Organizing Human Capital Business Strategy Analysis

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timer Asked: Feb 25th, 2019
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Question Description

***I am including Projects 1 & 2 to facilitate project 3.***

Purpose

In this project, you will complete Phase 3 of the Business Strategy Analysis. Drawing from the course material, you will

  • Use the course material through week 7 and your research to complete Phase 3 of the Strategy Analysis.
  • Learn and apply concepts concerning human resources. You will also write an Executive Summary.

Skill Building:

You are also completing this project to help develop critical thinking and develop part of a management plan.

You will be required to research the infant formula industry as a continuation of Project 1 and Project 2. Do not take the research lightly as you are required to do significant research to answer the requirements of the project.

Skills: Research, Critical Thinking, Write a Strategy Analysis

Outcome Met by Completing This Assignment

  • employ effective planning processes to develop strategies, goals, and objectives in order to enhance performance and sustainability
  • organize human, physical, and financial resources for the effective and efficient attainment of organizational goals
  • demonstrate leadership skills by communicating a shared vision, motivating and empowering others, and creating a culture of ethical decision-making and innovation
  • develop measures and assess outcomes against plans and standards to improve organizational effectiveness

The Executive Director for the new Asia Division, has been asked by Max Barney to put together, and present in a report to him, a business strategy that will be a guide for the next year as the new division moves forward. The Executive Director will be working with the consulting group and they will assist with putting together this plan. The final plan will be laid out as outlined below and developed in three phases.

You have successfully completed Phase I and Phase II and it is now time to complete Phase III. In the third phase, Section I and Section VII will be completed.

Section I – Executive Summary

Section II – Goals and Objectives

Section III – Competitive Analysis

Section IV – Description of Organizational Structure and Culture

Section V – Breakdown of Product and Services

Section VI – Communications Plan

Section VII – Human Resources Plan

The business strategy will provide the organization an opportunity to explain the goals and objectives of the new division and help with the development of the strategy to achieve them. The plan will allow the company to gain insight into the current status of the industry it is venturing into using internal and external analysis tools, and then use this analysis to design its division’s business environment. In addition, the plan will be used to form the team that will bring the vision for this division to reality.

Instructions for completing Phase III

These two sections will finalize the strategy the group from Expert Foods Consultants has been assisting the Executive Director with. Although you typically would be combining all three phases into one document, for the purpose of this work, you will on present the two parts identified above.

You will need the Biotech Company Profile (see attached) to complete the analysis.

Step 1: Human Resource Plan

A human resource plan will allow the director of the new Asia division to identify the future human resource needs for the organization. The director has asked Expert Foods Consultants to evaluate the product line identified and conduct market analysis to determine possible man power needs for the product manufacturing and all management and supervisory roles (to include all levels of management). The management levels should have been identified in the Description of Organizational Structure and Culture section of this strategy, but the resource needs in manufacturing will need to be considered. Remember the only person currently hired for the new facility is the Director so there will need to be Assistant Division Directors (ADD) for the other areas identified in the Structure such as Marketing, R&D, Sales, etc. Each of the ADD’s will need to have staff as well; you will need to identify how each ADD will be provided staff. Will they identify and interview themselves or will HR be a part of the hiring process. The Organizational Chart is also a part of the HR plan so ensure that a revised organizational chart is also placed in this section for reference.

Training is a key to retention in business today; employees like to feel they are important to the organization and investment in their competencies shows commitment to them. So, consider what the new division will need to do to ensure they are keeping the best talent they find.

Evaluation is another way organizations can show their commitment to employees. How will the new division conduct employee evaluations based on what is common in the area that the Expert Foods Consultants identified? This will require a level of research in common HR practices in that region.

You needs to remember that this is a brand new division that will be selling products that Biotech currently is not involved in so all aspects of business will need to be considered such as marketing, etc. Remember there is no perfect HR Plan, just plans that work and plans that do not. Good plans consider the employee and the culture around them just as important as the organization itself.

Step 2: Executive Summary

The Executive Summary will be the first section of the paper but should be written last since it will highlight what is intended for discussion in the rest of the strategy. A good executive summary is compelling. It reveals the company’s mission statement, along with a short description of the products Biotech will provide at the launch of the new division. It is also necessary to briefly explain why Biotech is starting the new division and include details about Biotech’s experience related to the industry the company is entering.

Step 4: Review the Paper

Read the paper to ensure all required elements are present. Use the grading rubric to ensure that you gain the most points possible for this assignment.

Proofread the paper for spelling and grammatical issues, and third person writing.

  • Read the paper aloud as a first measure;
  • Use the spell and grammar check in Word as a second measure;
  • Have someone who has excellent English skills proof the paper;
  • Consider submitting the memo to the Effective Writing Center (EWC). The EWC will provide 4-6 areas that may need improvement.

How to Set Up the Paper

Create a Word or Rich Text Format (RTF) document that is double- spaced. Use 12-point font. The final product will be 3-5 pages in length excluding the title page and reference page. Write clearly and concisely.

