed to improve customerservice and satisfaction used employee focus groups to identify those areasof customer service that could be simplified to reduce the time necessary tohandle customer inquiries. As the programme moved into its training phase,senior managers in technical field services trained employees in customerservice to diagnose customer problems over the phone. As this phase ofthe programme was implemented, the task-force sought feedback fromcustomer service reps who had been trained by the technical field personnel.What was the task-force trying to accomplish by involving employees fromcustomer service in these ways?

A the task-force was trying to take a holistic view of organisational change.

B the task-force was trying to reward the customer service representativeswho had been trained.

C the task-force used participation to minimise problems of control, resist-ance and job redesign.

D the task-force was trying to impress top management.



25 Which of the following groups helps members understand how they areperceived by other members of the group?

A T-groups.

B self-directed teams.

C project groups.

D team-building groups.

26 Which leadership style focuses on employee needs for having satisfyingco-worker relationships?

A team management.

B country club management.

C organisation management.

D authority-obedience management.

27 Internally oriented individuals, that is, individuals with a high internallocus of control, are characterised by:

A high susceptibility to group pressures.

B membership of the better educated and higher income level groups.

C preferring rewards such as pay and job security.

D remaining static on the career ladder.

28 A company has been acquired in a friendly merger by a well-funded,larger competitor. The employees in the acquired company are told that itsmission statement and goals will be altered to match those of the largerfirm. They also learn that all of their usual work procedures will be alteredto match those of the larger company. These changes in the firm that hasbeen acquired may trigger problems in:

A widespread groupthink in the company that was acquired.

B merging the cultures of the two organisations.

C risk-shift for employees in the company that was acquired.

D inability to delegate responsibilities to employees in the company thatwas acquired.

29 For an organisation that needs to be flexible due to rapidly changing marketconditions, which organisational structure is the most appropriate?

A product.

B functional.

C matrix.

D Systems 2.



30 The following activities were currently under way in a company improve-ment programme:

I A task-force of employees was providing production employees withfeedback from a questionnaire that they had completed two weeks ago.

II Change agents were showing top managers how company performancewas influenced by high turnover rates in two production facilities.

III Department managers were in a meeting with change agents who wereshowing them how product defect rates were increasing along withmaterials costs.

What aspect of organisational change do these activities represent?

A forces for change.

B transition management.

C unfreezing.

D systems process change.

31 Top managers explained to a change agent that they felt the company’shigh grievance rate in the production division explained declining productquality and higher levels of waste in fabrication. They also said that theywanted a solution to this problem which minimised the involvement ofproduction employees. The change agent responded by saying: ‘That shouldnot be a problem. I can develop for you a complete programme thatwill accomplish your goals.’ How would you describe the change agent’sbehaviour here?

A the change agent is violating basic ethical considerations in organisation.

B the change agent is trying to avoid doing a problem diagnosis.

C the change agent is neglecting external explanations for the problems.

D the change agent is acting too much like an expert.

32 The manager who is attempting to reduce role ambiguity experienced byhis subordinates would:

A allow them more control of work schedules by starting flextime.

B develop a weighting scheme to distribute high-urgency tasks or projects.

C ask them about their preferences for certain rewards when they performwell.

D clarify their task understanding by giving examples to them of excellentperformance on the job.



33 Which answer most accurately sums up the Type A personality pattern?

A the Type A person struggles with an underlying urge to be hostile andangry.

B the Type A person need not experience heart disease or high job stressbecause of his impatience and high degree of competitiveness.

C Type A persons can easily become Type Bs through relaxation exercises.

D organisations should screen out Type A employees because they aremore likely to burn out on the job.

E due to their impatience and competitiveness, Type A employees alwayshave a negative effect on the performance of their peers.

34 Which ONE of the following statements is true?

A Kirkpatrick has suggested three sets of criteria can be used to evaluatetraining programmes.

B There is no single best set of evaluation criteria for all training situations.

C It is much more important to evaluate management training systemati-cally than training for other groups of workers.

D T-group training focuses on technical skills, rather than interpersonalskills.

35 Which ONE of the following statements is true?

A The work participation method of job analysis consists of the analystwatching job-holders perform key tasks.

B Blum’s formula can be used to decide which is the best method of jobanalysis for any given situation.

C The group interview method of job analysis is less time consumingthan the one-to-one method.

D Job analysis should not be used to identify training needs.

36 Which of the following choices should be strongly linked to executivecompensation?

A The firm’s profitability and market value.

B The cost of living increases experienced by executives.

C Salary surveys of executive compensation authorised by boards of direc-tors.

D Factors other than the profitability and market value of the firm.




37 The following company features exist: 1) only upper management partici-pates in an ISO plan; 2) upper management decided to lower the exerciseprice of the options as the company’s stock declined; 3) the firm uses self-directed teams covered by a Rucker Plan; and 4) along with the changes tooption values upper management announced the use of higher payroll costsdue to the increased use of temporary workers. The effects of these actionson line-of-sight for employees on the self-directed teams would most likelybe which of the following choices?

A Improved line-of-sight because the company does not have to payemployment benefits to the temporary workers.

B Improved line-of-sight because it would now be easier to earn thegainsharing bonus.

C Reduced line-of-sight because the self-directed teams would experiencethe use of temporary workers as making it more difficult for them toinfluence the value-added to production.

D All of the above.


Section B: Essay/Problem Questions

Each question is worth 50 points.

1 Job satisfaction is a complex concept which managers should monitor con-stantly. Discuss.

2 Consider why individuals join groups. Identify the characteristics of cohe-sive self-directed teams and discuss what managers can do to make teamcohesiveness a contributor to improved competitive advantage.

3 Discuss the economic pressures that may force the Japanese keiretsu tomodify their traditional business practices.

Section C: Case Study

Instructions: Read the following case and answer the questions that follow it.Each question is worth two points.

Employee Empowerment at Fiberex

The Fiberex Corporation makes electronic signal switching equipment for largecommunications firms. The firm sets up its production activities into long assem-bly lines at its five domestic plants in the United States. The company is twomonths away from completing a sixth manufacturing facility near Chicago andcompany managers want to experiment with new work methods and employeeempowerment at the facility. Because the company’s work-force is unionised,



labour representatives are a part of a team that is designing the work system andemployment rules for the new plant. Besides the two union representatives, the17-person team has two production managers, two product development engi-neers, a customer service manager, four production supervisors, three productionworkers, two total quality management specialists and the plant manager. Thedecisions made by the team are subject to corporate approval, but the teambelieves it has sweeping authority to make wide-ranging suggestions for work-system design at the new facility. Since the company is experiencing increasedcompetition from global firms that have entered Fiberex’s national market, man-agement is anxious to develop a more productive work system that has lowerlabour costs.