The Infant Formula Industry and Biotech Company Introduction The business internal and external environment will impact biotech expansion to the infant formula industry. The organization wishes to expand its product line into infant formula. It intends to open a range of infant formula products, conduct marketing, differentiate its new product and improve the technology to expand into the new industry successfully. The political, economic, social, environmental and legal factors of the infant formula industry can influence the success of anticipated establishment of Biotech in the sector. Therefore, the company will need to consider all the elements when strategizing. The company has strengths and opportunities that promote its plan to expand to the infant formula sector. It also has weaknesses and threats that impact its intention to increase its product line. The organization has three major competitors, Nestle, GNC holding and Hain Celestial Group in the new industry. They have strong brands and financial capability. Nevertheless, these firms also have weaknesses. This paper examines Biotech and the infant formula industry. PESTEL Analysis Biotech General Environment The CEO, Maximillian Barney heads Biotech. He is in charge of the whole organization, and all the other managers’ report to him. The organization is divided geographically where various each region operates independently. Nevertheless, each geographical division has a functional structure with an executive director, IT manager, R&D, HR, and Sale manager. Biotech has enough employees who operate in its various branches across the globe. Biotech Company Profile (p. 3) asserts that it has 38, 000 employees in 6 states. In addition to workforce capability, the organization has adequate fund and cash inflow. Therefore, it is capable of meeting operation and unexpected expenses. It records huge sales; particularly in 2016 the sales were $ 45 billion. The organization has multiple suppliers who provide the company with relevant materials and machinery needs to manufacture its products. Some of the suppliers are global leaders in their field that partners with an organization in research and development of its products. Examples of the suppliers are Thermo Scientific Pierce Antibodies, BNR, Whatman and Randox Life Sciences. The organization has good relationships with its supplier, which it has fostered long-term contract with. Biotech Company has strong competitors in its market. Its prominent competitor is Amgen, which specializes in producing two drugs, and competes on price. Biotech Company Profile (p. 3) indicates that Nestle, Hain Celestial Group, GNC and Idec are the other competitors who have strong capabilities in research and development and cost control. There are also other multiple small competitors who are making an effort to increase their customer base. Pharmaceutical companies, Laboratory, and individual people are target clients of Biotech. Therefore, the organization has a broad line of customers. As for the company demographics for its target market, it constitutes of both female and male. It similarly represents young children and infants of various age groups PESTEL Analysis of the infant formula industry Multiple environmental and market factors of the infant formula industry have an impact on the Biotech company. The first element is the political factor. The infant formula sector is a vast market that constitutes different countries with diverse political characteristics; political stability, trade regulation, and food standard guidelines. Some states have favorable political factors while other have unfriendly laws. These distinct political factors influence the decision of the organization concerning the international market it will operate in and its sustainability. This element has an impact because countries with political stability, unchanging regulation regarding food standards, and standardized practices will support the operation of Biotech Company. The organization will have certainty on the kind of law to adhere to and will have little risks. Nevertheless, if the nations have political instability, changing food and global regulations, then the organization will find it challenging to start and expand the new infant formula product. This is the case because it will be hard and expensive to start a business legally. Additionally, the risks will be huge. The second element that can influence the organization is economic. As earlier discussed, the industry constitutes a range of countries across the world. Therefore, different countries have dissimilar economic level which influence the operation of any business in the industry. Developing countries have economic instability with low GDP, slow economic growth and high inflation. They don't encourage business growth. Contrary, the developed nation have high GDP, economic growth and slow inflation. They support businesses and promote companies profitability. Similarly, the economy of the country will determine biotech growth and sustainability; if it is economically developed, it will help the company and vice versa. Besides, the economic level, the other economic issues in this industry that can affect Biotech are the price of raw materials and shifting of customer budget. The cost of the raw materials is paramount in this industry. It influences the sustainability of all companies. Notably, the price of the infant formula is influential in its purchase. Therefore, it will affect Biotech as it needs to identify how to maintain low cost despite the changes in the raw material rate. The consumer budget as well can impact the company since it determines the sale of its products. The third factor in the industry that can affect Biotech Company is social. It is the customer characteristic of the industry. The consumers in this industry have a changing attitude towards health initiated with the government. They also have a lifestyle of using healthy products that are friendly to the body. This includes a preference for goods that have little additives or natural. The religious and cultural beliefs of the consumers in the industry determine the purchase of the infant formula. Nonetheless, culture and spiritual practices differ from one region to another in this sector. The consumer attitude influence Biotech to be concerned with the changes especially those suggested with the government so that it does not offer products consumer don't want. As for a healthy lifestyle, it influences the organization to strive in delivering healthy products that match the healthy consciousness of the world. Finally, the matter of religious and cultural influence on the consumer affects the company in that it will need to put into consideration different cultural and religious practices when producing the infant formula. For instance, in the region full of Muslims people, Biotech needs to create infant formulas that don't contain pork The technological factor is the next element present in the industry and has an impact on the company. High technology is needed in developing infant formula. The steps or procedure of creating baby formula is complex as the composition of the right ingredient is necessary. Additionally, the infant formula needed is for different with age range. This will influence the organization to develop its technology, so that align with the level required in the industry. Furthermore, it can cause the end of the organization as soon as it begins if it is incapable. The other thing to note regarding the technology in the sector is it fueled with innovation. Therefore, the organization will be forced to be creative and innovative. The fifth element in the industry is environmental. It affects the corporate social responsibility the organization will engage in and its operation. In the infant formula industry, there is increased attention on companies toward corporate social responsibility especially promoting the health of children and infant mothers. There are also environmental concerns with the government and the public regarding recycling of the packages. The environmental conservation concern with the government and the customer will influence the organization to produce environmental friendly packages. Otherwise, consumers will refrain from using its products as intrinsic motives affect their purchase process. Biotech also has to engage in corporate social responsibility in the market it operates as the consumer will only promote companies that give back to society. Moreover, the government will only offer support to companies that contribute to improving the life of the people. Lastly, the legal issues in the infant formula industry have an impact on Biotech Company. The legal requirements involving infant formula are strict and compulsory. Additionally, they are multiple. Infant formula is a sensitive product that requires high sanitary practices. Standardized production procedures are also tight. The other mandatory regulations are high microbiological and nutritional quality. This means the organization will have many rules to adhere to. It is, in turn, expensive and can affect the continuity of the company. The other legal issue is changing regulation across countries. Various countries in this industry have different laws. Therefore, it will be expensive and difficult for Biotech to expand international since it would mean it has many rules to understand and follow. SWOT Analysis Strengths ▪ Biotech has a high financial capability which it can use to Weaknesses The company doesn't have a strong brand. It has not invested in creating the image of ▪ ▪ expand its business, finance its operation and take advantage of any unexpected emerging opportunities. The financial ability is evident in the record of its sales as from 2000. It increased its sale exponentially. Biotech Company Profile (p. 2 para. 7) reveals that in 2000 it reported sales of 1.1 billion, 2012 a revenue of 25 billion and in 2016 the sales was 45 billion. This demonstrates it has high cash inflow. The organization has a strong corporate culture with great value that has roots from the history of the company. Biotech Company Profile (p. 5 para. 2) illustrates that its culture is family, and one of the value is customer-centric. Therefore, the culture promotes customer satisfaction as it puts the interest of the customers first and making their experience with the company exceptional. Consequently, it fosters customer’s loyalty. It similarly has excellent leadership and organization structure that promote high productivity, great communicating, job specialization and staff commitment. Biotech Company Profile (p. 5 para. 2) elaborates that it is divided geographically where each region has a functional arrangement with a manager for each role like finance. This structure removes the barriers in the bureaucratic structure where power is limited at the top. Additionally, it promotes specialization since each task is headed with an expert. Furthermore, with the structure, the staffs have the freedom to explore and hence job satisfaction. the company and a unique identity that will assist the organization in differentiating itself. Therefore, competitors will have a definite competitive advantage against Biotech (124). The infant formula industry has strong competitors with a strong brand like Nestle. Biotech products' packages are not environmentally friendly. They cannot be reused and also are not decomposable. Therefore, they are not in line with increasing awareness and attention among consumer in need of products that conserve the environment. ▪ The organization participates in corporate social responsibility. Biotech Company Profile (p. 4 para. 4) affirms that the company is building houses in regions like India and Brazil. This fosters public, consumers and government support. The consumer will be encouraged to purchase the company product. The government will boost the growth of the company in terms of subsidiaries and tax credit. As for the public, they offer workforce Opportunities ▪ The company has the ability of technology advancement needed in the infant formula industry. Therefore, it will have a high competitive advantage in the industry that will make it gain a high market share. This is featured in the organized effort to promote innovation. Biotech Company Profile (p. 4 para. 5) claims that it is making efforts in changing the culture of the company and developing its organizational structure so that they encourage creativity and generation of new ideas by staffs across overseas. Moreover, it has a department, R&D which specializes in innovation. ▪ The organization has multiple international operations that are known as the market for infant formula and hence has an easy chance to expand to the new industry. Biotech Company Profile (p. 3) illustrates that it has operations in USA, Europe, Asia, Canada, and the Caribbean. These are regions with high economic freedom and support open trading. Thus, it will be easy to start the infant formula. Threats Inconsistency and high prices of raw materials in the infant formula will influence the biotech ability to offer products at a favorable rate and as a result, undermine its competitive advantage and market share (124). The economic factor of the industry is characterized by the rising in raw material which can influence the cost of production. The other threat that faces the company is high technology demand and change which create a high expectation for creativity and innovation for the organization. In the case where the company does not meet the requirement, it risks being absolute High change in quality standards, global regulations, and food standards regulation. This makes it hard for the organization to be compliant and also expensive since it needs to keep hiring consultants to aid in understanding those regulations. ▪ Biotech has a strategic plan aligns with the infant formula industry. Biotech Company Profile (p. 3) asserts that it has a business philosophy that promotes adaptability to change and put into account that the business environment is continuously changed. It has long term plans for three years to ensure it is flexible. It as well promotes innovation and creative ideas. Porter’s Five Forces Analysis Competitive rivalry Biotech Company will face intense competition in the industry. The key players are Meiji, Abbott Nutrition, Nestle, and Friesland Campina companies. They own the most significant market share of the industry. These firms as well have high financial capabilities a strong brand, and innovative capability. Their products have a high preference among consumers due to their brand name. They are also able to produce quality infant formula compare to other companies because they have high technology and know-how. The aggressiveness of the competition is evident in advertisement and marketing by the companies in this industry. They offer similar products, infant formula for young children and newborns. The top companies have the funds to create awareness of their products through huge television ads, posters, and brochures. They offer discounts and promotional free sample. As a result, it builds their brand and customers' loyalty. The dominant companies also compete with cost. They have the capability of manufacturing infant formula at a low cost. Therefore, they can sell their product at a low price compared to other companies. Their products have high demand over other infant formula companies as they are cheap and of excellent quality. Bargaining power of supplier Biotech will face a great force of bargaining power of suppliers in the infant formula industry. The supplier can change the price of raw material to the extent it affects the cost of producing infant formula. The industry is highly regulated with high standards that extend to the supplier. Therefore, there is a shortage of suppliers. This creates the issue of high demand for the resources since the buyers are more than the supplier. They can raise prices as wish without any repercussion or negative impact on their side. This implies the organization will face the challenge of high costs of raw materials. The suppliers also have the power to lower the quality of their product and create a shortage of raw materials. They are likewise limited and hence have higher bargaining power; the suppliers are in the position of lowering the quality of the material to reduce cost and increase their profit. They also tend to limit the supply of resource to increase the demand and as a result, shoot the prices. Shortage of raw material affects the companies in the industries since it curbs their production. Additionally, it has increased the competitive advantage of prominent companies since they are the one who can have the benefit of saving cost. Most of them have partnered with suppliers and so have an advantage of purchasing materials at a lower price compared to the other organizations. Bargaining power of buyers The bargaining power of buyers is strong in the infant formula industry. Therefore, Biotech will experience a lot of pressure from the customer. The buyers can determine the price they purchase infant formula. Consequently, they will influence all companies including Biotech to lower the price for their products. The sellers are more compared to the buyer since not all the parents are warming toward the idea of using infant formula. Consequently, the present customers have the power of switching from one buyer to another. This creates competition particularly in price since each seller will lower the price to garn more sales. Therefore, biotech will face the risk of reducing its profit. In addition to the price, they have the power to influence quality products and excellent customer service. The buyers' power challenges the companies to improve the quality of their infant formula product. This is to boost their competitive advantage. The buyers are also informed on the standard of the product and hence increased demand for quality products. This benefits the customers while disadvantages the companies since they increase their cost. The competition in the industry will also translate to excellent customer service concerning addressing their concerns and meeting their needs. The threat of new entrants Biotech will exert little threat to the existing organizations in the industry. This is because the infant formula sector has a low threat of new entrants. It is not easy for new companies to enter the market and profit. The primary cause for barriers for new entrants is strong competitors in the industry that have substantial market shares. The industry is dominated by strong organizations like Nestle, which can produce product at a low cost. They can as well launch great marketing and have a strong brand. Therefore, most customers have vested their loyalty in these countries, and if any companies enter the industry, it is not easy to gain market share and make a profit. High demand for advanced technology as well as influences the low threat of new entrants. The infant formula industry requires advanced technology to produce the product. These are expensive and require creativity and innovation, which is challenging for most companies. Therefore, most companies find it hard to meet this requirement. The high government policy is another block for new entrants. Various states have different regulations, and the quality and food standard are strict. This is challenging for any aspiring companies including Biotech since it expensive, require experts and time to understand a country's law. Lastly, the high initial capital needed to start an infant formula company has as well discouraged entry into the industry. Therefore, it is unfavorable for Biotech, which intends to enter this market since it will have several obstacles and gain little profit. Nevertheless, if it successfully establishes itself in the industry, it will be advantageous for the company. Threat of substitutes The infant formula has a low threat of substitutes. Thus, Biotech will not be affected by the threat of substitution. Infant formula produced in the industry has few substitute products from other sectors. The only other substitute is dairy milk which has been evaporated. Furthermore, the alternative is not as superior as the infant formula. Infant formula is of high quality since the production is highly regulated to ensure that it is produced hygienically and hence pure. Contrary, the evaporated milk is of low quality as the output is not monitored to ensure the hygiene needed for infant babies is promoted. Therefore, they may contain bacteria Moreover, the substitute for infant formula is not of high performance like the formula. It is produced to provide nutrients like those in breast milk. They have potassium, fat, vitamins and protein. Contrary, milk has few nutrients particularly those needed by infant and young children. Additionally, infant formula is mainly designed for specific clients. There is one for infant meant to boost the immune system and nourish them. The other category of the formula is for young children to meet their needs. Milk, on the hand, has not put into factor the particular needs of various children ranging from infant to growing one. The low threat of substitution in the industry means Biotech will gain high profitability due to little competition in the product. Goals and Objectives The company first goal is to produce multiple ranges of infant formula. It will facilitate successful entry into the new market since the company will have the products the customer wants. These goals support the business strategy as it directly implements what the approach wishes, expansion into the industry. The objectives of this goal are to meet the needs of various customers, utilize the untapped market and allow specialization. They align with the goal as the result of a range of infant formula is the opportunity to offer products' features that fit the different needs of consumers. It also allows serving the ignored small niche and specializing in a segment that the company has capabilities over. The second goal is the differentiation of the new product from other similar product in the industry. It is essential since it promotes the organization in selling its infant formula and gaining market share. It as well supports the business strategy as it ensures the company successfully enters the new market. The objectives of these goals are promoting the brand for the company, creating customer loyalty and strengthening the competitive advantage. They match with the goal. Successful differentiation promotes the brand, customer loyalty and a result a competitive advantage. Marketing and promotion of the new infant formula is the third goal. It promotes the acceptance and sales of the new good. It supports the business strategy because the successful establishment of the first company markets will help expansion to more markets. The objectives of marketing are creating awareness, provision of information, and impeding consumer resistance. The goal will promote awareness of the Biotech Company, informing people of the new product and circumvent resistance since it appeals to the customers. The final goal is the technology development of the production. It facilitates the availability of advanced technology need by the new industry and thus supports the company strategy as it would enable the successful starting of infant formula. Three objectives are to create a quality infant formula product, a unique product and enable effective production. Advancement of technology allows the realization of the objectives mentioned above. Competitive Analysis The major competitors of Biotech are Nestle, Hain Celestial Group, and GNC. Nestle produces infant formula and processed food. It ventured into processed food a long time ago and ha it gained increased profits. Nevertheless, it expanded its line of products to infant formula. The product is of high quality and nutritious due to the initiative with the WHO to promote healthy children. The target market is the infants and young children. Its primary strengths are a strong brand, advanced technology, and financial capability. Nevertheless, it has faced critic on some of its products; they are promoting child obesity, and hence the formula has received doubts. Hain Celestial Group deals in food and personal care products such as celestial seasoning, herbal tea, and infant formula. Its products are known to be nutritious since they are natural and aim to promote the health of people. It target consumers are an infant, expectant mothers, and families. The organization is highly valued in the industry. It present evaluation value is 190, and the gross profit is 20.23. The primary company strength is the brand; it has differentiated itself companies that sell organic and natural products hence are of great benefit to the body. The other advantage is a long history in the industry. It entered into food and infant formula way back and hence a good understanding of the customers. It has good relations with its suppliers and enough cash flow. As for the weaknesses, the organization structure does promote a current business model, poor inventory and supply chain and the technology level is behind. GNC is likewise the main rival of Biotech. It trades in nutritious related products like vitamin supplements, herbs, energy drinks, and infant formula. The company value is $ 2.97. It is the stock price. The company strengths are good distribution centers, great leadership, well funded with good cash flow, product innovation, and effective supply chain. The weaknesses are poor financial planning, the weak culture that doesn't support the company strategy, and the absence of research and development. References Biotech Company Profile. University of Maryland University of College (n.d.). In BMGT 364 6381 Management and organization theory: Retrieved from https://learn.umuc.edu/content/enforced/347188-001033-01-2192-OL16381/BMGT%20364%20Company%20Profile%202019.pdf?_&d2lSessionVal=7 UqYvCa5UgwX235XuYWYAOPae
Organizational Culture, Planning and Communication Business Strategy Introduction Biotech stands out as one of the most successful firms in the infant formula industry. The success of the company comes from multiple facets that play a huge role in boosting the performance of corporate leadership. Using the ultimate strategies in shaping the direction of the company acts as one of the most effective ways in which the firm may continue to achieve better outcomes. This paper primarily looks at a variety of things revolving around the company and its performance and operations in the associated industry. These aspects include the description of the corporate organizational culture and structure, the kind of products and services offered and the ultimate communication plan the firm may need to follow in the creation and implementation of the designed business strategy. The first part of the procedure, in this case, looks at the organizational structure and culture while the second section addresses the issues of the commodities the company provides. The last part of the paper highlights the basics of the corporate communications plan that it may use in the delivery of the underlying messages to the respective parties. Organizational structure Currently, the company operates with a geographical, organizational structure. This structure plays a huge role in allowing the firm to coordinate, control and monitor the activities carried out in the different parts of the globe. Each division stands or represents a given region where the company operates. For instance, the current organizational structure comprises of four separate divisions all under the same roof of the original headquarters or hub. These divisions include the executive directors who head the different areas such as South America, North America, the Infant Formula, and European markets. These divisions, on the other hand, contain their respective but similar functional structures which comprise of the core departments within a company. These departments, in this case, include the IT, Research and Development, HR and Finance. Each of the divisions comprises these functional departments which play a huge role in performing the day to day operations of the firm in the different regions. The divisions in the company depends on the president as well as CEO Barney. The figure below shows the current organizational structure based on the existing divisions. Based on the given information, it follows that the company operates with a geographical divisional structure. This structure plays a critical role in allowing the company to perform its core duties in different areas while observing a common headquarter and leadership team. In the provided chart, the CEO and President of the company stand out as the head of the respective divisions. The hub or the headquarters contains various functional divisions that offer the core operations of the business. For instance, the company operates with a set of operational divisions and departments such as the HR, finance, R&D and IT to perform the core business functions carried out on the day to day basis. However, it is important to note that the geographical divisions also contain such departments that aid in undertaking the day to day business duties in the respective areas — the senior management at the top of the chart head the entire organization. The CEO oversees the operations of the company from various geographical divisions. On the other hand, the CEO ensures that the business runs efficiently with the help of the associated department heads and members. The executive directors report directly to the CEO of the company. The executive directors head the various divisions located in different regions. The primary role revolves around overseeing the operations carried out in their areas with the aim of reporting to the CEO situated at the headquarters or the hub. The newly formed division will be treated as a geographical location in the company. In this case, the company will consider the infant formula as a new division and assign it to an executive director. The executive director will act as the head of the division reporting to the CEO of the company. Besides, the division will contain other departments that will aid in the performance of the day to day operations for the firm. For instance, the division will include departments such as research and development, IT, finance and HR similar to the other divisions. The party responsible for testing the new product will operate in the division within the research and development department for the company. The primary roles of the testing parties will include performing a high-level analysis of the market and the associated products delivered by similar rivals with the aim of creating a competitive advantage for the firm. Furthermore, the research and development department will allow the company to understand the market better with the purpose of creating a competitive advantage over the rivals. Organizational culture The company bases its operations on a family setting. The firm, therefore, observes a collective leadership which comes from the family leaders. Based on the concepts of family, the company in the recent past initiated a culture that seeks to introduce the consideration of the customer thus creating a client-oriented operating environment. Therefore, such a perception will allow the company to deliver the highest quality of services to the esteemed customers. Having a family-minded leader facilitates one of a leadership skills: to motivate each other. From another perspective, the company will need to consider the aspects of cultural complexities that may arise in the course of operations as a result of the creation and positioning of the new division. In this case, the company should address issues such as the use of employees from either the local or the international front among others. In this case, the company will need to employ people from the local community. Asian culture may feel attracted to a company that considers the underlying population. However, for diversity purpose, the company will need to employ people from not only the local but also the domestic country. On the other hand, the firm will need to consider some of the underlying cultural aspects that may affect its operations such as the religion and other believes in the target market. Considering such aspects may play a considerable role in improving the performance of the firm which would be based primarily on the level of acceptance by the target community. Further, the company should ensure that it refrains from participating in bribery which goes against not only the local but also the international code of business and social ethics. Breakdown of products and services The company through the newly introduced division seeks to create a new product line to capture the needs of the underlying customers. The infant formula will help the company to deliver the required products to the esteemed community targeting the children as the primary target customers. The production of the product must be in line with the set corporate ethics, mission and vision. The corporate mission and vision converge at a common point concerning the issues of delivering products that are safe and environmental friendly thus natural and at the same time affordable. To ensure that the company`s new product remains in line with the corporate values and mission the firm will need to use natural sources as the primary raw materials to create the final commodities. Using the naturally occurring aspects as the primary raw materials for the firm will make it easy to come up with products that are environmentally friendly while at the same time guaranteeing the elements of sustainability and green. Communication plan After implementing the new division, the underlying workers must be in a position to communicate effectively with the rest of the organization. In this case, the company will need to create a communications plan that will help to define the tools, techniques, language, means, and modes of passing information from one point to the other. In this case, the new division will need to observe the concepts of the chain of command when it comes to communication with either the senior or the junior managers or employees. For instance, formal notification must be observed when it comes to communicating with senior management. On the other hand, the division head which in this case includes the executive manager will need to find a formal communications strategy to pass information to the superiors such as the CEO. The departments in the divisions will in a similar manner observe a formal communication when exchanging information with the superiors. The staff members and employees must see official and business language when communicating. On the other hand, the various teams will need to embrace the concepts of technology and use emails among other tools to pass information accordingly. The company will, on the other hand, need to implement a secure virtual private network that will make it possible and safe for the new division to communicate not only with the superior or the headquarters but also with the suppliers as well as the other divisions. Such a plan will be supported by the associated policies that will help to not only instill discipline amongst the various other parties. Conclusion Summing up, the paper described some of the most critical aspects of the initially presented business strategy. This section primarily focuses on the description of three items that form the foundation of the policy. The first section looked at the organizational structure outlining the geographical divisional plan. The second part looked at the corporate culture of the company describing the family based cone-pts. The third part looked at the products to be offered by the company focusing on the basics of the infant formula items. The last bit speaks about the communications plan the company will need to use to achieve the desired outcomes. References Biotech Company Profile. University of Maryland University of College (n.d.). In BMGT 364 6381 Management and organization theory: Retrieved from https://learn.umuc.edu/content/enforced/347188-001033-01-2192-OL16381/BMGT%20364%20Company%20Profile%202019.pdf?_&d2lSessionVal=D UKS5OsONm0tPzUlwGePWJ0nV
Biotech Health and Life Products Company Profile Welcome to Biotech! The assessment projects for this class will examine different facets of the leadership of Biotech Health and Life Products, Inc. You will be exploring leadership within Biotech with the driving question of “what skills does a Biotech leader need to lead the company now and in the future?” History Wilford Barney was a young apprentice working for Peter Ulan, owner of a small apothecary shop in Yonkers, New York. During his apprenticeship, Barney created a general energy elixir that was based on a home remedy of his mother’s back in Ireland. The elixir was produced specifically for many of Ulan’s special customers. Made of all natural ingredients the elixir provided B12 and other vitamins to promote a healthy immune system. The energy boost was noticeable after only a week’s use. The reputation of the elixir grew. In 1922, Barney took over Ulan’s apothecary shop renaming the business, Barney’s Apothecary. At that time, Barney decided to bottle his elixir and sell the formula to everyone rather than selected customers. Barney also gave bottles of the elixir to local peddlers who sold the product along with their wares receiving a commission on each bottle they sold. By 1929, the product was well known in Yonkers. Encouraged by the success in Yonkers Barney decided to branch out to New York City. In 1932, Barney built a small manufacturing plant near the store where he mixed and bottled the elixir for sale. By 1934, Barney expanded sales by putting the elixir in a quarter of the apothecary shops in New York City. Sales were booming and customers inquired about other products that Barney’s had. In 1936, Barney started a new product called Night Relief, another of his mother’s recipes. This product offered relief from night sweats and anxiety caused by menopausal symptoms or nerves. When this product proved a “secret success” with the ladies, Barney decided to bring his mother, Irene, from Ireland, and put her to work making new natural products. With his mother’s help, Barney grew the business into a small but successful manufacturer of natural “life products”. Barney coined “life products” because the products tracked natural life events in the human body and attempted to improve the customer’s discomfort in dealing with them. The name of the company was changed to Barney’s Elixir and Life Products. The business continued to grow and with his mother’s death in 1938 the company had a gross revenue of $178,000 a year. The depression took a toll on company profits but people still needed the boosts to their health and were able to afford Barney’s products as opposed to the medicine offered by doctors and hospitals. During World War II the company supplied the troops with a natural caffeine (Stay Clear) product that would keep soldiers awake for long periods of time and heighten their mental alertness. Government contracts derived from Stay Clear boosted the revenue of the company considerably and ushered in a new wave of interest of natural products. By 1950 Barney turned over the reins of the daily operations of the business to his children but remained on the Board of his family owned company. By this time, the company had expanded its manufacturing plants and sales nationally to include Detroit, Michigan, Los Lunas, New Mexico, Chicago, Illinois and Atlanta, Georgia. The revenue of the company was now close to 2.5 million dollars. In the 1960’s the social climate in America had changed and pharmaceutical companies took on greater importance in the treatment of people’s health. The discovery of new drugs and better health care shifted the confidence in the American perspective away from natural products to traditional western medicine. Although the counter culture of America still supported natural supplements, popularity for Barney’s products waned. In 1965, Wilford’s granddaughter, Geraldine, took over the Research and Development Department (R&D) after receiving a degree in chemistry from Harvard. She had been trained as a child by her grandmother, Wilford’s mother, and knew how the recipes should look. However, she had new ideas and with the approach of the 1970’s, was ready to join the “Anjolie perfume commercial” lifestyle depiction of a 70’s women that “they could bring home the bacon and fry it up too.” Due to the downturn in sales by 1970, the company turned to other countries for its sales base. Starting in Germany and other European countries where natural products are highly credible, Barney began to license the sale of the company’s products to local manufacturers. The name recognition grew and by the 1980’s the company was grossing over 4 million dollars in gross sales. The company moved to overseas operations and manufactured in Germany. Wilford Barney died in 1981 shortly after seeing his first grandchild, Maximillian Barney, take over the President’s positon of the company. Studying the trends in the 1990’s about the resurgence of natural health products “Max” as he liked to be called, decided it was time for Barney’s to focus on the new interest in homeopathic and natural products especially at home in America where sales were static. In 1996, Max, wanting to get a sleeker and more modern feel to the company’s products changed the company name and logo. No longer was Barney’s a mom and pop operation but is an international business. Barney’s Elixir and Life Products was now Biotech Health and Life Products. While the products would continue to show the old Barney logo, for name recognition the new logo would take prominence on the packaging. By 2000 the company was grossing about 1.1 billion in sales with an increase in market share. By 2012, Biotech had a 20% market share of the supplement business with Approximately $25 billion in sales. The company is interested in expanding into infant formula. . Currently sales for the company are at $45 billion. Maximillian Barney is still President and CEO. The stock is still held by the family and all senior management positions are held by family members. Current Company Vision: To help provide everyone with the healthiest life possible in the most natural of ways. Current Mission: To develop products that are safe, effective, affordable and natural with the customer’s health always their primary goal. Current Fact Sheet Headquarters Worldwide web address President 2016 Gross Sales Employees Yonkers, New York www.biotechlife.com Maximillian Barney US$ 45 billion 38,000 in 6 countries worldwide Manufacturer Operations United States Battle Creek, Michigan, Albuquerque, New Mexico, Elkton, Maryland, Peoria, Illinois and Atlanta, Georgia Europe Asia South and Central America and Caribbean Canada Product England, France, Netherlands Sapporo, Japan Salvador, Brazil Calgary, Canada Lines Protein and Fitness; Personal Care, Vitamins and Food Supplements, Infant Formula (Pending) Major Competitors Protein and Fitness-GNC, Personal Care- Nestle Skin Care- Galderma, SA; Glaxo, Merke, General Mills. Vitamins and Food Supplements- GNC, Natures Plus, Natrol, Nature’s Way, Nature’s Bounty, Hain Celestial Group, Inc, Schiff Nutrition International, Nestle Current Business Philosophy Biotech has determined its long-term goal planning pattern should be no longer than three years. Three years seems more flexible than the seven year planning pattern previously used as change in the business climate is making it imperative to be more flexible. The need for innovation and competitive advantage ideas are the main focus for the next two years along with the company’s commitment to becoming a triple bottom line company. Sustainability both for profit and planet is foremost in the minds of the leadership. The development of a triple bottom line company is in the best interest of the company because of the need to keep a strong natural product image link to the community and the desire for the company to be socially responsible. Protection of the suppliers and control over product quality is critical to the development of a sound “life product.” Current Growth Plans Business and Sales Biotech is looking to expand and is exploring the opening of a new manufacturing, sales, and distribution facility in the next year. Currently, products are sold through t h e U S a n d i t s European division but there is a great demand for its current product in Malaysia and China as well as in the United States. It was decided by senior leadership to explore a potential manufacturing and sales presence in these three areas, which would potentially increase sales and would fall under the control of a new Executive Director. As in keeping with the all-natural products, the company wants to bring a greener footprint to its new facility going beyond what many competitors have in place. This as an opportunity to gain market share; and introduce a new product line. This effort would provide a good test case for new products that would position Biotech as a leaders in innovative technology. Product Development Biotech is looking to develop an infant food line. The company has recently expanded and is now interested in pursuing infant formula. Current Eco Sustainability Commitments Currently, Biotech has current commitments to build housing for several communities in Brazil and India where natural pharmaceutical ingredients are produced. The program reflects the company’s strong commitment to making the company a triple bottom line company by the year 2021. Innovation and Adaptability Development of organizational structure and culture changes are being made to introduce more collaborative decision making as well as bringing the divisions closer together in the area of shared resources and communication. The emphasis is to encourage the exchange of ideas, create an environment that fosters new ideas and makes change easier in implementation of initiatives. Biotech is concerned that the stateside organization is driving the other overseas divisions and that new ideas are being encouraged because of the cultural differences in staff. Customer innovation workshops run by the various divisions have highlighted that R&D in Europe and Australia see differences in consumer preferences from US consumer preferences, and Biotech would like to incorporate this knowledge in its future facility. It is believed that US controlled resources are ignoring these product preferences and are thus impeding overseas sales. Corporate leaders are trying to examine how to answer this cultural gap. Current Corporate Culture Being a family owned business, Barney’s new image has made the family a little less cohesive since it seeks to be a sleeker less clan like organization. Still the family leaders are committed to keeping the family history as a symbol for the company. It is believed that the family cultural connection gives support to collaborative decision making something the Company has been successful in promoting throughout the organization. It is also seen by the owners that their family and employees makes up the company’s customers. The family wants to encourage a customer centric culture, one that allows employees to see everything through the perspective of the customer and to make decisions with the customer’s view always paramount. Furthermore, there would be a companywide accountability to the customer in all departments. The owner wants a workforce that gives an extraordinary customer experience in every product it makes. Current Organizational Structure This company has a geographical division structure. However, within each division is a functional structure with production and sales at the hub. R&D, HR, IT and Finance have small staff in each division whose primary job is to liaison with headquarters to implement the decisions made by them. Above all the Divisions is the President and CEO Maximillian Barney Housed in headquarters is the R&D, HR, IT, and Finance Divisions Executive Director South America Division Executive Director North American Division Executive Director European Division Executive Director New Division (Infant Formula)