The team has made its recommendations for the work system at the facility tomanagement. If its recommendations are approved, the plant manager and hisstaff will carry them out immediately so that the work-force would be in placewhen the plant is opened. A summary of the team’s recommendations is shownbelow.

1 Employees are guaranteed 32 hours of work per week, but they must workovertime during periods of peak demand, and during slow periods theymay have to perform other jobs specified by plant management.

2 Training and development teams made up of plant supervisors and produc-tion employees develop and deliver all technical and organisational trainingprogrammes.

3 All employees in the facility receive 100 hours of training during the firstsix months of plant operations. Half the training is in company time andthe other half is in the employees’ time.

4 Any labour grievances are handled by a committee of plant supervisors andworkers who are elected to two-year positions by the plant’s employees.

5 Production work is delegated to self-managed teams with responsibility forproduction levels, model changes, quality and efficiency improvements andcost control.

6 Self-managed teams evaluate their performance and the contributions ofteam members. Member evaluation criteria include members’ skill levels incore team activities, contributions to quality improvement and cost controland support of team production goals.

7 Bonuses are paid to teams who meet production goals and member payrises are based on: (a) team production standards approved by management;(b) level of skill acquisition; (c) peer reviews; and (d) quality improvementsuggestions.

8 After two years of production experience, employees can bid for jobsthroughout the plant.



Case Study Multiple Choice Questions

1 Which philosophy or approach to job design is contributing the least to thework system design in the new plant?

A job enrichment, as developed in the two-factor theory.

B horizontal job loading as suggested by job enlargement, job rotationand cross-training.

C scientific management.

D self-directed work-teams.

2 Which set of outcomes would be the first to be influenced by the work-system design practices in the new plant?

A job security, job satisfaction and work-team goal-setting.

B job absenteeism and lateness for work.

C company loyalty, satisfaction with pay and job involvement.

D grievances, safety violations and customer complaints.

3 What job design principle is most closely related to plant work-designactivities number 5 and 6?

A give employees a whole job to do from beginning to end.

B vertically load the job so that employees have control over the planningand doing portions of work.

C rotate employees among various jobs to lessen job monotony and bore-dom.

D give employees control of the performance feedback process so thatthey can make improvements in product and service quality.

4 Which level of Maslow’s hierarchy would be most influenced by plantjob-design activity number 1?

A self-actualisation.

B self-esteem.

C belongingness.

D safety and security.

5 What team description best fits the description of the 17-person work-designteam at the plant?

A a cross-functional task-force.

B a self-managed production team.

C a permanent command group.

D a project team.



6 What is the employees’ perception that would be most strongly influencedby work-system design activity number 4?

A distributive and procedural fairness.

B effort-to-performance.

C performance-to-reward.

D fairness of supervision.

7 What is the least accurate way to describe the intent of the job-designactivities undertaken in the new plant?

A the job design activities use horizontal and vertical job loading.

B the job design activities are attempting to develop strong and ambitiousnorms about levels of team effort and member performance.

C the job design activities are seeking the most economically efficient worksystem configuration based on work simplification and specialisation.

D employees working in this plant could expect to find considerable jobrange in their work.

8 Which statement is most true about the company’s experiment with newwork methods and employee empowerment at the new facility?

A top managers are primarily interested in creating a new organisationaldesign.

B company executives and plant managers recognise that it is easier tocreate new work systems in start-up operations which require a newlyrecruited work-force.

C the work-design activities are most closely aligned with a behaviourmodification perspective.

D the company is trying to design a production facility that avoids theproblems associated with work-force diversity.



Worked Solutions

Section A: Answers to Objective Questions

1 B. Organisational behaviour is the study of human behaviour, attitudesand performance within organisations and it is an interdisciplinary field,drawing on concepts from psychology, sociology, cultural anthropology etc.

2 C. The three major aspects of organisational behaviour are individual behav-iour and attitudes, group dynamics and organisational structure and design.

3 D. The matrix design allows a company in an uncertain environment, withrapid internal, external or technological change, to respond quickly to theseuncertainties.

4 C. The functional design has work units where employees perform aspectsof the same function. Thus, it uses specialisation, and creates experts orspecialists.

5 B. In everyday language, motivation refers to goals that involve desiredoutcomes, social processes that involve influence and mental processes thatinvolve decisions and which cause a behaviour to be expressed.

6 C. Kurt Lewin proposed that the behaviour of an individual is causedpartly by the make-up of the individual and partly by his environment.This relationship can be expressed by the formula B = f (P, E), where B =behaviour, P = person and E = environment.

7 B. Management by objectives (MBO) connects managers and their subor-dinates in setting goals for work performance and personal developmentwithin a specified time period, at the end of which they meet to assess thesubordinates’ success in attaining the goals. It is a practical application ofexpectancy theory, which suggests that people expend job effort when theybelieve that they can achieve the things they want from their jobs.

8 D. Punishment is the application of an undesirable event that follows abehaviour which it is intended to eliminate. However, it often producesa conditioned fear in employees of the manager who is administeringthe punishment. This can result in undesirable, emotional reactions in theemployees.

9 A. Individuals react differently to attempts to improve the design of theirjobs because of variations in their knowledge and skills, growth needstrength, satisfaction with their work environment etc. It is not often possi-ble to design jobs in such detail as to fit each individual employee’s needs.A compromise for managers is to attempt to meet the individual employee’shigher-order and lower-order needs, which can be done other than throughthe job itself.



10 D. Job enrichment is concerned with efforts to make a job more interest-ing by providing the job-holder with more autonomy and decision-makingresponsibility, i.e. by increasing the depth of a job through vertical load-ing. One of the major reasons for many companies’ negative views of jobenrichment is that such schemes have previously failed. This has often beena result of neglecting to ask employees to participate in the job enrichmentscheme, and because of lack of managerial and trade union support.

11 C. Where an organisation is subject to these conditions, it is clear that man-agement must take action. Solution A is impractical. Solutions B and D willnot meet employee concerns about downsizing, nor will they determine thereasons for the increasing production delays. By walking about and meetingemployees, management can attempt to determine why the problems statedare occurring and, where possible, make appropriate changes to improvethe situation.