COURSE RESOURCES ***PLEASE ONLY USE THE FOLLOWING RESOURCES AND THE ATTACHED BIOTECH FILE FOR CITATIONS. NO OTHER BOOKS OR WEBSITES ARE ALLOWED.*** WEEK 1 What Is Organizational Behavior? As a field of study, organizational behavior is concerned with the impact individuals, groups, and structures have on human behavior within organizations. It is an interdisciplinary field that includes sociology, psychology, communication, and management. Organizational behavior complements organizational theory, which focuses on organizational and intra-organizational topics, and human-resource studies, which is more focused on everyday business practices. Edgar Schein’s Organizational Culture Model There are three central components of an organization’s culture: artifacts (visual symbols such as an office dress code), values (company goals and standards), and assumptions (implicit, unacknowledged standards or biases). Types of Organizational Behavior Organizational studies examine organizations from multiple perspectives, using various methods and levels of analysis. Micro organizational behavior refers to individual and group dynamics in organizations. Macro organizational theory studies whole organizations and industries, especially how they adapt; and the strategies, structures, and contingencies that guide them. Some scholars also include the categories of meso-scale structures involving power, culture, and the networks of individuals in organizations. Field-level analysis studies how entire populations of organizations interact. Many factors come into play whenever people interact in organizations. Modern organizational studies attempt to understand and model these factors. Organizational studies seek to control, predict, and explain. Organizational behavior can play a major role in organizational development, enhancing not only the entire organization’s performance, but also individual and group performance, satisfaction, and commitment. Topics in Organizational Behavior Organizational behavior study is particularly relevant in the field of management because it encompasses many of the daily issues managers face. These include leadership, decision making, team building, motivation, and job satisfaction. Understanding not only how to delegate tasks and organize resources but also how to analyze behavior and motivate productivity is critical for success in management. Organizational behavior study also concentrates on culture. Although difficult to define, corporate culture is extremely relevant to how organizations behave. A Wall Street stock-trading company, for example, will have a dramatically different work culture from an academic department at a university. Understanding and defining these work cultures and their behavioral implications is also a central topic within the organizational behavior field. Why Study Organizational Theory? Organizational theory studies organizations to identify how they solve problems and how they maximize efficiency and productivity. Key Points • • • Correctly applying organizational theory can have several benefits for an organization and society at large. Developments in organizations help boost economic potential and help generate the tools needed to fuel a capitalistic system. Once an organization sees a window for expansion, it begins to grow, altering the economic equilibrium by catapulting itself forward. This expansion induces changes in the organization’s infrastructure, in competing organizations, and in the economy as a whole. One example of how development in organizational theory improves efficiency is in factory production. Henry Ford created the assembly line, a system of organization that enabled efficiency and drove both Ford and the US economy forward. Key Terms • • efficiency—the extent to which a resource, such as electricity, is used for the intended purpose; the ratio of useful work to energy expended normative—of, pertaining to, or using a standard Definition of Organizational Theory Organizational theory studies organizations to identify the patterns and structures they use to solve problems, maximize efficiency and productivity, and meet the expectations of stakeholders. These patterns are used to formulate normative theories of how organizations function best. Therefore, organizational theory can be a tool for learning the best ways to run an organization or identify organizations that are managed in a way that increases the likelihood that they will succeed. Applying Organizational Theory Correctly applying organizational theory can have several benefits for both the organization and society at large. As many organizations strive to integrate themselves into capitalistic societies, there is a ripple effect on competing firms and the economy as a whole. Once an organization sees a window for expansion, it begins to grow by producing more, and thus alters the economic equilibrium by catapulting itself forward into a new environment of production. This expansion induces changes in the organization’s infrastructure, in competing organizations, and in the economy as a whole. Other firms observe innovative developments and recreate them efficiently. Developments in organizations help boost economic potential in a society and help generate the tools necessary to fuel the capitalistic system. One example of how development in an organization affects the modern era is factory production. The concept of factory production amplified production as a whole and allowed for the organized division of labor. It centralized facets of the workforce and began to define the rules of production and trade, which also led to specialization. Henry Ford implemented an innovative design by modifying factory production and creating the assembly line, which is still used in many factories today. These developments make it easier for a company to produce, so firms are incentivized to aggregate and use more efficient methods for running their companies. Organizational theory can also help identify malicious or negligent corporate practices, informing the development of future precautionary measures. The nuclear accident at Three Mile Island helped determine ways to prevent similar incidents in the future. In that case, developments in organizational theory led to stronger government regulations and stronger production-related safety mandates. Licenses and Attributions Why Study Organizational Theory from Boundless Management by Lumen Learning, originally published by Boundless.com, is available under a Creative Commons Attribution-ShareAlike 4.0 International license. UMUC has modified this work and it is available under the original license. The Mission Statement A mission statement defines the fundamental purpose of an organization or enterprise. Key Points • • • • A mission statement’s purpose is to retain consistency in overall strategy and to communicate core organizational goals to all stakeholders. The business owners and upper managers develop the mission statement and uphold it as a standard across the organization. It provides a strategic framework for running the organization. In a best-case scenario, an organization conducts internal and external assessments to ensure the mission statement is being upheld. A mission statement contains information about the key market, contribution, and distinction of an organization. It describes what the organization does, why, and how it excels at what it does. Key Terms • • mission—set of tasks that fulfills a purpose or duty; an assignment set by an employer stakeholder—person or organization with a legitimate interest in a given situation, action, or enterprise A mission statement defines the purpose of a company or organization. The mission statement guides the organization’s actions, spells out overall goals, and guides decision making. The mission statement is generated to retain consistency in overall strategy and to communicate core organizational goals to all stakeholders. The business owners and upper managers develop the mission statement and uphold it as a standard across the organization. It provides a strategic framework the organization is expected to abide by. Print Classical Versus Behavioral Perspectives The classical perspective focuses on direct inputs to efficiency, while the behavioral perspective examines both direct and indirect inputs to efficiency. Key Points • The classical perspective of management emerged from the Industrial Revolution and focuses on the efficiency, productivity, and output of employees as well as the organization as a whole. It generally does not focus on human or behavioral attributes or variation among employees. • • The classical perspective of management is often criticized for ignoring human desires and needs in the workplace and does not consider human error in work performance. The classical perspective has strong influences on modern operations and process improvement. The behavioral perspective of management (sometimes called the “human relations perspective”) takes a much different approach from the classical perspective: It is generally more concerned with employee well-being and encourages management approaches that consider the employee as a motivated person who genuinely wants to work. Key Terms • • micromanage—to rely on extreme supervision and close monitoring of employee work psychosocial—related to one’s psychological development in, and interaction with, a social environment The Classical Perspective of Management The classical perspective of management, which emerged from the Industrial Revolution, focuses on improving the efficiency, productivity, and output of employees, as well as the business as a whole. However, it generally does not focus on human or behavioral attributes or variances among employees, such as how job satisfaction improves employee efficiency. Frederick Winslow Taylor Scientific management theory, which was first introduced by Frederick Winslow Taylor, focused on production efficiency and employee productivity. By managing production efficiency as a science, Taylor thought that worker productivity could be completely controlled. He used the scientific method of measurement to create guidelines for the training and management of employees. This quantitative, efficiency-based approach is representative of the classical perspective. Max Weber Another leader in the classical perspective of management, Max Weber, created the bureaucracy theory of management, which focuses on the theme of rationalization, rules, and expertise for an organization as a whole. Weber’s theory also focuses on efficiency and clear roles in an organization, meaning that management should run as effectively as possible with as little bureaucracy as possible. One example of Weber’s management theory is the modern “flat” organization, which promotes as few managerial levels as possible. The classical perspective of management focused on improving worker productivity. Source: Seattle Public Library, Wikimedia Commons. Henri Fayol Henri Fayol, another leader in classical management theory, also focused on the efficiency of workers, but he looked at it from a managerial perspective. He focused on improving management efficiency rather than each individual’s efficiency. Fayol’s six functions of management evolved into the four essential functions of management: planning, organizing, leading, and controlling. The classical perspective of management theory pulls largely from these three theorists (Taylor, Weber, and Fayol) and focuses on the efficiency of employees and improving an organization’s productivity through quantitative (i.e., measurable, data-driven) methods. The classical perspective is often criticized for ignoring human desires and needs in the workplace. It typically does not consider human error in work performance. The classical perspective strongly influences process improvement in modern operations, in which quantitative metrics determine how effectively a process is running. The Behavioral Perspective of Management The behavioral perspective of management (sometimes called the “human relations perspective”) takes a much different approach from the classical perspective. It began in the 1920s with theorists such as Elton Mayo, Abraham Maslow, and Mary Parker Follett. The Hawthorne Studies The Hawthorne studies were an important start to the behavioral perspective of management. These were a series of research studies were conducted with the workers at the Hawthorne plant of the Western Electric Company. The Hawthorne studies found that workers were more strongly motivated by psychosocial factors than by economic or financial incentives. Abraham Maslow Around the time of the Hawthorne studies, Abraham Maslow created his hierarchy-of-needs theory, which showed that workers were motivated through a series of lower-level to higher-level needs. This theory has been applied in the workplace to better understand “soft” factors of employee motivation, such as goal setting and team involvement, in order to better manage employees. Douglas McGregor Additional theories in the behavioral perspective include Douglas McGregor’s theory X and theory Y, which address the perceptions managers have about their employees and how employees react to those perceptions. Theory X management assumes employees are inherently lazy and need micromanagement. Theory Y management focuses on creating work conditions that foster workers’ inherent creativity, commitment, and need for self-fulfillment. McGregor’s theory of management is an example of how behavior-management theory looks more into the “human” factors of management and encourages managers to understand how psychological characteristics can improve or hinder employee performance. Generally, the behavioral perspective is much more concerned with employee well-being and encourages management approaches that consider the employee as a motivated worker who wants to produce quality work. This theory, therefore, encourages a management approach that is less focused on micromanaging and more focused on building relationships with employees to help them achieve their workplace goals and work as effectively and efficiently as possible. Scientific Management: Taylor and the Gilbreths Scientific management focuses on improving efficiency and output through scientific studies of workers’ processes. Key Points • • • Scientific management, or Taylorism, is a management theory that analyzes work flows to improve economic efficiency, especially labor productivity. This management theory, developed by Frederick Winslow Taylor, was dominant in manufacturing industries in the 1880s and 1890s. Important components of scientific management include analysis, synthesis, logic, rationality, empiricism, work ethic, efficiency, eliminating waste, and standardized best practices. Taylor and the Gilbreths introduced methods of measuring worker productivity, including time and motion studies, which are still used today in operations and management. Key Terms • motion study—created by Frank and Lillian Gilbreth, a study analyzing work motions by filming workers and emphasizing areas for efficiency improvement by reducing motion • • • Taylorism—also known as scientific management, an early twentiethcentury theory of management that analyzed workflows to improve efficiency time study—created by Frederick Winslow Taylor, a study of a job and its component parts used to determine the most efficient method of working scientific management—an early twentieth-century theory that analyzed workflows in order to improve efficiency Taylorism Scientific management, or Taylorism, is a management theory that analyzes work flows to improve economic efficiency, especially labor productivity. This management theory, developed by Frederick Winslow Taylor, was popular in the 1880s and 1890s in manufacturing industries. While the terms scientific management and Taylorism are often treated as synonymous, an alternative view considers Taylorism to be the first form of scientific management. Taylorism is sometimes called the “classical perspective,” meaning it is still observed for its influence but no longer practiced exclusively. Scientific management was best known from 1910 to 1920, but in the 1920s, competing management theories and methods emerged, rendering scientific management largely obsolete by the 1930s. However, many scientific management themes are still seen in industrial engineering and management today. Frederick Winslow Taylor Frederick Winslow Taylor is considered the creator of scientific management. Important components of scientific management include analysis, synthesis, logic, rationality, empiricism, work ethic, efficiency, elimination of waste, and standardized best practices. All of these components focus on the efficiency of the worker and not on any specific behavioral qualities or variations among workers. Today, an example of scientific management is determining the amount of time it takes workers to complete a specific task and determining ways to decrease the amount of time by eliminating waste in the workers’ processes. A significant part of Taylorism was time studies. Taylor was concerned with reducing process time and worked with factory managers on scientific time studies. At their most basic level, time studies involve breaking down each job into component parts, timing each element, and rearranging the parts into the most efficient method of working. By counting and calculating, Taylor sought to transform management into a set of calculated and written techniques. Frank and Lillian Gilbreth While Taylor was conducting his time studies, Frank and Lillian Gilbreth were completing their work in motion studies to further scientific management. The Gilbreths filmed the details of a worker’s activities while recording the time it took to complete them. The films helped to create a visual record of how work was completed, and emphasized areas for improvement. They were also used to train workers in the best way to perform their work. This method allowed the Gilbreths to build on the best elements of the work flows and create a standardized best practice. Time and motion studies are used together to achieve rational and reasonable results and find the best practice for implementing new work methods. While Taylor’s work is often associated with that of the Gilbreths, there is often a clear philosophical divide between the two scientific-management theories. Taylor was focused on reducing process time, while the Gilbreths tried to make the overall process more efficient by reducing the motions involved. They saw their approach as more concerned with workers’ welfare than Taylorism, in which workers were less relevant than profit. This difference led to a personal rift between Taylor and the Gilbreths, which, after Taylor’s death, turned into a feud between the Gilbreths and Taylor’s followers. Scientific management continues to make significant contributions to management theory today. With the advancement of statistical methods used in scientific management, quality assurance and quality control began in the 1920s and 1930s. During the 1940s and 1950s, scientific management evolved into operations management, operations research, and management cybernetics. In the 1980s, total quality management became widely popular, and in the 1990s reengineering became increasingly popular. One could validly argue that Taylorism laid the groundwork for these influential fields practiced today. Bureaucratic Organizations: Weber Weber’s bureaucracy focused on creating rules and regulations to simplify complex procedures in societies and workplaces. Key Points • • Max Weber was a member of the classical school of management, and his writing contributed to the field’s scientific school of thought. He wrote about the importance of bureaucracy in society. Weberian bureaucracy is characterized by hierarchical organization, action taken on the basis of (and recorded in) written rules, and bureaucratic officials requiring expert training. Career advancement • depends on technical qualifications judged by an organization, not individuals. Weber’s ideas on bureaucracy stemmed from society during the Industrial Revolution. As Weber understood it, society was being driven by the passage of rational ideas into culture, which, in turn, transformed society into an increasingly bureaucratic entity. Key Terms • • • bureaucracy—a complex means of managing life in social institutions that includes rules and regulations, patterns, and procedures designed to simplify the functioning of complex organizations iron cage—Weber’s theory that a bureaucratic society would make it impossible to avoid bureaucracy and, thus, society would become increasingly more rational bureaucratic control—setting standards, measuring actual performance, and taking corrective action through administrative or hierarchical techniques like creating policies Max Weber was a German sociologist, political economist, and administrative scholar who contributed to the study of bureaucracy and administrative literature during the late 1800s and early 1900s. He was a member of the classical school of management, and his writing contributed to the field’s scientific school of thought. Weber’s ideas on bureaucracy stemmed from society during the Industrial Revolution. As Weber understood it, particularly during the Industrial Revolution of the late nineteenth century, society was being driven by the passage of rational ideas into culture, which in turn transformed society increasingly into a bureaucracy. Bureaucracy Defined Bureaucracy is a means of managing life in social institutions that includes rules and regulations, patterns, and procedures designed to simplify the functioning of complex organizations. Income-tax forms are an example of a bureaucratic tool. Specific information and procedures are required to fill them out, and many laws and regulations dictate what can and cannot be included. Bureaucracy simplifies the process of paying taxes by putting the process into a formulaic structure, but the rules and regulations simultaneously complicate the process. Bureaucracy in the Workplace Weber’s theories on bureaucracy include topics such as specialization of the workforce, the merit system, standardized principles, and structure and hierarchy in the workplace. In his writings, Weber focused on the idea of a bureaucracy, which differs from a traditional managerial organization because workers are judged by impersonal, rule-based activity, and promotion is based on merit and performance rather than on immeasurable qualities. Weberian bureaucracy is also characterized by hierarchical organization, delineated lines of authority in a fixed area of activity, action taken on the basis of (and recorded in) written rules, and bureaucratic officials requiring expert training. In a bureaucracy, career advancement depends on technical qualifications judged by an organization, not individuals. Weber’s studies of bureaucracy contributed to classical management theory by suggesting that clear guidelines and authority need to be set to encourage an effective workplace. Weber did not see any alternative to bureaucracy and predicted that this would lead to an “iron cage,” or a situation in which people would not be able to avoid bureaucracy, and society would thus become increasingly more rational. Weber viewed this as a bleak outcome that would affect individuals’ happiness, forcing them into a highly rational society—with rigid rules and norms—that they wouldn’t be able to change. Of course, with the behavior management movement that arose in the 1920s, this bleak situation did not come to pass. Administrative Management: Fayol’s Principles Fayol’s approach differed from scientific management in that it focused on efficiency through management training and behavioral characteristics. Key Points • • • • Fayol took a top-down approach to management by focusing on managerial practices to increase efficiency in organizations. His writing provided guidance to managers on how to accomplish their duties and the practices they should engage in. The major difference between Fayol and Taylor is Fayol’s concern with the human and behavioral characteristics of employees, rather than individual workers’ efficiency, and his focus on training management. Fayol stressed the importance and practice of forecasting and planning in order to train management and improve workplace productivity. Fayol is also famous for his 14 principles of management and 5 elements that constitute managerial responsibilities. Key Terms • • top-down—Fayol’s approach that looked at the organization from the perspective of the senior managers and not the workers as Taylor did Fayolism—an organizational approach that emphasizes effective leadership from the top and that management is fundamentally about people Henri Fayol Fayol was a classical management theorist, widely regarded as the father of modern operational management theory. His ideas are fundamental to modern management concepts. Comparisons with Taylorism Fayol is often compared to Frederick Winslow Taylor, who developed scientific management. However, Fayol differed from Taylor in his focus and developed his ideas independently. Taylor was concerned with task time and improving worker efficiency, while Fayol was concerned with management, especially its human and behavioral elements. Another major difference between Taylor and Fayol’s theories is that while Taylor viewed management improvements as happening from the bottom up, Fayol emphasized a top-down perspective that was focused on educating management on improving processes first and then moving to workers. Fayol believed that by focusing on managerial practices, organizations could minimize misunderstandings and increase efficiency. His writings guided managers on how to accomplish their managerial duties and on the practices in which they should engage. In General and Industrial Management (1949) Fayol outlined his theory of general management, which he believed could be applied to the administration of myriad industries. As a result of his concern for workers, Fayol is considered one of the early fathers of the human relations movement. Henri Fayol Henri Fayol is considered a founder of the human relations movement. Fayol’s 14 Principles of Management Fayol developed 14 principles of management to help managers be more effective. They are still used today but often interpreted differently. The principles are as follows: 1. 2. 3. 4. 5. 6. division of work delegation of authority discipline chain of command congenial workplace interrelation between individual interests and common organizational goals 7. compensation package 8. centralization 9. scalar chains 10. order 11. equity 12. job guarantee 13. initiatives 14. team spirit Fayol’s Five Elements of Management Fayol is also famous for his five elements of management, which outline the key responsibilities of good managers: 1. Planning. Managers should draft strategies and objectives to determine the stages of a plan and the technology needed to implement it. 2. Organizing. Managers must organize and provide the resources necessary to execute a plan, including raw materials, tools, capital, and human resources. 3. Command. Managers must use their authority and a thorough understanding of long-term goals to delegate tasks and make decisions for the betterment of the organization. 4. Coordination. High-level managers must work to integrate all activities to facilitate organizational success. Communication is key to success in this component. 5. Monitoring. Managers must compare the activities of personnel to the plan of action. This is the evaluation component of management. Flaws in the Classical Approach The classical approach to management is often criticized for viewing a worker merely as a tool to improve efficiency. Key Points • • • • Under Taylorism, work effort increased in intensity, but eventually workers became dissatisfied with the work environment and became angry, decreasing overall work ethic and productivity. Taylorism’s negative effects on worker morale only added fuel to the fire of existing labor-management conflict and inevitably contributed to the strengthening of labor unions. The criticisms of classical management theory opened doors for theorists such as George Elton Mayo and Abraham Maslow, who emphasized the human and behavioral aspects of management. The scientific management approach comes up short when applied to larger, more operationally complex organizations. Managerial efficacy and the empowerment of employees are more important to overall productivity when tasks are not simple and homogeneous. Key Term • Taylorism—scientific management, an early twentieth-century theory of management that analyzed workflows in order to improve efficiency. The Downside of Efficiency The classical view of management tends to focus on the efficiency and productivity of workers rather than on their human needs. Generally the classical view is associated with Taylorism and scientific management, which are largely criticized for viewing the worker as a cog in a machine, rather than an individual. Under Taylorism workers’ effort increased in intensity, but eventually workers became dissatisfied and angry with the work environment, which affected their overall work ethic. This dissatisfaction undoes the value captured via increased efficiency. Taylorism’s negative effects on worker morale only added fuel to the fire of existing labor-management conflict, which frequently raged out of control between the mid-nineteenth and mid-twentieth centuries (when Taylorism was most influential), and thus inevitably contributed to stronger labor unions. That outcome neutralized most or all of the benefit of any productivity gains that Taylorism had achieved. The net benefit to owners and management ended up being small or negative. It would take new efforts, borrowing some ideas from Taylorism but mixing them with others, to produce more successful formulas. Factory workers Taylorism and classical management styles negatively affected the morale of workers, which created a negative relationship between workers and managers. Scientific management also led to other pressures that made workers unhappy. Offshoring and automation are two pressures that have led to the erosion of employment. Both were made possible by the de-skilling of jobs, which arose because of the knowledge transfer that scientific management achieved. Knowledge was transferred to cheaper workers, and from workers to tools. The Human Factor To summarize, the underlying weakness of the classical view of management is that it views employees first as resources rather than people. This criticism opened doors for theorists such as George Elton Mayo and Abraham Maslow, who emphasized the human and behavioral aspects of management. After all, what value is wealth if the individual loses the sense of self-worth and happiness required to enjoy it? The behavioral approach to management took an entirely different approach and focused on managing morale, leadership, and other behavioral factors to encourage productivity, rather than solely managing the time and efficiency of workers. Corporate Growth Another disadvantage of the classical perspective arises from the growing size and complexity of the modern organization. Using metrics to examine specific employee behavior may be feasible in a smaller organization pursuing homogeneous tasks, but it becomes more difficult in an organization that has hundreds of employees pursuing various complex functions. In the situation with more complexity, it may be more beneficial to use tactics that are less focused on the individual employee and more on improving overall productivity. This will involve less micromanaging and more trust that employees will do the right thing in the workplace. The onus of enabling efficiency, therefore, shifts from workers to managers. Behavioral Perspectives The Behavioral Science Approach Behavioral science uses research and the scientific method to determine and understand behavior in the workplace. Key Points • • • • Behavioral science draws from a number of different fields and theories, primarily those of psychology, social neuroscience, and cognitive science. One application of the behavioral science approach can be seen in a field called organizational development—an ongoing, systematic process of implementing effective organizational change. Behavioral sciences include relational sciences, which deal with relationships, interaction, communication networks, associations, and relational strategies. The behavioral science approach is broadly about understanding individual and group behavioral dynamics to initiate meaningful organizational development. Key Term • organizational development—an ongoing, systematic process of implementing effective organizational change using theories from behavioral sciences Behavioral science draws from a number of different fields and theories, primarily those of psychology, social neuroscience, and cognitive science. Behavioral science uses research and the scientific method to determine and understand behavior in the workplace. Many of the theories in the behavioral perspective are included in the behavioral science approach to management. For example, the Hawthorne studies used the scientific method and are considered to be a part of the behavioral science approach. Behavioral science within the business management environment is a specific application of this field, and employs a number of specific types of behavioral observations. This includes concepts such as information processing, relationships and motivation, and organizational development. Information Processing Information processing involves determining how people process stimuli in their environment. This field deals with the processing of stimuli from the social environment by cognitive entities in order to engage in decision making, social judgment, and social perception. The field is particularly concerned with how people [or living things] process information and use it to function and survive in social environments. The Organizational Culture Structure, process, and people all play a role in an organization’s culture. Relationships Behavioral sciences also include sciences that deal with relationships, interaction, communication networks, associations, and relational strategies or dynamics between organisms or cognitive entities in a social system. The emphasis on using quantitative data and qualitative research methods to determine how people process information and understand social relationships is important to helping managers better understand the proven methods for increasing employee motivation and productivity. The behavioral science approach and the myriad fields it encompasses is the most common area of management science today. Organizational Development The behavioral science approach is applied primarily in the field of organizational development. Organizational development is an ongoing, systematic process of implementing effective organizational change. Organizational development is considered both a field of applied behavioral science that focuses on understanding and managing organizational change and a field of scientific study and inquiry. It uses components of behavioral sciences and studies in the fields of sociology, psychology, and theories of motivation, learning, and personality to implement effective organizational change and facilitate employee development. The behavioral science approach is broadly about understanding individual and group behavioral dynamics to initiate meaningful organizational development. The study of human behavior in the context of organizational change is integral to empowering organizations to grow, adapt, and learn to capture competitive advantage. Behaviorism: Follett, Munsterberg, and Mayo Behaviorism initiated a focus on the psychological and human factors influencing workers. Key Points • • • • Mary Parker Follett, Hugo Munsterberg, and Elton Mayo are all considered pioneers and founders of the behaviorism movement in management theory. They wrote about the importance of considering behavioral aspects of workers in addition to workers’ efficiency. Mary Parker Follett was an American social worker, management consultant, and pioneer in the fields of organizational theory and organizational behavior. Hugo Munsterberg was a pioneer of applied psychology, extending his research and theories to industrial/organizational (I/O), legal, medical, clinical, educational, and business settings. Elton Mayo is known as the founder of the human relations movement. His research includes the Hawthorne studies and his book The Human Problems of an Industrialized Civilization. Key Term • industrial psychology—a field of study focused on topics such as hiring workers with the personalities and mental abilities best suited to certain types of vocations Mary Parker Follett, Hugo Munsterberg, and Elton Mayo are all considered pioneers and founders of the industrial/organizational psychology and behaviorism movements in management theory. They wrote about the importance of considering behavioral aspects of workers in addition to workers’ efficiency. This was in many ways a continuation of the scientific method, with the critical difference of incorporating the human factors involved in effective management. Follett Mary Parker Follett was an American social worker, management consultant, and pioneer in the fields of organizational theory and organizational behavior in the late nineteenth and early twentieth centuries. She criticized the overmanagement of employees, a process now known as micromanaging. Follett was known for the concept of reciprocal relationships and the idea that authority is inferior to integrative collaboration. Managers should enable, not dictate, she believed. Follett was sought out by President Theodore Roosevelt to be his personal consultant on managing not-for-profit, nongovernmental, and voluntary organizations. As a management theorist, she pioneered the understanding of lateral processes within hierarchical organizations. Her contributions helped the behaviorism movement get started by recognizing the worker as different from a machine. Mary Parker Follett defined management as “the art of getting things done through people.” Munsterberg Hugo Munsterberg, who practiced around the same time as Follett, was a German-American psychologist. He was one of the pioneers of applied psychology, extending his research and theories to industrial/organizational (I/O), legal, medical, clinical, educational, and business settings. Munsterberg’s writings are considered the genesis of the industrial psychology field. Industrial psychology, according to Munsterberg, focuses on topics like hiring workers with the personalities and mental abilities suited to certain types of vocations, as well as on increasing motivation, performance, and worker retention. Munsterberg suggested that psychology could be used in many different industrial applications, including management, vocational decisions, advertising, job performance, and employee motivation. Many of Munsterberg’s ideas, especially matching an individual’s personality with the correct job set and skills, are common in the use of I/O psychology today. Hugo Munsterberg Munsterberg is considered the father of industrial/organizational psycholo gy. Mayo George Elton Mayo was an Australian psychologist, sociologist, and organization theorist. Mayo is known as the founder of the human relations movement. His research includes the Hawthorne studies and his book (1933). The Hawthorne studies of the 1930s showed the importance of groups in affecting the behavior of individuals at work. Mayo’s employees Roethlisberger and Dickson conducted the practical experiments. Mayo made deductions about how managers should behave. He concluded that people’s work performance depends on both social issues and job content. He suggested a tension between workers’ “logic of sentiment” and managers’ “logic of cost and efficiency” that could lead to conflict within organizations. Mayo’s studies contributed to the behaviorism movement in management, as managers became more aware of the “soft skills” that are important to successful management. Follett, Munsterberg, and Mayo each introduced important components and ideas into the behaviorism perspective of management. They all believed that successful management comes from understanding how to treat employees, motivate them, and help them succeed and become as efficient as possible in their jobs. The Human Side: Hawthorne The Hawthorne studies found that workers were more responsive to group involvement and managerial attention than to financial incentives. Key Points • • • The Hawthorne studies, conducted by Elton Mayo and Fritz Roethlisberger in the 1920s with the workers at the Hawthorne plant of the Western Electric Company, were part of an emphasis on sociopsychological aspects of human behavior in organizations. Hawthorne researchers hypothesized that choosing one’s own coworkers, working as a group, being treated as special, and having a sympathetic supervisor were reasons for increases in worker productivity. The Hawthorne studies found that monetary incentives and good working conditions are generally less important in improving employee productivity than meeting employees’ need and desire to belong to a group, and be included in decision making and work. Key Term • Hawthorne studies—series of investigations conducted in the 1920s emphasizing the sociopsychological aspects of human behavior in organizations The Hawthorne studies were conducted with the workers at the Hawthorne plant of the Western Electric Company by Elton Mayo and Fritz Roethlisberger in the 1920s. The Hawthorne studies were part of a refocus on managerial strategy incorporating the sociopsychological aspects of human behavior in organizations. Site of the Hawthorne Studies Western Electric Company factory near Chicago The studies suggested that employees have social and psychological needs— as well as economic and financial ones—that must be met in order to be motivated to complete their assigned tasks. The human relations movement is concerned with morale, leadership, and factors that help workers cooperate. This theory of management was a by-product of the issues that arose from the classical scientific perspectives on management (i.e., Taylorism). The simplest explanation of the hypothesis investigated is quite intuitive. Employees (i.e., human resources) are not merely motivated by financial gain, and productivity is not simply a by-product of incentives and optimized working spaces. People are motivated by inclusion, constructive feedback, interest, autonomy, and a wide variety of other factors aside from money and other tangible resources. Results of the Hawthorne Studies The studies originally looked into whether workers were more responsive and worked more efficiently under certain environmental conditions, such as improved lighting. The results were surprising, as Mayo and Roethlisberger found that workers were more responsive to social factors—such as the people they worked with on a team and the amount of interest their manager had in their work—than the factors (lighting, etc.) the researchers had gone in to inspect. The Hawthorne studies indicated that workers were highly responsive to additional attention from their managers and the feeling that their managers actually cared about, and were interested in, their work. The studies also concluded that although financial motives are important, social factors are equally important to worker productivity. There were a number of other experiments conducted in the Hawthorne studies, including one in which two women were chosen as test subjects and were then asked to choose four other workers to join the test group. Together, the women worked assembling telephone relays in a separate room over the course of five years (1927–1932), and their output was measured. The measuring began in secret. It started two weeks before moving the women to an experiment room and continued throughout the study. In the experiment room, they had a supervisor who discussed changes with them and, at times, used their suggestions. The researchers then spent five years measuring how different variables impacted both the group’s and the individuals’ productivity. Some of the variables included giving two five-minute breaks (after a discussion with the group on the best length of time), and then changing to two 10-minute breaks (not the preference of the group). Intangible Motivators Changing a variable usually increased productivity, even if the variable was just a change back to the original condition. Researchers concluded that the employees worked harder because they thought they were being monitored individually. They hypothesized that choosing one’s own coworkers, working as a group, being treated as special (by working in a separate room, as in the experiment), and having a sympathetic supervisor were the real reasons for the productivity increase. The Hawthorne studies showed that people’s work performance depends on social issues and job satisfaction. Further, the studies helped demonstrate that monetary incentives and good working conditions are generally less important in improving employee productivity than meeting people’s desire to belong to a group and be included in decision making and work. Managerial Assumption: McGregor McGregor introduced theories X and Y, which summarize and compare the classical management and behavioral management perspectives. Key Points • • • Douglas McGregor was a management professor at the MIT Sloan School of Management. He wrote The Human Side of Management (1960), which suggested motivating employees through authoritative direction and employee self-control, respectively called theory X and theory Y. Theory X, based more on classical management theory, assumes that workers need a high amount of supervision because people are inherently lazy. It assumes that managers need to motivate through coercion and punishment. Theory Y assumes that employees are ambitious, self-motivated, exercise self-control, and generally enjoy mental and physical work duties. Theory Y is in line with behavioral management theories. • Theories X and Y relate to Maslow’s hierarchy of needs in that they see human behavior and motivation as the main priority in maximizing output in the workplace. Key Terms • • Theory X—Employees are inherently lazy and irresponsible and will tend to avoid work unless closely supervised and given incentives. Theory Y—Employees are capable of being ambitious and selfmotivated under suitable conditions. Douglas McGregor was a management professor at the MIT Sloan School of Management. He suggested motivating employees through authoritative direction and employee self-control (1960). McGregor’s book was voted the fourth most influential management book of the twentieth century in a poll of the Fellows of the Academy of Management. McGregor’s main theory comprises theory X and theory Y. Theory X, based more on classical management theory, assumes that workers need a high amount of supervision because people are inherently lazy. Theory Y assumes that employees are ambitious, self-motivated, exercise self-control, and generally enjoy mental and physical work duties. Theory Y is in line with behavioral management theories. Often, how managers act is affected by the theory they subscribe to. Theory X In theory X, managers tend to micromanage and closely supervise employees. Complex hierarchical structures are needed in order to offer a narrow span of control at every level of the organization. Employees show little ambition without an incentive program and avoid responsibility whenever possible. Managers who believe theory X rely more heavily on punishment, fear, and coercion—and less on rewards—to motivate employees. Manager-employee relationships are generally not rewarding in this environment of mistrust. Usually managers in these situations believe that the sole purpose of the employee’s interest in his or her job is money. Theory Y Theory Y managers generally believe the opposite. They believe that given the proper conditions, employees will learn to seek and accept responsibility and to be self-directed in accomplishing objectives, that most people will want to do well at work, and that the satisfaction of doing a good job is a strong motivator. Many people