12 D. The three characteristics of the project team are symptoms of groupthink.The presence of these symptoms does not mean the team will take a poordecision. They suggest only that the potential for a poor decision exists.

13 D. Machiavellian managers are socially domineering and manipulative andengage in more political behaviour than their colleagues. Solutions A, B andC can apply to any type of manager, but continually taking advantage ofothers where it suits their needs is especially applicable to managers whoare highly Machiavellian.

14 C. The most widely cited version of expectancy theory is that of VictorVroom. His model of expectancy theory suggests that the psychologicalforce on employees to exert effort (i.e., motivation) is a function of theirexpectancies about the future and the valence or value to them of thespecific future outcomes. People choose behaviours which help them satisfytheir needs.

15 B. Solution A may result in recency error. Solution C is not appropriate toan appraisal interview. Solution D does not take into account the effectsthat illness may have had on John’s performance. The appraisal interviewshould be held as scheduled, with the appraiser taking into account thepossible negative effects upon John’s performance of his recent illness.

16 D. As Herzberg would say, these are all useful improvements in workcontext or job hygiene. As such, they do not challenge employees or involvethem more in their jobs.

17 B. Behaviourally anchored rating scales (BARS) use examples of employeebehaviour as anchors for performance dimensions. They are developed byrating specific behavioural incidents and rating employee performance ashigh, moderate or low on specific scales.



18 D. Solutions A and C are advantages of open-salary information. SolutionB is the reverse of what is found. An organisational problem related toopen-salary information is that it takes resources both to implement such apolicy and to ensure its maintenance.

19 A. Power is the capacity to influence the behaviour of others. The formsof power described in solutions B, C and D can be transferred in part orin whole by the organisation to an individual employee. However, expertpower is the ability to influence others’ behaviour because of the skills,talents and knowledge one possesses, and referent power is an individual’sability to influence others’ behaviour as a result of being liked or admiredby others. Such a combination of power cannot be given to an individualby an organisation.

20 B. All of the descriptions suggest a team that has full control of its decision-making processes, is cohesive and productive and focuses its energies ongoals and task activities.

21 C. Organisational development attempts to change an organisation as awhole by changing its structure, technology, people and/or tasks. If partof such an intervention was the introduction of a performance appraisalsystem based upon BARS, it would only be worth while developing andintroducing such a system at the unit level.

22 A. Team-building is the best choice because it concentrates on improvingproblem-solving processes in work groups. A T-group approach is toopersonal and the other two are wide of the mark.

23 B. The purpose of team-building is to help existing or new work groups toimprove their performance by tackling real organisational problems andobstacles. In team-building, it takes time for group members to worktogether as a team, and change agents are required. The training group(or T-group or sensitivity training) approach seeks to enhance employees’understanding of their own behaviour and its impact on others.

24 C. By demonstrating its interests in employee expertise to solve problemsin customer service delivery, management has created a powerful sourceof dissatisfaction with the status quo. Management’s use of participationshows employees that they have less to fear in the process of organisationalchange.

25 A. Quality circles meet to discuss product quality. Project groups are set upto do certain project work. Team-building groups diagnose how they worktogether and plan changes to improve their effectiveness. The purpose ofbringing people together in a T-group is to increase their self-awareness andsensitivity to others.



26 B. The four solutions all relate to the Managerial Grid concept of leadership.Team management relies on interdependence through a ‘common stake’ inthe organisation; organisation management aims at balancing the need toget the work done with maintaining morale at an adequate level; authority-based management creates work conditions that minimise participation.Country club management involves thoughtful attention to the needs ofpeople, because such satisfying relationships are expected to lead to acomfortable, friendly, organisational atmosphere.

27 B. Locus of control refers to the belief that personal actions will or will notresult in certain outcomes. Research has shown that, partly because they aregreater risk-takers and show greater entrepreneurial behaviour, individualswith an internal locus of control have higher incomes, hold jobs of higherstatus and advance more rapidly in their careers. It has also been found thatupper-class individuals indicate a more internally oriented locus of control.

28 B. The announcements made by managers of the acquiring firm are arepudiation of the methods, values and beliefs of employees in the firmacquired. This brew signals culture crash/clash ahead.

29 C. In the matrix form of organisational design, a project/product form issuperimposed on a functional form, thus blending an emphasis on marketchanges with management and technical expertise in given product orproject areas. Such a design can be highly flexible and respond quickly tocustomer and production-related pressures for change.

30 C. These activities are designed to create dissatisfaction with the status quo,or what is called unfreezing.

31 A. As a matter of ethics, change agents are obligated to lay out the processof planned change to client organisations. If their managers wish to ignorethe planned change paradigm, then they should hire a consultant.

32 E. Role ambiguity is defined as uncertainty about the requirements of ajob or task. These requirements could refer to methods or outcomes. Onlychoice D offers a contribution in these two areas because it suggests that themanager make clear what behaviours are related to success (and failure) onthe job. Choice A, while somewhat helpful because it gives the employeesome control over matters of when he will work, does not clarify behavioursrelated to successful methods and outcomes.

33 B. The latest research on Type A (B) behaviour suggests that those under-lying personality traits that are related to heart disease and other ‘ailmentsof adaptation to stress’ are hostility directed towards others (and self) andthe inability to maintain confidence in one’s abilities. Anger and self-doubtmixed with the classic Type A characteristics seem to be a toxic stress brew.



34 B. Kirkpatrick lists four sets of criteria. It is important that all training issystematically evaluated. The main focus of T-group training is interpersonalbehaviour. The optimal criteria for evaluating training will vary from onesituation to another.

35 C. The major reason for using group, rather than individual, interviews isthe time saved by talking to several job-holders at the same time, ratherthan on a one-to-one basis. The work participation method requires theanalyst to carry out part of the job, not just observe it. There is no formulawhich identifies the best method of job analysis for any given situation. Theanalyst must be guided by common sense and experience. Job analysis can,and should, be used to identify training needs.

36 A. Shareholder and executives’ interests are most closely aligned when exec-utive compensation is based on improvements in the firm’s net income andtotal market valuation. If a firm’s profitability and market value rises fasterthan those of its industry rivals, then shareholders will look favourablyon executive compensation schemes which reward executives more as netincome and share price targets are met or exceeded.