interpret theory Y as a positive set of beliefs about workers. McGregor thinks that theory Y managers are more likely than theory X managers to develop a climate of trust with employees—a required condition for human-resource development. This type of human-resource development is much more in line with how Maslow’s hierarchy of needs operates and with the Hawthorne studies’ findings than with any of the classical theories of management. Theory X or Theory Y? Theories X and Y relate to Maslow’s hierarchy of needs in that they see human behavior and motivation as the main priorities in maximizing output. Both McGregor and Maslow would say that in order to help employees achieve maximum efficiency and happiness in their work, a theory Y manager would need to promote morality, creativity, problem solving, and a lack of prejudice. McGregor was a lifetime proponent of theory Y. Modern organizations in developed countries generally side with McGregor, in that they believe theory Y is superior in getting positive results from employees (and job satisfaction for employees). However, both theories are still prominent in the workplace, where many managers treat their employees as if they are lazy and likely to perform poorly without stringent rules and supervision. In management, just as everywhere else, it is difficult to effect social change in the face of human nature, even when the benefits are established. Productivity: Argyris Argyris’s theory of single- and double-loop learning has been applied to management theory to suggest the best ways for employees to learn. Key Points • • • • Argyris studied how humans design and decide on their actions under difficult or stressful situations. He believed that human actions are controlled by environmental variables, which determine the key differences between single-loop learning and double-loop learning. In single-loop learning, individuals, groups, and organizations modify their actions according to the difference between expected and obtained outcomes. In double-loop learning, individuals, groups, and organizations question the values, assumptions, and policies that led to the actions in the first place. Argyris’s theory of single- and double-loop learning has been applied to management theory to suggest the best way for employees to learn and think about new goals and strategies for an organization. Key Terms • • • double-loop learning—a theory in which an organization or individual questions the values, assumptions, and policies that led to a given situation learning organization—a company that facilitates the learning of its members and continuously transforms itself single-loop learning—a theory that individuals, groups, or organizations modify their actions according to the difference between expected and obtained outcomes Chris Argyris (July 16, 1923 to November 16, 2013) was an American business theorist, professor at Harvard Business School, and a thought leader at Monitor Group, a consulting firm. He is known for his work on learning theories within learning organizations. Argyris conducted a series of research studies in action science, which studies how humans design and decide on their actions under difficult or stressful situations. Argyris believed that human actions are controlled by environmental variables that determine the key differences between single-loop and doubleloop learning. Single-Loop Learning In single-loop learning, entities (such as individuals, groups, or organizations) modify their actions according to the difference between expected and obtained outcomes. This essentially means that learning is through experience and direct reflection on outcomes, where the ends justify the means, and dictate the fulcrum of the discussion and learning outcomes. In many ways, this is a reactionary approach. Individuals must identify successes and failures, and pursue formulas for maximizing the former and minimizing the latter. While this type of learning, and the broader behaviors, are extremely common in the real world, it is not the ideal method for learning that can be adapted to the broader organization. It tends to be simple, shortterm, and not always conducive to sustainability. Double-Loop Learning In double-loop learning, the entities question the values, assumptions, and policies that lead to actions. If the entities can discern and modify the values, then second-order or double-loop learning has taken place. This is a more integrative, process-oriented, and collaborative approach. It is also much more complex, difficult, and sensitive, as the core values and strategies in place must be analyzed, questioned, and defended (or discarded). The simple truth is that people fear change, actively avoid conflict, and generally preserve the status quo. Double-loop learning requires the bravery to challenge what is established organizationally, identify broader systemic issues, and fix problems at their source. Chris Argyris wrote about the theories of single- and double-loop learning, which determine how people make decisions in difficult situations. For example, a company facing a problem with its management strategy may decide to focus on how to improve or implement the strategy in different ways. In this situation, the company is using single-loop learning: Management is focused on making changes without reconsidering the fundamental standard or strategy itself. However, if the company were to entirely reconsider the problematic strategy and start from scratch, this would exemplify double-loop learning. Double-loop learning may lead to a change in the original strategy or even the goals the company had that led to its strategy. Argyris’s theory of single- and double-loop learning has been applied to management theory to suggest the best way for employees to learn and think about new goals and strategies for an organization. Modern Thinking Quantitative and Analytical Management Tools Quantitative tools are used by management to determine where a company is doing well or struggling compared with its industry and competitors. Key Points • • • • • Many quantitative and analytic tools are available for managers to better understand workflow processes, financial management, and employee efficiency. A decision tree is a decision support tool that uses a tree-like graph or model of decisions and their possible consequences, including chance event outcomes, resource costs, and utility. Simulation is the imitation of a real-world process or system over time. Trend charts are often used in management to display data over time to explore any potential trends, either positive or negative, that require additional attention by management. It is important to use statistical confidence intervals when utilizing this type of forecast. Benchmarking allows a manager to see how different aspects of a business are performing compared to national, regional, and industry standards. It also allows management to explore how the company is performing compared to its competitors. • Financial projections and net-present-value (NPV) analyses are also commonplace when deciding upon new operations quantitatively— where the company predicts profitability in today’s dollars. Key Terms • • decision tree—a graphic visualization—resembling a tree—of a complex decision-making situation and likely outcomes from choosing different options benchmarking—technique allowing a manager to compare metrics like quality, time, and cost, across an industry and against competitors Managers can use many different quantitative and analytic tools to better understand workflow processes, financial management, and employee efficiency. These tools, such as decision trees, simulation, trend charts, benchmarking, and financial projections, help managers improve their decision-making abilities, determine how their business is performing relative to competitors, and discover opportunities for improvement. Using these tools to create quantitative and measurable metrics helps an organization see exactly where it is performing well and where it is performing poorly. Decision Tree A decision tree is a branching graph, or model of decisions and their possible consequences, including chance-event outcomes, resource costs, and utility. Decision trees are commonly used in operations research (specifically in decision analysis) to help identify a strategy most likely to reach a specified goal. They can also be used to map out a thought process or the possible consequences of a decision. A manager may use this tool when deciding between different projects or investments. Example of a Decision Tree A decision tree to determine the consequences and potential outcomes (money lost or gained at each step) along multiple potential paths of action. The path resulting in the highest financial gain by the end is generally the one that should be chosen. Simulation Simulation is the imitation of a real-world process or system over time. The act of simulating something first requires that a model be developed representing the key characteristics or behaviors of a physical or abstract system or process. A simulation could be used to study investment decisions by actively playing out the outcomes of specific situations. Trend Charts Trend charts are often used to display data over time to explore potential trends (either positive or negative) that require additional management attention. Many metrics—including employee productivity, financial metrics, operational efficiency, and comparisons between competitors—are analyzed using trend charts. Trends are only ever in the past, however, and using confidence intervals in projecting trends is critical to their effectiveness. This chart of US defense spending from 2000 to 2011 shows that overall spending increased from $300 billion to $700 billion due to increases in both the Department of Defense (DOD) budget and overseas (war-related) spending. Benchmarking Benchmarking allows managers to see how different aspects of their business (usually quality, time, and cost) are performing compared to national, regional, and industry standards. It also allows a manager to explore how the company is performing compared to competitors. In the process of benchmarking, management identifies the best firms in the industry, or in another industry where similar processes exist, and compares the results and processes of the target firms to management’s own results and processes. In this way, management learns how well the targets perform and, more importantly, the business processes that explain why these firms are successful. Financial Projections Managers can also use financial analysis as a management tool. When investing in a project or an acquisition of any kind, a manager will always want to know how quickly the investment will turn a profit. For example, when a company invests in a new building, management will calculate how long it will take for the building to generate enough income to cover the upfront costs. This calculation is sometimes called a payback period. All else being equal, shorter payback periods are preferable to longer ones. This is often referred to as NPV, or net present value, where the company calculates the future value of the project in today’s dollars. It is critical to remember that a dollar today and a dollar tomorrow have different values. Operations Management Tools Six Sigma and Lean are two popular operations-management theories that help managers improve the efficiency of their production processes. Key Points • • • • The main tools of operations management come from two popular theories of organizing business: Six Sigma and Lean. Six Sigma relies on particular quality-management methods, such as statistical analytics, and incorporates designations like black belt and green belt to indicate those within an organization who are experts in these methods. Lean is a production theory that deems any expenditure of resources that doesn’t create value for customers wasteful—and a target for elimination. By leveraging operational paradigms constructed to deliberately capture value through maximizing efficiency, managers can lower costs for companies and prices for consumers. Key Terms • • six sigma—process improvement that focuses on using statistical methods to reduce the number of defects lean—a production strategy focused on eliminating all unnecessary waste Operations management is a type of management that oversees, designs (or redesigns), and controls a company’s production processes and business operations. Operations managers are responsible for ensuring that business operations are efficient, both in conserving resources and meeting customer requirements. They manage the process that converts inputs (materials, labor, and energy) into outputs (goods and services). In order to accomplish this task, managers use various tools, including Six Sigma and Lean—the two most influential ones. Six Sigma Six Sigma is a strategy designed to improve the quality of process outputs. It accomplishes this by identifying and removing the causes of defects and errors, and by minimizing variability in manufacturing and business processes. The strategy relies on quality management methods like statistical analytics, and incorporates designations like black belt and green belt to indicate those within an organization who are experts in these methods. Each Six Sigma project in an organization follows a defined sequence of steps with quantified financial targets such as reducing costs or increasing profits. Among the tools used in Six Sigma are process mapping, trending charts, calculations of potential defects, ratios, and statistics. Six Sigma also includes best practices for working within a team. Six Sigma Symbol Six Sigma is a tool many managers use to reduce the number of defects created by their processes. Lean Lean is similar to Six Sigma, but slightly less focused on defect rate and more on eliminating the amount of waste and excessive steps in an operation. Lean is a production theory that deems any expenditure of resources that doesn’t create value for customers wasteful—and a target for elimination. Beginning from the perspective of the consumer of a product or service, value is defined as any action or process that a customer would be willing to pay for. Lean employs tools to evaluate production workflow and determine where there is waste. Examples of waste include excess motion, inventory, and overproduction. Examples of Six Sigma and Lean In many ways, lean manufacturing and Six Sigma are reminiscent of Henry Ford’s focus on systematic process improvements. The overarching theme is simply to minimize the time employees spend on tasks and maximize output with the same amount of input. Toyota, using the Japanese concept of kaizen, exemplifies lean manufacturing and just-in-time (JIT) inventory management. Toyota became famous for timing each specific element of the manufacturing process to ensure minimal warehousing, delivering each component precisely when and where it was needed. This created a process flow that minimized space usage, which lowered costs, optimized timing, and created widespread consistency of operational flow. Lean and Six Sigma are the two main strategies for operations management. Both offer managers an extensive toolbox to analyze the efficiency of their production. These tools analyze workflow, uncover where and why there is waste, and decrease defects in products or services, all of which make a company more efficient. The Systems Viewpoint Systems thinking is an approach to problem solving that considers the overall system instead of focusing on its specific parts. Key Points • • • Systems thinking is an approach to problem solving that views problems as part of an overall system. It is different from problem-solving strategies that only focus on specific parts or outcomes of a problem. Systems thinking approaches problems as a set of habits or practices within a framework. It is based on the belief that the component parts of a system are best understood in the context of their relationships with each other rather than in isolation. Systems thinking is opposed to fragmented thinking, which involves thinking about specific problems without considering the context, environment, and effects of similar problems. Key Term • fragmented thinking—looking at problems as isolated events instead of considering the system as a whole It is the process of understanding how people and situations influence one another within a closed system. As in nature, where the air, water, movement, plants, and animals interact with one another—and survive or perish in relationship with each other; in business, management also involves relationships and interactions. Organizational Systems Organizational systems consist of people, structures, and processes working together to make an organization healthy or unhealthy. The end product of effective systems management is synergy, in which the whole is greater than the sum of its parts. Systems generally contain the following: • • • • inputs, such as people, time, energy, and information processes or reactions, including tools, software, and analyses outputs, like products, reports, and plans feedback mechanisms, including information and reports Systems thinking: Just as gears work together, problems in one area of a business can affect other areas. Problem Solving When problem solving, advocates of systems thinking consider specific problems within an overall system, rather than reacting to specific issues or outcomes. In systems thinking, problems are conceptualized as a set of habits or practices that exist within a framework. Practitioners of systems thinking believe that the component parts of a system can best be understood and analyzed in the context of how the parts of a system are interrelated. Systems thinking rejects a reductive framework that attempts to focus on a single problem without considering the context, environment, or impact of similar problems. Fragmented thinking often results in solutions that cannot be applied in other situations, so they lose their relevance over time. With root causes left unaddressed, management is continually putting out fires in a reactive mode. Example Imagine that the Human Resources department is beset with problems in workflow and efficiency. A manager who uses systems thinking to fix the problem looks at Human Resources in the context of all of the workflow in the company to see whether the “Human Resources problem” could actually be a company-wide issue. Only a systems-thinking approach can lead to this realization because systems thinking provides insight into how problems that manifest in a specific location can spring from distant, seemingly unrelated places. With a more accurate understanding of a problem, managers can formulate a more effective and lasting solution. The Contingency Viewpoint The contingency viewpoint of management proposes that there is no standard for management; instead, management depends on the situation. Key Points • • • • The contingency viewpoint is a more recent development in organizational theory that attempts to integrate a variety of management approaches, proposing that there is no one best way to organize a corporation or lead a company. Debating which one of the previous approaches to management is “best” is irrelevant in contingency theory, since the heart of the contingency approach is that there is no one best way for managing and leading an organization. The contingency viewpoint focuses on management’s ability to achieve alignment and a good fit between employees and circumstances by considering multiple solutions to determine the best one for each particular problem. The focal point, and modern relevance, of this perspective is the concept of adaptability. Technology and globalization evolve the business environment so rapidly that adaptable strategies are more appropriate than static ones, making contingencies key to success. Key Term • contingency viewpoint—a management theory that proposes that there is no standard for management practice; instead, management depends on the situation. The contingency viewpoint is a more recent development of organizational theory that attempts to integrate a variety of management approaches by proposing that there is not one best way to organize a corporation or lead a company. Instead, the optimal course of action is contingent, or dependent upon internal and external contexts. Perspective on Previous Theories The contingency approach claims that past theories, such as Max Weber’s bureaucracy theory and Taylor’s scientific management, are no longer practiced because they fail to recognize that management style and organizational structure are influenced by various aspects of the environment known as contingency factors. Debating which one of the previous approaches to management is the best one is irrelevant, since the heart of contingency theory is that there is not one best way to manage and lead an organization. The basic premise of contingency theory is that there are limitless possibilities that companies must be prepared to adapt strategically. An Outline of Contingency Theory By its nature, contingency theory avoids static rules. There are, however, common contingencies that businesses must react to, including technology, competition, governments, unions, consumer interest groups, new markets and consumers, and economic factors. Fred Fiedler identified three leadership styles and empirical situation measurements to assess the degree of favorability a given contingency offers: • • • the leader-member relationship, which is the most important variable in determining the situation’s favorableness the degree of task structure, which is the second most important input into the favorableness of the situation the leader’s position power obtained through formal authority In other words, leadership needs to be able to assess a situation, determine the task structure, and obtain a position of formal authority to adequately manage a contingency situation. Example Imagine a manager with an employee who regularly is late for work. He or she could have a written protocol that includes only one option: Reprimand the employee. Under the contingency viewpoint, however, the manager may decide, by talking to the employee, to find out why he or she comes to work late. Perhaps there are extenuating circumstances that can be easy to work around. In this case, the contingency approach allows the employee to keep the job and saves the manager the time and trouble of termination and hiring someone else. A leader’s ability to manage under the contingency viewpoint depends largely on the nature of the environment and how the organization relates to the environment. Therefore, the organizational structure is a major component of the approach that management may take in resolving problems under contingency theory. Quality Assurance and Control Quality assurance and quality control are intended to ensure that products are created with the fewest number of defects possible. Key Points • • • • Quality assurance (QA) refers to planned and systematic activities implemented in a quality system to fulfill the quality requirements for a product or service. Quality control (QC) is a process by which products are tested to uncover defects and the results are reported to management, which makes the decision to allow or deny product release. Quality control and quality assurance work together to make sure that a company’s products have the lowest possible error rate. As global markets expand, and as outsourcing becomes common practice, QC and QA are increasingly important. When companies do not control their manufacturing process, they must invest in controlling the quality of their vendors. Key Term • failure testing—stress testing to determine the point at which a product will fail Quality assurance and quality control are two methods of planning and implementing structured methods in a work process to ensure that products are created with the highest possible quality and the smallest number of defects or problems. Quality Assurance QA refers to the planned and systematic activities implemented in a quality system to fulfill the quality requirements for a product or service. It