37 C. Since temporary workers do not have any reason to be loyal or committedto their short-term jobs in a company, they would be less likely to suggestcreative improvements. Furthermore, they do not have the depth of jobexperience necessary to detect deficiencies in organisational processes andsuggest improvements. It simply takes time for employees to see the defectsin the organisational systems under which they work.

Section B: Answers to Essay/Problem Questions

1 Job satisfaction is a function of employees’ equity perceptions of outcomesthey experience at work. The satisfaction facets experienced by employeesare: pay, working conditions, colleagues and supervisors, career prospectsand the intrinsic parts of the job itself. Levels of satisfaction are influencedby characteristics of the employee and characteristics of the organisation.Individual determinants include years of service and employee expectations.In relation to years of service, it has now been established that as individualsgrow older their job satisfaction becomes stronger, although this usually dipsas retirement approaches. There is also a dip at the beginning of a careermainly due to the novice’s unrealistic expectations about the job. Withexperience on the job and familiarisation with the organisation’s culture,the initial drop in job satisfaction usually vanishes. Expectations aboutcareer progression may also affect job satisfaction. If pre-work informationabout career prospects obtained from personal and official sources raisesexpectations beyond what an employer can deliver, then satisfaction islikely to be adversely affected. If employees worry about their economicsecurity their levels of job satisfaction will be lowered.



There are a number of organisational determinants which affect employees’job satisfaction. For example, if supervisors use employee participation indecision-making, this may improve the satisfaction of their subordinates; butthere are situations where this style of management may not be appropriate.By applying the diagnostic questions of the Vroom–Yetton–Jago normativemodel, managers can select the appropriate level of employee participationin decision-making for most situations. Another organisational determinantis the improvement of individual workers’ jobs to make them more mean-ingful (QWL programmes). Few would deny that having the opportunityto do interesting and creative work and being given achievable goals to aimfor are important causes of job satisfaction. However, such programmesmay undermine competitive advantage because they are too expensive toimplement and they often preserve a slow and unwieldy chain of command.For this reason, organisations may delayer and use self-directed teams. Inthese applications, training costs rise and the organisation usually finds thattechnology and advanced communications systems can reduce the needfor supervisors and managers without damaging levels of employee jobsatisfaction.

Organisational administration of rewards also strongly influences job satis-faction. Extrinsic rewards such as pay rises, promotion, recognition, statusand job security operate in a different way from intrinsic rewards, suchas feelings of competence and pride in the quality of workmanship. Theorganisation’s use of a variety of rewards and how employees react tothem is governed by equity comparisons made by employees. This suggeststhat workers are highly sensitive to the procedural and distributive justiceaspects of rewards (and other outcomes they experience) in organisations.Employees have predictable reactions to the outcomes they experience atwork (benevolents, equity-sensitives and entitleds).

More recently, the job satisfaction experienced by employees has been influ-enced by widespread downsizing among companies, which can lead toexperienced economic uncertainty, which in turn leads to job dissatisfaction.Other examples of such threats to job satisfaction are the organisationalactions of delayering, outsourcing and re-engineering. These actions canreduce employees’ organisational commitment, especially among the morevulnerable middle managers and supervisors.

However complex job satisfaction is, managers need to monitor it becauseit is an indicator of the firm’s resilience and adaptiveness. Job satisfac-tion measurement methods are indirect in nature because satisfaction canonly be inferred; it is both intangible and personal. The methods includeobservation of employee behaviour, a programme of exploratory interviewswith employees and questionnaires. A widely used measuring procedure isthe Job Description Index which measures variables such as the design ofcurrent job, pay, promotion opportunities, interpersonal relationships andsupervisory style.

2 A work group is defined as a collection of two or more employees who(a) interact with each other, (b) perceive themselves as sharing several



common interests or goals and (c) come together to accomplish a meaningfulorganisational activity. There are two types of work groups: formal groupswhich are formed to carry out recurring tasks (or, in the case of projectgroups, a specific task and then the group is disbanded) and informalgroups having members who come together to satisfy their needs that arenot met by membership in formal groups.

Individuals join groups for the following reasons: (a) as a means of satisfyingsocial or affiliation needs to belong to something or share in something; (b)as a means of working with others who have a record of problem-solvingsuccess in group activities; and (c) as a means to satisfy important personalneeds such as anxiety reduction, affirmation of values, beliefs and attitudesand economic security.

Most people find it easier to define themselves in terms of their relationshipto others as members of a group. Therefore, in self-descriptions they mightrefer to a group’s properties such as its socio-economic status, objectives,gender and racial make-up.

Cohesive, self-directed teams exhibit solidarity, a high degree of interactionamong members, strongly developed norms that support team goals anddecision-making processes, well-liked and admired leaders and conformity.Cohesive groups have energetic, highly motivated and committed memberswho have a lower incidence of absenteeism. Members of cohesive groupsare satisfied and they willingly help each other. Cohesive teams are notnecessarily productive. Their performance may vary to the extent that theteam accepts or rejects the goals of the organisation. If group norms andorganisational goals are compatible, then cohesiveness generally aids organ-isational performance and competitive advantage. If they are incompatible,then the opposite occurs. Incohesive groups tend to have negative qualities,including indifferent members who are unable to achieve goals and lack ofdynamism. Members of these groups also exhibit lateness and absenteeism.

To make team cohesiveness a component of competitive advantage, man-agements must start with the basics. First, teams should be formed so thattheir members have personal characteristics that match the demands of thetask. This means that training should support the formation and use of self-directed teams by the organisation. Second, managements should considerthe size of self-directed teams and how that factor can create interpersonalconflict, slow decision-making and make task co-ordination difficult. Someof these problems can be solved through the use of training and advancedcommunications systems that provide timely quality and productivity infor-mation to teams. Third, managers who set clear goals are going to capitaliseon this important source of team motivation and cohesiveness. Related tothis idea is the creation of an external threat which can be used as moti-vational tool. The manager should be careful to ensure that symptoms ofgroupthink do not occur in the team however. Finally, conducting 360-degree performance appraisal and using team-based incentives will maketeam cohesiveness a pillar to improved competitive advantage.



3 First, these organisational forms have flourished in Japan because of asupportive government industrial policy that has created a domestic marketwith high entry barriers and very high prices for Japanese consumers. Thispractice has fueled keiretsu profits which could be ploughed into companygrowth and global expansion. All of this progress was made possible byJapanese consumers who paid very high prices and saved large amounts oftheir incomes (and subsidised low corporate interest rates).