is a systematic measurement compared to a set standard, with process monitoring used to prevent errors. This can be contrasted with quality control, which is focused on process outputs. There are two key principles of QA: • • Fit for purpose. The product should be suitable for its intended purpose. Right the first time. Mistakes should be eliminated. QA includes managing the quality of raw materials, assemblies, products, components, services related to production, management processes, production processes, and inspection processes. QA equates to process observations. Quality assurance is measured through failure testing and statistical control. Failure testing determines the stress levels under which a product will fail by exposing it to unanticipated stresses, like intense vibration, temperature, and humidity. Stress testing uncovers problems that can be fixed with simple changes. Statistical controls ensure that an organization is producing quality products at the lowest possible defect rate. Many organizations use Six Sigma levels of quality, so the likelihood of an unexpected failure is less than four in one million. Assembly line and quality control: Many processes, such as assembly lines, help ensure quality assurance and control by streamlining production. Quality Control QC is the process of testing finished products to uncover defects and reporting the results, so management can decide whether to allow or deny product release. It differs from quality assurance, which attempts to improve, stabilize, and eliminate flaws from a product during production. Controls also include product inspection: Every product is examined visually before being sold. Inspectors receive lists and descriptions of unacceptable product defects, such as cracks or surface blemishes. Efficient quality control depends on top-notch visual examination of products, employee training, and organizational culture. Quality control and quality assurance work together to ensure that companies produce products that have the lowest possible error rate, so there will be fewer customer complaints and no need for rework. Outsourcing Because they depend so much on vendors, many corporations find their manufacturing processes are conducted outside of their organization. This can lead to difficulties in maintaining process quality. Therefore, a corporation needs to invest in QC professionals to maintain organizational standards. QC is not simply an internal concern for many businesses, but a criteria for selecting vendors. Evidence-Based Management Evidence-based management emphasizes the importance of managers using the scientific method to make decisions. Key Points • • • • Evidence-based management is an emerging movement to base managerial decisions and organizational practices on the best available scientific evidence and explicitly use current best practices. It is an outgrowth of evidence-based medicine. While there is a rich body of academic literature pertaining to tried-andtrue managerial strategies, real-world application is rare. Promoting evidence-based management is challenging because it can conflict with traditional definitions and expectations of management. Little shared terminology exists between managers of different companies, making it difficult for managers to discuss evidence-based practices, so the adoption of evidence-based practices is likely to be organization-specific. Key Term • evidence-based management—management decisions that are based on a combination of critical thinking and the best available evidence (information, facts, or data that support or contradict a claim, assumption, or hypothesis) Evidence-based management (EBM) is an emerging movement that explicitly uses current best practices in managerial decision making. It is rooted in evidence-based medicine—the rigorous statistical and experimental process that new pharmaceuticals go through before they are deemed safe. The intended result is treatments that are as effective and safe as possible for patients. Applying EBM to business simply means utilizing the scientific method, which integrates rigorous and objective hypothesis testing to identify best practices. Evidence-based management, like evidence-based medicine, emphasizes scientific research to inform decision making. The Scientific Method Evidence-based management informs managerial decisions and organizational practices using the best available scientific evidence. Practicing EBM requires managers to collect data, run tests, generate hypotheses, and objectively interpret findings to create an accurate depiction of the efficacy of a given managerial style or decision. Because management is much less tangible or measurable than many other scientific disciplines, this can be a challenge. Imagine a group of managers considering how to improve job satisfaction in their organization. They could conduct a comprehensive and objective survey across a large number of organizations to collect data on compensation, employee satisfaction, and company culture to determine if a positive company culture is more relevant to job satisfaction than pay. After collecting n number of responses, the data could be assessed to determine a confidence interval, revealing whether the conclusion is significant for future management decisions. Integration with Organizations While there is a rich body of academic literature pertaining to tested and true managerial strategies, real-world application is relatively rare. MBAs and degree holders in business have some exposure to the literature, but they rarely move it from the theoretical realm to practice. Motivating real-life applications of the studies for management could prove advantageous for companies looking to improve their managerial effectiveness. Evolving Organizations Knowledge Management and Behavior Modification Knowledge management and behavior modification are tactics employers use to ensure organizational growth and adaptability. Key Points • Knowledge management is an organizational concept that takes the best knowledge from individual employees and organizes it into a • • • functional learning and education system that all employees can learn from. Typically, a company’s information technology department—via electronic collection of specific components of employee expertise, creation of online learning modules, and redistribution of the modules throughout the company—is responsible for knowledge management. Behavioral modification includes altering an individual’s behavior through data collection and positive and/or negative reinforcement. In an organization, behavior modification is typically studied to examine how employees perceive their performance in relation to rewards. At a high level, it is used to develop strategies for improving performance and behavior. Key Term • knowledge management—collecting employees’ specialized knowledge, and organizing, redistributing, and sharing it throughout the company Knowledge management (KM), and behavior modification using organizational knowledge, are central to an organization’s ability to grow and adapt. The value of knowledge management from the organization’s perspective is that it can help employees learn and improve their skills—and allow the organization to evolve and achieve higher efficiency. Knowledge is a resource that organizations can collect and document through experience over time. Documenting and disseminating knowledge is a way to avoid repeating mistakes while improving current strategies. Knowledge Management The fields of business administration, information systems, management, and library and information sciences include knowledge management. Other fields contributing to KM research include information and media, computer science, public health, and public policy. Knowledge management is the range of strategies and practices an organization uses to identify, create, represent, distribute, and enable the adoption of employee insights and experiences. These insights and experiences constitute the company’s knowledge embodied in individuals or embedded as the organization’s processes or practices. Knowledge management also focuses on organizational objectives including improved performance, competitive advantage, innovation, and continuous improvement. KM is similar to organizational learning but focused more on knowledge as a strategic asset of a company’s employees. It encourages sharing knowledge to further the company’s success. Many organizations include resources dedicated to knowledge management in their business strategy, information technology, or human resource management departments. They also may hire consulting firms that specialize in knowledge management. Another approach to KM is taking the best knowledge from individual employees and organizing it into functional learning and education systems that all employees can learn from. Sharing knowledge is the most important component of knowledge management and is essential to helping an organization evolve and grow. A company’s IT department can facilitate this by collecting and disseminating employee knowledge through learning modules. B. F. Skinner B. F. Skinner introduced the study of behavior modification, and his theories are still used in behavior modification today. Behavior Modification Behavior modification was first introduced in psychology as a collection of techniques to increase or decrease the frequency of behaviors. B. F. Skinner popularized behavior modification, analyzing the triggers and rewards for certain behaviors in a series of experiments using animals. Behavioral modification techniques include both positive and negative reinforcement. In an organization, behavior modification is typically studied to examine how employees perceive their performance in relation to rewards. The process of behavioral modification in the workplace focuses on identifying the frequency of performance-related behaviors and determining the triggers for them. Once a trigger is identified, management can determine whether to develop a different trigger to change performance or sustain the current performance through rewards and appraisal. Behavior modification is generally used on a broader scale to determine how best to develop employee performance to move an organization in a desired direction. Knowledge management can help this movement by providing employees with adequate training and skills, and making sure they know that they are valuable members of the organization who deserve investment and empowerment. Training employees and improving their knowledge, skills, and behavioral approaches to work help an organization evolve and improve. Example Consider an employee who is particularly knowledgeable about a certain computer system. He or she might be asked to write a training manual or presentation for coworkers. Accelerated Change and Adaptation Change management facilitates employee adaptation to organizational change. Key Points • • • Change is essential to organizational growth and development, but it can cause discomfort, particularly when it affects employees’ daily work. Sometimes an organization faces accelerated change—from attempts to change its overall mission, for example, or to implement a disruptive technology. In these situations employees must be able to adapt quickly. Change management strategies such as communication, employee alignment with expectations, training, and transparency of management can help employees more quickly adapt to change. Key Term • change management—using strategies like communication, training, and transparency to help employees adapt to organizational change Managing Change and Adaptation Change is essential to organizational growth and development, but employees don’t always embrace change, particularly when it upsets their routines or the status quo. Employees can view change as a threat: It may impact their daily tasks, training, or their jobs. Change management is an approach to shifting and transitioning individuals, teams, and organizations from a current state to a desired future state. It is an organizational process aimed at helping stakeholders accept and embrace change in their business environment. Drivers of change that demand rapid adaptation are numerous. One of the most relevant to modern organizations is technology. As the smartphone became increasingly popular, companies in the phone industry had to react rapidly to switch their operational focus to smart phones, data plans, app stores, and multiple device integration. Companies that could not react and adapt quickly enough to the disruptive technology were left in the dust. Sometimes an organization faces accelerated change in attempting to change its overall mission and refocus its vision. During the Great Recession, a number of organizations determined the best way to survive was to rebrand or reorganize their business strategy as a whole. Changing a company’s brand or overarching strategy (i.e., from high-cost to low-cost, or vice versa) is a massive overhaul that will undoubtedly upset people internally and externally. Responsible change is a complex process. Organizational Change and Employees Major changes to an organization will force employees to adapt if they want to keep their jobs, even if they don’t approve of the change. The likely result is tension between what the employees want and what is occurring in the organization. Change management helps employees adapt to accelerated organizational change by using strategies to ease their suspicions, lessen resistance, and relax the tension created by the organization’s new direction. Change management uses basic structures and tools to control an organizational change effort. These structures and tools primarily revolve around ensuring that all stakeholders are aware of what’s going on and involving them in the strategic process. Managerial transparency—about what is happening and why—is critical to employee buy-in. Communicating effectively and comprehensively, and listening to employees express their fears, criticisms, and suggestions are integral to everyone moving forward in the same direction. When changing an organization is a prerequisite to remaining profitable, employees will understand the need to embrace change to maintain the relevancy of their jobs. The Role of the Manager in an Evolving Organization Managers play a number of roles in evolving organizations, including leader, negotiator, figurehead, liaison, and communicator. A manager needs to be a good leader. While a manager organizes and plans, she or he must also inspire employees with a vision for the organization. A manager needs to be an effective negotiator. When organizations are developing or undergoing change, the manager is often required to negotiate with competitors, contractors, suppliers, and employees. Key Points • • A manager must be a figurehead who reinforces the mission and vision of an organization to employees, customers, and other stakeholders. A manager needs to be an effective communicator, and a liaison between employees, customers, and other managers. Key Term • leader—one who inspires and motivates Managers play an integral part in an organization’s growth and evolution. Organizational growth is a complex process, particularly in larger organizations with more inertia. Organizations are essentially a compilation of moving parts. Motivating each individual, with unique talents and different levels of drive, to move in the same direction simultaneously is extremely challenging. It requires highly effective managers with well-developed communication skills. Managers must do more than accept change; they must facilitate the evolutionary process. In these situations, organizations need a manager who can fulfill several roles, including leader, negotiator, figurehead, and communicator. In each of these roles, the manager’s goal is to help employees through the change with the fewest conflicts possible. The Role of a Manager During Organizational Change Leader To effect change, a manager needs to be a good leader. He or she must not only organize and plan the change, but use leadership skills to inspire employees to embrace it. Leadership is a complex and intangible quality that involves many roles. It requires exceptional communication skills and a vision that will inspire others. Negotiator When organizations are developing or undergoing change, the manager is often required to negotiate with competitors, contractors, suppliers, and employees. A manager needs to be able to negotiate with all of these stakeholders to serve the best interests of the organization. Figurehead A manager also needs to act as a figurehead. In particular, upper management is responsible for creating and reinforcing the mission and vision of an organization with employees, customers, and other stakeholders. Employee engagement requires an understanding of where the organization is headed as well as its ultimate goals. In some cases, the figurehead becomes synonymous with the organization in the minds of customers. The manager who builds a positive rapport with both customers and employees alike is an organizational asset. Liaison and Communicator When managers effectively communicate their vision for the organization, employees are more likely to engage with their work and exert themselves to further the organizational mission. Communication is the core of managing change effectively. Transparency and empathy are integral to making employees aware of and comfortable with the changes taking place. Managers in an evolving organization must stay in constant contact with their direct reports to ensure that everything is running smoothly and that all stakeholders are educated and on board. Organizational Structure: Trends in Organizations Flattening Hierarchies Flattening hierarchies can benefit smaller organizations by increasing employee empowerment, participation, and efficiency. Key Points • • • • A hierarchy can link entities either directly or indirectly; it can also link entities either vertically or horizontally. The only direct links in a hierarchy are to a person’s immediate superior or subordinates. The flat organization model essentially “flattens” the hierarchy and promotes employee involvement through a decentralized decisionmaking process. According to the logic behind this model, well-trained workers will be more productive when they are directly involved in the decision-making process rather than closely supervised by many layers of management. Flat organizations are most relevant in specific scenarios—most notably small organizations that are dependent upon creativity, freedom of action, and high-powered employees. Key Term • hierarchy—an arrangement in which items are represented above, below, or at the same level as other items Links within Hierarchies Hierarchies can be linked in several ways. A hierarchy can link entities directly or indirectly, and vertically or horizontally. The only direct links in a hierarchy are to a person’s immediate superior or subordinates. Parts of the hierarchy that are not linked vertically to one another can be horizontally linked through a path by traveling up the hierarchy; this path eventually reaches a common direct or indirect superior and then travels down the hierarchy again. An example of this would be two colleagues who each report to a common superior but have the same relative amount of authority in the organization. Flat Hierarchies Flat (or horizontal) organizational structures have few or no levels of intervening management between staff and managers. This “flattened” hierarchy promotes employee involvement through a decentralized decisionmaking process. The idea is that well-trained workers will be more productive when they are directly involved in the decision-making process rather than closely supervised by many layers of management. A Flat Organization In a flat organization there is no lower or mid-level management—just one manager and the rest of the staff. Advantages of Flattened Hierarchies Flat structures empower each individual within the company to be involved in decision-making processes. This allows for a great deal of creative discussion and operational diversity, and tends to create great variance in new ideas. By elevating the level of responsibility of baseline employees and eliminating layers of middle management, comments and feedback can quickly reach everyone involved in decisions. Response to customer feedback can be carried out more rapidly. This type of structure generally works best in smaller organizations or individual units within larger organizations. Start-up companies, “mom and pop shops,” and other small independent businesses are the most common examples of a flat structure. Disadvantages of Flattened Hierarchies Flat organizations are difficult to maintain as companies grow larger and more complex. When organizations reach a critical size, they can retain a streamlined structure; however, they cannot keep a completely flat managerto-staff hierarchy without impacting productivity. Certain financial responsibilities may also require a traditional hierarchical structure. While the flat structure can foster employee empowerment, involvement, and creativity, it can also create inefficiency in decision-making processes. Some theorize that flat organizations become more traditionally hierarchical when they gear themselves more toward productivity. Because the interaction between workers is more frequent, this organizational structure generally depends on a more personal relationship between workers and managers. As a result, the structure can be more time-consuming to build than a traditional hierarchical model. Decentralizing Responsibility In decentralized structures, responsibility for decision making is broadly dispersed down to the lower levels of an organization. Key Points • • • • Decentralization is the process of dispersing decision-making authority among people, citizens, employees, or others in an organization or sector. A decentralized organization shows fewer tiers in the organizational structure, a wider span of control, and a bottom-to-top flow of ideas and decision making. The bottom-to-top information flow allows lower-level employees to better inform officials in the organization during decision-making processes. When companies decentralize authority, however, there can be confusion about how final decisions are made. Key Terms • • • mechanistic organization—a bureaucratic structure governance—accountability for consistent and cohesive policies, processes, and decision rights authority—the power to enforce rules or give orders Decentralization is the process of dispersing decision-making authority among the people, citizens, employees, or others in an organization or sector. In decentralized structures, responsibility for decision making and accountability are broadly dispersed at lower levels of an organization. This dispersion can be intentional or unintentional. A decentralized organization tends to show fewer tiers in its organizational structure (less hierarchy ), a wider span of control, and a bottom-to-top or horizontal flow of decision making and ideas. Top-Down vs. Decentralized The management structure in a decentralized organization changes from a topdown approach to more of a peer-to-peer approach. Contrasting Centralized and Decentralized Structures In a centralized organization, decisions are made by top executives on the basis of current policies. These decisions or policies are then enforced through several tiers of hierarchy within the organization, gradually broadening the span of control until they reach the bottom tier. In a decentralized organization, the top executives delegate much of their decision making authority to lower tiers of the organizational structure. This type of structure tends to be seen in organizations that run on less rigid policies and wider spans of control among each officer of the organization. The wider spans of control also reduce the number of tiers within the organization, giving its structure a flat appearance. Decentralized Organization Chart This image illustrates a decentralized, or flat, organizational chart. There is one manager over the rest of the staff. Each staff member had more responsibility