Current global economic forces are weakening the competitiveness (andprofitability) of the keiretsu. Unrelenting pressure by the US governmentto open Japanese markets to American products has begun to force downprices and keiretsu profit margins as Japanese consumers awaken to the joysof price comparison shopping and retailer discounts. An extremely strongyen has also forced the keiretsu to build production facilities in America andEurope to avoid the erosion of profits that occur as the yen strengthens inrelation to the currencies of key nations. A side-effect of building productionfacilities on foreign soil is that the keiretsu are forced into direct rivalry inmarkets where their competitors are strong and cultural barriers must beovercome.

As keiretsu profit margins have declined, long-standing traditions such asemployment for life and friendly supplier relations have been sorely tested.Japanese workers and managers are, for the first time, experiencing theeffects of lay-off-induced economic insecurity. They are reacting by becom-ing more self-sufficient and by starting more of their own businesses. Sup-pliers to the keiretsu are responding to their squeezed (and dismal) profitmargins by becoming more entrepreneurial (finding new customers, devel-oping new products, forming strategic alliances with foreign firms andimproving service offerings).

These forces are transforming the Japanese economy and its private sector.In the short run, there will be more business failures and higher unemploy-ment. Both of these outcomes will trigger more government spending onsocial programmes and economic development. Japanese consumers willbecome more price-conscious and they will come to expect discounts andwider product selection. In the long run, the economy will become morecompetitive and Japanese consumers will enjoy a rise in their purchasingpower and a wider selection of domestic and foreign-made goods.

Section C: Case Study

1 C. The programme emphasises principles of System 4 organisation, jobenrichment, self-directed teams and employee empowerment, which are allunrelated to scientific management.

2 A. The effects would be noticeable first at the job security level for employ-ees. All of the other choices represent outcomes that take longer to occurbecause they are more complex or they involve higher-order needs.



3 B. Activities 5 and 6 are complex tasks that teams perform and were oncedone by supervisors and managers. In this respect, they represent verticaljob loading or increases in job depth for self-directed teams.

4 D. Activity 1 is a direct contributor to the removal of economic insecurityfor employees.

5 A. A cross-functional task-force fits best because the process of plannedchange is unfolding in this episode. Also, the membership of higher-levelplant personnel separates this group from a project team.

6 A. Activity 4 is a clear representation of the principles of distributive andprocedural fairness. Its presence indicates that plant personnel know thatwork-force employment issues are not always handled correctly. So a medi-ation process will be installed.

7 C. This choice exposes the principles of scientific management present in aSystem 1 organisation. Management in this case is trying to start a System4 organisation from scratch.

8 B. In a start-up operation management is not encumbered by existing meth-ods, procedures and organisational culture as it would be in a programmedesigned to change an existing operation.


Index

absenteeism 1/24absolute standards 4/7accommodation appeasement strategy 6/30, 8/32achievement-oriented behaviour 7/22Adams, Stacy 3/11administrators 7/26–27all-salaried team pay system 4/26, 4/27ambiguity 2/6, 3/18appeasement strategy 6/30, 8/32, 8/32appraisal 3/18, 4/2–10, 8/21, 9/15

case study 4/45–46assessment

case study 6/38–40of employees 1/15–16, 4/2–10of managers 5/11

attitudes 1/28–31authority 7/3, 8/3–4, 8/30–31

delegating 8/5–6, 8/34autocratic leadership 7/18autonomous work groups 5/13–14

Bamforth, K. 5/13Beer, M. 9/15behaviour 1/7, 1/8, 3/2–3

achievement-orientated 7/22group 6/23–25and leadership 7/16, 7/17–19, 7/24–26new 9/19profiles 2/9and stress 2/4, 2/9, 2/11work 1/13

behaviour anchored rating scale (BARS) 4/9–10behaviour modification 3/20–22, 3/25–27,

3/31–32, 7/24–26criticisms of 3/26–27and employees 3/22

belongingness needs (Maslow) 3/5Bennis, W. 7/17Benson, Herbert 2/12Black, J. 6/24, 6/24Blake, Robert 9/28boundary spanning units 7/9boundaryless organisations 8/30–34Bowman-Upton, N. 7/27brainstorming 6/18–20, 6/23Buchanan, Patrick 2/16burnout, job 2/10

Burns, T. 8/3business owners 7/26–27

cafeteria-style fringe benefits 4/25, 4/27carry-over problem 9/19–20case studies

A Swedish–American Joint Venture 4/46–48A Turnaround at Tentex 9/37–39Alton’s Experiment with Changes in Job Range

and Depth 5/27–29Analysing a Change in Design 8/54–56Assessing Work Group Creativity 6/38–40Building Cross-Cultural Work Teams 5/29–31General Electric Has a Whistle-blower 1/38–39How Hewlett-Packard Avoided the Decline

Suffered by IBM and DEC 8/30, 8/56–60Lenton Industries 7/36–39Looking for Mrs Good Cookie 7/40–41Measuring Job Involvement in the Work Setting

1/36–38Motivating Employees at Cypress Semiconductor

3/38–40One Man’s Values Force a Company Into

Bankruptcy: The Story of Wang Laboratories9/39–41

Performance Appraisal At Work 4/45–46Promoting Employee Productivity 3/37Samuel Logston 2/22–24Team Productivity at A. E. Leeson’s Ltd.

6/40–43The Pain of Downsizing 2/24–32

centralisation 8/13–15, 8/18centrality 7/9Challenger, John 2/16change

cultural resistance to 9/8in customer expectations 1/6and managers 1/6organisational 9/13–23, 9/37–39of work-force 1/6

change agent 9/17, 9/23coercive power 7/4cohesiveness, group 6/7–9collaborative strategy 6/31, 7/18command groups 6/3company structure 8/3–4

pay systems 4/25–27, 4/28

Organisational Behaviour Edinburgh Business School I/1

Index

competitiondomestic 2/16within work groups 6/28–31

competitive advantage 1/2, 2/19–20, 5/23, 8/27and rewards 4/31–32

compromising strategy 6/31conflict 3/18, 6/29, 7/11

group 6/29–31conglomerates 8/15, 8/16–18consideration behaviours 7/18content theories of motivation 3/4–11, 3/19

Herzberg’s two-factor theory 3/7–10contingency of reinforcement 3/20–22contingency theory of leadership 7/19–21contingent punishment behaviour 7/24, 7/25control systems 6/24, 8/24–26, 9/15

span of control 8/3–4, 8/12–13, 8/19, 8/46co-ordination mechanisms 8/19

horizontal 8/22–23vertical 8/20–22

corporate health plans 2/14–15corporate transformation, managing 9/14–15cost-saving plans 4/30–31counselling, stress 2/13creativity, work group 6/18cross-training 5/4, 5/9culture 1/11, 3/20, 8/32, 9/2–11

cultural diversity example 5/29–31and multinationals 9/39–41

customer service 8/35–40customers 1/6, 8/32, 8/32, 8/34

decentralisation 8/13–15, 8/18decision-making

by employees 5/19–21Delphi 6/21and groups 6/15–21manager’s role 7/14normative model 6/26–28, 9/19

deficiency problems, appraisal 4/3, 4/5delayering structures 8/27–29, 8/34Dell, Michael 9/12Delphi groups 6/21democratic leadership 7/18departmentalisation 8/3–4, 8/7–9, 8/46design, job 3/19, 5/1–24, 9/15design, organisational 8/3–13, 8/15–18, 8/33–34,

8/54–60diagnosis 9/17–18diet 2/12diffusion 9/22–23direct contact horizontal co-ordination 8/22

direct supervision vertical co-ordination 8/21directive behaviours, House theory of 7/22distress 2/3, 2/8disturbance handler 6/7division of labour 8/3, 8/4, 8/46domestic competition 2/16downsizing 1/7, 1/29, 1/30, 2/16–20, 4/23,

7/15case study 2/24–32

Drucker, Peter 4/12dumbsizing 8/60Duncan, Robert 8/14–15

economic uncertainty 2/4–6employees 1/12–20, 1/28–31, 4/11–13, 5/1,

7/29assessment of 1/15–16, 1/23, 4/2–10and behaviour modification 3/22and decision-making 5/19–21employee–job interactions 5/6–8health 2/14–15motivation 3/13needs 1/9–10, 8/18and participation 5/22–23and pay 4/18–19and reward systems 4/14skilled 2/19–20

employment security 2/19empowerment 1/7, 5/17–21, 7/17, 8/29, 8/42,

9/15and MBO 8/26obtaining power 7/6–8

encounter groups 9/24entrepreneurs 7/26–32environment 2/4–6, 3/16, 9/14–15equity theory 1/23–24, 3/11–12ethics of power 7/5eustress 2/3, 2/8evaluation, of change programmes 9/20executive compensation 4/19–24executives 3/9, 4/18–19, 4/19, 9/5exercise 2/11expectancy theory 3/13–16

and cultural differences 3/20and the individual 3/16–19and the organisation 3/16–19

expectation, job 1/22, 3/18expert power 7/5externalisers 1/13, 1/13–15, 2/9extinction concept 3/21, 3/22extrinsic rewards 1/23, 1/25, 3/10, 4/14–16

guidelines for distribution 4/16–18

I/2 Edinburgh Business School Organisational Behaviour

Index

extroversion 1/12, 1/15–16

family problems and stress 2/8feedback 1/23, 9/26–28felt negative/positive inequity 3/11–12Fiedler’s contingency theory 7/19–21financial problems and stress 2/8flexible benefits package 4/25flextime 5/11forcing strategy 6/30forming 6/16, 6/22founder, role of 9/5four-day week 5/10

gain-sharing plans 4/30–31Galbraith, J. 7/29General Apaptation Syndrome 2/3–4Gilmore, T. 8/30–31global job stress 2/2global organisations 1/11–12goal setting 4/10–14godfathers 7/29government policies 2/17graphic scales rating system 4/8–9Great Britain 6/11

executive compensation 4/22, 4/22and job stress 2/2

greenhouses 7/29grid organisation development 9/28–30groups 6/2, 9/24–26

autonomous 5/13–14case study 6/38–40characteristics 6/2–6collateral organisation 8/20in competition and conflict 6/28–31composition 6/6–12co-ordination mechanisms 8/20–22decision-making 6/26–28Delphi technique 6/21departmentalisation 8/7–8development 6/15–21encounter groups 9/24group structure 6/12–15and leadership behaviour 7/18management guidelines 6/21–26and reward systems 4/29–38task groups 6/3, 6/21–23, 6/25T-groups 9/24–26, 9/25, 9/29in USA 5/13, 6/11, 6/24

groupthink 6/11–12, 6/23growth need, employee 5/7, 5/8

Hackman, J. R. 5/11, 5/14

health 1/24diet 2/12exercise 2/11

Herzberg, Frederick 3/7, 5/4Herzberg’s two-factor theory 3/7–10, 3/20,

5/4–6hierarchical control 6/24hierarchies, delayering 8/27–29, 8/34hierarchies, of needs 3/6–7high-performance organisational culture 9/8–11Hirschorn, L. 8/30–31home-based working 5/11horizontal organisation 8/22–23, 8/33–34Horrigan, Brian 2/16House’s path-goal theory 7/22–24human behaviour 1/8, 3/2–3human resource management (HRM) 1/4

and cultural diversity 5/29–31hygienes 3/8–9, 5/5

idea champion 7/29, 7/30–31identity boundary 8/32–33incentives 1/23–24individual/s

characteristics/personality 1/12–20and equity ratios 3/12–13and group membership 6/5–6responsibility for health 2/11–13and reward systems 4/29–38and stress 2/4, 2/8values 1/10–12, 2/6

influence processes 7/1–32influence, defined 7/3and Machiavellian personality 1/16–17

informal groups 6/3–4information technology 8/29informational roles, of managers 7/14in-house entrepreneurship 7/27–29inside trading 7/11instrumentality 1/10–11, 3/14insurgency 7/12intergroup management 6/23internalisers 2/9internships 1/22interorganisational designs 8/15–18interpersonal relationships 2/7, 7/4–5, 7/14,

9/24intrapreneurs 2/17, 7/27intrinsic motivators 3/9, 3/10, 3/15, 5/5intrinsic rewards 1/23, 1/25, 4/15–16introversion 1/15–16


Index

Japan 1/11competition 2/17, 8/24executive pay 3/9karoshi 2/2keiretsu (conglomerates) 8/17–18management systems 8/5motivation theories 3/20strategic alliances 8/18

Japanese Federal Trade Commission 8/17JDI (Job Descriptive Index) 1/26Jenkins, Holman W., Jr. 2/19job analysis 4/6–7job burnout 2/10job challenge 1/23job characteristics model 5/7, 5/9job clarity 1/23job classification system 4/18job content factors 5/7, 5/8job creation 2/5Job Descriptive Index (JDI) 1/26job design 3/19, 9/15

case study 5/27–29and Herzberg’s two-factor theory 5/4–6principles 5/9–11problems in 5/12team approach to 5/13–23understanding 5/2–9

job enlargement 5/4, 5/9job expectations 1/22, 3/18job experience 2/8job insecurity 2/16–18, 8/31job involvement 1/28, 1/30–31, 1/36–38job performance 2/10–11job previews 1/22, 1/24job rotation 5/4, 5/9job satisfaction 1/20–27, 8/18job satisfaction–performance relationship 1/25job security 2/19job-sharing 5/11

labour market 2/17laggards, managing 6/25–26laissez-faire leadership 7/18Lawrence, P. 8/19leadership 7/14–17, 7/24–26, 7/36–41

behavioural school of 7/16, 7/17–19defined 7/14and employee burnout 2/7Fiedler’s contingency theory 7/19–21House’s path-goal theory 7/22–24research 7/16–17

lean production systems 5/16–17

legitimate power 7/4, 7/10–13Lewin, Kurt 1/8, 7/18, 9/15, 9/24liaison co-ordination mechanism 8/22life-cycle theory, organisational 9/11–13, 9/39–41lifestyle and stress 2/8Likert, R. 5/17, 5/20line versus staff conflict 7/11Locke, Edwin 4/10locus of control 1/12–15, 2/9, 3/17

and stress 2/9logical thinking traits 7/17Lorsch, P. 8/19lump-sum pay systems 4/25, 4/27

McClelland, D. 1/17Mach-V-Scale 1/16–17Machiavellian personality 1/16–17macro perspectives 1/3maintenance activities, group 6/21–23management

of B Mod programme 3/31–32, 4/13and cultural diversity 5/29–31defined 1/3, 7/14and employee motivation 3/14evolution of 1/5–7executive compensation 4/19–21of group conflict 6/29–31of performance appraisal 4/3–5and punishments 3/27–30, 7/25–26of services 8/37–38of stress 2/13–15upwards 7/12–13of work-force 9/10

management by objectives (MBO) 4/11–13,8/25–26

management control systems 8/24–26management information system (MIS) 8/21managers 1/3, 1/6–7

allocation of time 7/14–15behaviour theories 1/2–10defined 7/14delegation of authority 8/5–6and employees 1/30–31, 3/23’enlightened managers’ 2/13and expectancy theory 3/16–19and groups 6/7–8, 6/9–11, 6/15, 6/21–26

recognising groupthink 6/11–12job 1/5–7and job design 5/11–13and organisational decline 9/13and political behaviour 7/11–12and reinforcing behaviour 9/20


Index

and self-directed teams 5/14managing by objectives (MBO), cautions 4/13market value, maximising 8/33Maslow, Abraham 3/4Maslow’s hierarchy of needs 3/4–6, 3/10, 3/20

criticisms of 3/7Massachusetts Institute of Technology 5/16matrix design 8/10–12, 8/34MBO (management by objectives) 4/12–14,

8/25–26measuring job satisfaction 1/25–27mechanistic organisation 8/3, 8/46mentors 3/7, 7/12mergers 2/16micro perespectives 1/3middle management 7/15, 9/19Minnesota Satisfaction Questionnaire 1/26Mintzberg, Professor Henry 1/5, 7/15–16MIS (management information systems) 8/21modification programme, behaviour 3/31–32motivation theories 3/1

case studies 3/37–40content theory 3/4–11and cultural differences 3/20Herzberg’s two-factor theory 3/7–10and locus of control effects 3/17motives, defined 3/2process theories 3/4, 3/11–19two-factor theory 3/9–10

Mouton, Jane 9/28multiple cultures 8/32, 9/3

Nanus, B. 7/17National Training Laboratories, Maine 9/24needs 1/9–10, 6/5, 8/18

for achievement 1/17for affiliation 1/17defined 3/2high-order 5/8, 5/8Maslow’s hierarchy of 3/4–6, 3/10, 3/20

criticisms of 3/7for power 1/17, 1/19–20socially acquired 1/17–20, 3/20

negative/positive reinforcement 3/20–22neutralisers of leadership 7/23–24NGT (nominal group technique) 6/20, 6/21,

6/23Nixon, Richard (former President of USA) 1/17nominal group technique (NGT) 6/20, 6/21,

6/23non-contingent punishment behaviour 7/25normative decision model 6/26–28, 9/19

norms of work groups 6/9–11, 6/16not-so-well employees 2/14–15

OB Mod (organisational behaviour modification)3/20–23, 7/24–26

Office of Naval Research, USA 9/24Ohio State University 7/17–18open salary pay system 4/26–27, 4/27organic organisation 8/46organic organisations 8/3organisation development 9/23–24, 9/29

interpersonal and group changes 9/24–26OD grid 9/28–29system-wide changes 9/26–28

organisational behaviourdefined 1/2–3theories 1/2–10

organisational behaviour modification (OB Mod)3/20–23, 7/24–26

organisational causes of job stress 2/4, 2/6–8organisational change 9/13–23, 9/37–39organisational commitment 1/28–31, 2/13–14organisational culture 9/2–11organisational decline 9/13, 9/39–41organisational design 8/3–13, 8/15–18, 8/33–34,

8/54–60organisational health indicators 9/15organisational life-cycle theory 2/7, 9/11–13organisational politics 7/10–13organisational productivity 1/9–10, 1/12organisational structure, defined 2/7, 8/13organisations 5/22–23

boundaryless 8/30–34change in 1/6–7and entrepreneurial employees 7/29and expectancy theory 3/16–19global 1/11–12human behaviour in 1/8and job satisfaction 1/25–27Machiavellian influence on 1/16–17reward distribution 4/16–18service-driven 8/44–46subcultures in 9/3

Ornish, Dean 2/12outcomes in expectancy theory 3/14outsourcing 8/14

participation 5/19–23, 7/22, 9/19Pascale, R. 9/6path-goal theory, House’s 7/22–24pay structures 1/15, 4/25–29

and executives 3/9, 4/18–19


Index

pay rises 4/18–19piece rate 3/23, 5/2

’people problems’ 1/7perception and stress 2/8performance appraisal 4/5–6, 8/21, 9/15

case study 4/45–46defined 4/2and expectancy theory 3/18management 4/3–5methods 4/7–10

performance, of groups 6/8, 6/23–25performance, job satisfaction and 1/25performance, motivation and 3/3performance-contingent reward behaviour 7/24,

7/24performing, in group development 6/17permanent teams 8/23persistence traits 7/17personal factors of stress 2/8personal traits 1/12–20personal values 2/6personality 1/12–20Peters, Tom 8/6, 8/27physiology 2/4, 2/10, 3/4–5piece-rate pay system 3/23, 5/2planned change process 9/15–17political systems 2/6political uncertainty, and stress 2/6politics, organisational 7/10–13, 8/32positional status, in work groups 6/12–13power 1/17, 1/19–20, 7/2–10

defined 7/3legitimate 7/4–5, 7/10–13, 7/20

problem-solving 1/4, 8/20process change, system-wide 9/26–28process controls 8/24–25process losses 6/14process motivation theory 3/11–19product divisional design 8/8–10, 8/30, 8/34productivity 1/9–10, 1/12, 3/37, 6/40–43profit-sharing 4/37–38project teams 6/4psychology 2/4, 2/10, 5/6–9punishments 3/22, 3/22, 3/27–30, 7/24–26

quality control 4/38, 5/10quality of work life (QWL), defined 5/2questionnaires 1/26–27, 9/26–28

re-engineering 1/7, 2/18, 5/17referent power 7/5refreezing 9/16

reinforcement schedules 3/23–25relaxation response 2/12reliability errors 4/3, 4/5–6resistance to change 9/18responsive organisations 8/27reward systems 3/19, 4/14–38, 6/23, 7/24–26,

9/15case study 4/46–48and managerial power 7/4

risk-taking, work group 6/18Rokeach, M. 1/10role ambiguity 3/18role conflict 3/18role demands 2/6Rucker Plan 4/32–36

safety needs 3/5Scanlon plan 4/30–31, 5/21schedules of reinforcement 3/23–25scientific management method 5/2–4self-actualisation needs 3/5–6self-control traits 7/17self-directed teams 1/3, 1/10, 4/24, 4/31,

4/32–36, 5/14, 5/15–19, 5/22–23, 6/24,8/30

and managerial roles 7/15and organisational change 9/15

self-disclosure 2/12self-esteem 1/23, 3/6, 3/18self-managed work concept 5/15–17Selye, Hans 2/3service management 8/37–38service quality 8/36–44service-driven organisations 8/44–46Sexton, D. 7/27shareholders 2/18, 8/31skill-based compensation 1/14, 4/25, 4/27skills, individual 2/19–20Skinner, Professor B. F. 3/20small business firms 2/17, 7/26–27SOBC model 1/8social loafing 6/25–26socialisation process 9/5–7socially acquired needs 1/17–20, 3/20socio-technical systems theory 5/13span of control 8/3–4, 8/12–13, 8/19, 8/46

widening 8/27, 8/29sponsors 7/11, 7/29staff reassignment 8/29staff versus line conflict 7/11Stalker, G. 8/3status symbols 6/12–13


Index

steering committee 9/17, 9/19Steers, R. 6/23storming 6/16, 6/23strategic alliances 1/7, 8/18stress

case study 2/22–24causes and consequences of 2/4–11and downsizing 2/16–20global job 2/2–3individual management of 2/11–13management, organisational 2/13–15stress model 2/4, 2/8stress responses 2/3–4

subcultures 9/3subunits 7/8–10superior–subordinate relationship 7/12supervision 1/4, 1/23, 8/21, 8/28support groups 9/24supportive behaviours, House theory of 7/22survey feedback questionnaire 9/26–28Survey of Organizations 9/27’System 1’ organisation 5/20’System 4’ organisation 5/17, 5/20, 5/23system-wide process questionnaire 9/26–28

task boundary 8/31–32task demands 2/6task environments 9/14–15task groups 6/3, 6/21–23, 6/25task-forces 8/20, 8/23Tavistock Institute of Human Relations, London

5/13team concepts 5/13–23, 6/26–28, 9/26

innovation teams 7/30–31self-managed work 5/15–17, 8/29

technological uncertainty 2/6technology 1/4, 2/6, 5/12–14, 8/30

and environmental change 9/14telecommuting 5/11terminal values 1/10–11, 2/6territorial design 8/8, 8/34T-groups 9/24–26, 9/25, 9/29time and motion studies 5/2time off pay system 4/25, 4/27Tolman, E. C. 3/14total quality management (TQM) 1/6, 8/24,

8/35training

cross-training 5/4, 5/9traits 1/12–20, 7/16–17, 7/19Trist, E. 5/13two-factor theory 3/7–10, 5/4–6, 5/9

Type A and B behaviour 2/9

unfreezing 9/16units of analysis 1/3unreliability/reliability problems 4/3, 4/5–6upward management 7/12–13USA 1/11, 6/24, 7/12, 8/23, 8/24

cultural diversity 3/20executive compensation 4/21, 4/22and groups 5/13, 6/11, 6/24health care insurance 2/19hierarchy of needs 3/20and job creation 2/5and job stress 2/2Lincoln Electric Company 4/37–38and organisational design 8/14, 8/16, 8/18

uses and abuses of power 7/10–13

valence 3/14validity 4/4, 4/5values

in global organisations 1/11–12individual 1/10–12, 2/6, 9/39–41instrumental values 1/10–11terminal 1/10–11value judgements 1/10–12

vertical co-ordination mechanisms 8/20–22vertical job loading 5/9–10Vroom, V. 3/14

Walsh, Mike 8/28Walton, R. 9/22–23Waterman, R. 8/6well-being 2/2wellness plans 2/14–15whistle-blowers 1/38–39, 2/6, 6/3, 7/11work attitudes of employees 1/28–31work behaviour and locus of control 1/13–15work environment 2/6, 3/16work motivation 3/2work place inequities 3/11work restructuring 9/22work, home-based 5/11work, stress and well-being at 2/2work-force

change in 1/6cultural diversity in 1/11, 5/29–31empowerment 8/29–30and management 6/40–43, 9/10

work-team concept 5/15–17, 5/29–31, 8/29–30

years in career 1/21