and autonomy than in a top-down model. Advantages of Decentralization One advantage of this structure—if the correct controls are in place—is the bottom-up flow of information. This flow allows lower-level employees to better inform their supervisors during decision-making processes. For example, if an experienced technician at the lowest tier of an organization knows how to increase the efficiency of the production, the bottom-to-top flow of information can allow this knowledge to pass up to the executive officers. Disadvantages of Decentralization On the other hand, when companies decentralize authority there can be confusion about how final decisions are made. It can be difficult to empower multiple people without some decisions negatively impacting other decisions. Decentralized organizations must be mindful of the risk of going in too many directions at once. Because of this, decentralization is most effective in organizations that have transparent strategies, a strong mission, and a clear vision. Increasing Empowerment Modern organizations are more aware of the value of empowered employees and actively strive to structurally increase empowerment. Key Points • • Empowerment is a process that enables individuals and groups to fully access their personal and collective power, authority, and influence, and to employ this power when engaging with other people, other institutions, or society. Leaders within an organization can play a strong role in encouraging employees to practice empowerment. • • To enable empowerment, managers can share information, provide employees with autonomy, and migrate to self-managed teams when possible. Though the idea of empowerment can produce successful results, it is important to understand the risks. Having more decision makers means more discussion about how to accomplish a process and more moving parts within the organization, increasing complexity. Key Term • empowerment—the accessing and employment of political, social, or economic power by an individual or group Defining Empowerment Empowerment enables individuals and groups to fully access personal and collective power and employ it when engaging with other people, other institutions, or society. Empowerment does not give people power; rather, it helps them to release and express the power they already have. Empowerment encourages people to gain the skills and knowledge to overcome obstacles in life and work. This will ultimately enable personal development and a deeper sense of professional fulfillment. Empowering people in organizations can encourage more confident, capable, and motivated employees. Organizations are increasingly aware that empowerment often leads to better performance and higher operational efficiency. There is a general trend toward structuring organizations for empowerment. Empowerment Within the Organization Empowering employees in the workplace means providing them with opportunities to make decisions related to their tasks. This can be both powerful and positive, enabling checks and balances in decision-making processes. Empowerment in organizations includes • • • • • • making decisions about personal and collective circumstances accessing information and resources for decision-making considering a range of options from which to choose (and understanding the options rather than just deciding yes or no) exercising assertiveness in collective decision-making employing positive thoughts toward the ability to make change learning and assessing skills for improving personal and collective circumstances • informing others’ perceptions through exchange, education, and engagement Though empowerment can produce very successful results, there are certain risks involved. When turning responsibility over to others, it is important to keep in mind that dispersing power creates more discussion and conflict that can slow down the decision-making process. As organizations move more people toward higher levels of empowerment, protocols should be put in place to mitigate failure and improve decision-making efficiency. Centralized vs. Decentralized Decisions Notice how the centralized organization is an asterisk with many spokes, whereas the decentralized organization is many smaller interconnected asterisks. Leaders within an organization can encourage employees to practice empowerment in several ways. For leaders to tap into the possibilities of an empowerment-based company, they must have confidence in employees. Employees should have opportunities to make their own decisions and succeed. For an empowerment-based organization, rules and policies that interfere with self-management should be made more lenient. Leaders should also set goals that can inspire people. The following are three key concepts that leaders can use to empower employees throughout an organization: • • • Share information with everyone. Allowing all employees to view company information helps to build trust between employers and employees. It also provides important background perspective for decision making. Create autonomy through boundaries. Opening communication through information sharing creates space for feedback and dialogue about what interferes with people feeling empowered. Minimizing micromanagement is critical so that employees who are specialists in their functions can set the tone for how a particular task is accomplished. Replace the old hierarchy with self-managed teams. By replacing the old hierarchy with self-managed teams, more responsibility is on unique and self-managed teams. This can lead to better communication, diversity of strategies, and higher performance. The success of the modern organization relies heavily on understanding the complexity of a diverse global market. Leveraging employee knowledge and enabling autonomy is increasingly important in capturing value and attaining competitive advantages in this complex business environment. Increasing Adaptation In order to succeed, modern organizations must constantly adapt to evolving technologies and expanding global markets. Key Points • • • • • Technological advances, global market expansion, and the potential for constant (sometimes disruptive) innovation all point to the need for organizations to be adaptive. Blockbuster and Netflix provide examples. Blockbuster was simply too slow to adapt to the demand for live-streaming videos. If an organization takes on the identity of a growing, adapting, and learning organization, these qualities become part of the fabric of how it operates. Implementing an adaptable strategy may have a ripple effect across an organization. Minimizing disruption can reduce costs and save time. Resistance to change is considered a major obstacle to creating effective adaptability in an organization. Integrating changes step-bystep, and using focus groups and training sessions can improve the efficacy of adaptation. Key Term • adaptation—adjustment to extant conditions, modifying one or more parts to help something better fit the current environment The Importance of Adaptation Organizational adaptation is becoming increasingly relevant to both strategy and structure in the rapidly changing business environment. Technological innovations, global market expansions, and the potential for constant (sometimes disruptive) innovation all point to the need for organizations to be adaptive. There are a number of examples of organizations adapting to new technologies or global competition, and others failing to adapt. For example, Netflix embraced the demand for live-streaming videos and gained enormous value. In contrast, Blockbuster was too slow to adapt to the demand for livestreaming videos. Benefits of Adaptation Strategic management largely pertains to adapting an organization to its business environment. The greatest agent for organizational change is the socialization aspect of culture, which can be empowered structurally. If an organization takes on the identity of a growing, adapting, and learning organization, these qualities become part of the fabric of how it operates. Understanding and being able to increase this adaptability is important to organizational success. Implementing a strategy of adaptation may have effects that ripple across an organization. Increasing its ability to adapt to change and minimize disruption can reduce costs and save time. One approach for increasing adaptation is to appoint an individual to champion the changes, address and eventually enlist opponents, and proactively identify and mitigate problems. Challenges in Adaptation Resistance to change is considered a major obstacle to creating effective adaptability in an organization. Organizational change can lead to loss of stability and—if the instability becomes great enough—loss of organizational effectiveness. Loss of Effectiveness Organizational loss of effectiveness (LOE) emerges when a number of symptoms, which are predictable and measurable, are present simultaneously (Grady, 2005). The following methods can be employed to help an organization and its staff cope with change: • • • Share information with everyone. Allowing all employees to view company information helps to build trust between employers and employees. It also provides important background perspective for decision making. Provide training. Providing training for staff on new processes or structures can help to increase staff competence and reduce resistance to change. Implement changes step-by-step. Involving small groups first—such as several departments or sections—and then widening the scope of implementation can help expose problems, and provide management with enough time to solve them before rolling out changes across the organization. Flexible Work Schedules Employers can offer flexible working arrangements like flextime and telecommuting. Key Points • • • • Companies have begun recognizing how important a healthy work-life balance is to employee productivity and creativity. Integrating new technologies for flexible schedules is a great opportunity to capture this value. Flextime and telecommuting (telework) are popular strategies that enable employees to set their own schedules and work where it is most convenient for them. In addition to supporting the required technology, a well-functioning telework organization needs a management system that is at least as effective as that of a traditional organization. Management teams face additional issues such as how to supervise employees who are often out of the office, how to monitor staff productivity with less personal interaction, how to build a strong virtual team, and how to maintain relationships between remote employees. Key Term • telecommute—work from home, also known as telework, using the internet or another connection to the employer’s network Companies have begun to recognize how important a healthy work-life balance is to the productivity and creativity of their employees. Kenexa Research Institute (2007) showed that employees who were more favorable toward their organization’s efforts to support work-life balance also indicated they were less likely to leave the organization, had higher overall job satisfaction and greater pride in their organization, and were willing to recommend the organization to others. Employers can offer a range of initiatives that support work-life balance. Flexible working arrangements including flextime and telecommuting are increasingly popular ones. Employers can also be proactive with compulsory leave, maximum hours, and discouraging after-hours work. Telecommuting Telecommuting (or telework) is a work arrangement in which employees do not go to a central place of work. Many telecommuters work from home. Others— sometimes called “nomad workers”—use mobile technology to work from coffee shops or other locations. This allows employees the flexibility of adapting their work schedule to their living situation. Being able to work from anywhere with an internet connection is a modern luxury that adaptable companies should understand. An office designed for telecommuting Flextime Flextime is a variable work schedule. In this arrangement, there is typically a core period of approximately 50% of the total working day when employees are expected to be at work (for example, between 11 a.m. and 3 p.m.). The rest of the work day is considered flexible, so employees can choose when they work. Employees are still required to complete their work and achieve total daily, weekly, or monthly hours according to what the employer expects. A flextime policy allows staff to determine when they will work, and a telework policy allows staff to determine where. These strategies allow employees to adapt their work hours based on public transport schedules, child-care responsibilities, rush-hour traffic, and other concerns. Establishing a Telework Organization In addition to supporting the required technology, a well-functioning telework organization needs a management system that is at least as effective as a traditional organization’s. Management teams in flexible work environments face challenges like how to supervise employees who are often out of the office, how to monitor staff productivity with less personal interaction, how to build a strong virtual team, and how to maintain relationships between remote employees. Some suggested best practices for maintaining a successful telework organization include: • • • Develop a daily schedule. Setting a standardized daily schedule can help remote teleworkers feel as though they are really at work. It can also make it easier for supervisors to monitor staff activities and can lead to increased productivity. Establish milestone dates. Milestone dates help keep projects on track and make it easier to spot problems while there is time to effectively deal with them. Encourage social networking. Employee surveys show that being able to keep in touch and communicate with colleagues despite physical distance can boost employee satisfaction and encourage retention of top talent. • • • • Address problems immediately. Respond to problems immediately, even if it’s by email or text message. This will prevent teleworkers from feeling isolated. Design key performance indicators KPIs for remote workers. These KPIs can also be used for accountability of in-office staff as well. Start workdays by holding a five-minute team videoconference. This helps supervisors to maintain a regular check-in routine and employees to catch up on their teams’ work progress and feel connected to the whole organization. Manage by observation. A successful telework or telecommuting program requires a management style that is results-oriented, rather than task-oriented. It is management by objectives, rather than management by observation. Increasing Coordination Increasing coordination helps organizations maintain efficient operations through communication and control. Key Points • • • • Coordination is a managerial function in which different business activities are properly adjusted and interlinked. The management team must pay special attention to issues related to coordination and governance, and be able to improve upon coordination through effective management. Managers should strengthen communication across all facets of the organization to increase the level of integration between each moving part. If there is a lack of coordination, there is a risk that responsibility will become dispersed and tasks will be unclaimed. Organizing accountability for every task helps to ensure that efforts are tangibly coordinated. Key Terms • • • division—section of a large company margin—permissible difference, freedom to move within limits centralization—the act or process of combining or reducing several parts into a whole Defining Coordination Coordination is the act of organizing and enabling different people to work together to achieve an organization’s goals. It is a managerial function in which different activities of the business are properly adjusted and interlinked. Employees within the functional divisions of an organization tend to perform a specialized set of tasks, such as engineering. This leads to operational efficiency within that group. However, it can also lead to a lack of communication between various functional groups within an organization, rendering the organization slow and inflexible. This is an example of an organizational structure. At a high level are multiple functional groups, or “modules”—technical, marketing, and intellectual property. The linked working groups (e.g., data coding workgroup, security workgroup, and audio and video compression workgroup) within the technical functional group likely have coordinated functions. Increasing Coordination Coordination is simply the managerial ability to maintain operations and ensure they are properly integrated with one another; therefore, increasing coordination is closely related to improving managerial skills. The management team must pay special attention to issues related to coordination and governance, and be able to improve upon coordination through effective management. Increasing coordination internally can be accomplished by keeping all moving parts of the organization on the same page. There are a number of ways to improve upon the coordination of different departments, work groups, teams, or functional specialists. These include creating a well-communicated and accurate mission statement; clearly defining strategic objectives; monitoring and evaluating each functional group; providing company-wide updates and communications from each department; and, wherever possible, promoting cross-departmental meetings and projects. While this list is long and complex, the underlying concept is relatively simple: Managers should strengthen communication across all facets of the organization to increase the level of integration between each moving part. Structural Implications In practice, coordination involves a delicate balance between centralization and decentralization. However, maintaining coordination does not necessarily imply that decision-making processes are centralized or that actions are carried out without the support of employees. Put simply, it is important to ensure that there is a person or team in place that takes responsibility for general tasks. If there is a lack of coordination, there is a risk that responsibility will become dispersed and tasks will be left unclaimed. Organizing accountability for every task helps to ensure that efforts are tangibly coordinated and provides structure to operational expectations. Structure is a central determinant of effective coordination across an organization as it enables communications, underlines responsibilities, and provides concrete authority in decision making. Trends in Organizational Diversity To capitalize on ethical and economic benefits, businesses are promoting increased diversity in the workplace. Key Points • • • • • Diversity in the workplace creates both ethical and economic value, resulting in trends toward a more equal-opportunity workplace. In the 1960s, the United States implemented affirmative-action policies to enforce equal opportunity in the workplace. Following the implementation of various affirmative-action policies, social justice developed as an ethical norm (as opposed to a legal stipulation). This development resulted in more inclusive measures for a larger variety of groups. Empirical evidence of the trend toward diversity is well illustrated by gender wage gaps between males and females, which have been consistently narrowing since the early 1970s. In addition to its ethical bases, diversity in an increasingly global marketplace is substantially more effective and productive, allowing for more synergy. Key Terms • • • affirmative action—advantages for traditionally discriminated against minority groups, with the aim of creating a more equal society through preferential access to education, employment, health care, social welfare homogeneous—having a uniform makeup, or the same composition throughout diversity—the state of being different; achieving variability Diversity within the workplace is a broad topic, incorporating both the need for social justice and the high potential value of employing a workforce diverse enough to compete in an increasingly global economic environment. As a result, the workplace has undergone a number of trends that promote diversity and minimize group biases, as the ethical and economic importance of diversity is well-established. Analyzing trends in equality and value in diversity is useful for managers seeking to incorporate both. Equality of Opportunity Affirmative Action The early stages of pursuing equality in the workplace arose in the 1960s, most notably with the concept of affirmative action. Affirmative action essentially establishes legal quotas—set by the US government—for the number or percentage of minority populations represented in a company’s hiring practices. Minority populations are generally defined according to race, ethnicity, or gender. One difficulty with affirmative action is that it can encourage employers to fill quotas rather than avoid bias, potentially motivating some employers to hire specifically by race, ethnicity, or gender. Hiring based upon any of these characteristics is illegal. Social Justice As a result of this criticism, the equal-opportunity movement has evolved toward a model based more on social justice. This perspective still promotes actively seeking diversity in the workplace, primarily based on the intrinsic value of employees with different backgrounds and skill sets. The social-justice trend also meant a shift from a more limited viewpoint of what constitutes a minority toward a more comprehensive one that places age, physical ability, and sexual orientation alongside traditional categories of race and gender. The social justice model of diversity is distinct from the older affirmative-action model in that it focuses less on employing minorities and more on the value of a diverse workforce. Gender differences offer a strong statistical example of this trend, as male and female wage equality has been consistently trending towards equilibrium. Wage equality shows distinct improvement as a result of equal-opportunity ethics, a trend that supporters of equality hope continues toward equilibrium. Women’s and Men’s Earnings This graph illustrates that while gender wage inequality is diminishing, further efforts are necessary to promote parity. Value of Diversity The ethics of diversity in the workplace are rightly emphasized. The natural value achieved through varying perspectives in the workplace complements social justice well. Organizations that lack a culture inclusive of any and all potential groups generally have lower productivity and higher turnover. Promoting an environment conducive to a global and internationalized economy through diverse hiring and management practices potentially results in increased productivity. A homogeneous workforce has a much lower capacity to achieve synergy. Upper management, recognizing the strategic value of diversity, continues to pursue the knowledge and skills necessary for a truly inclusive workplace. Core Requirements of Successful Managers The Importance of Accountability Being accountable simply means being responsible for decisions made, actions taken, and assignments completed. Key Points • • • • • • Accountability in business is critical, as the concept enhances the ethics of managers. Being accountable means standing by decisions, actions, and the overall status of projects. Accountability is also a management process that ensures employees answer to their superiors and supervisors also behave responsibly. Accountability addresses both the organization’s expectation of the employee and the employee’s expectation of the organization. Accountable employees help to increase performance of business as a whole and to maintain a positive company culture, vision, and ethics. Accountability on a global scale, particularly in the case of NGOs, is complicated by the fact that different countries have varying legislative perspectives when it comes to accountability. Key Terms • • accountability—being responsible for one’s own work and answering for the repercussions of one’s own actions paradigmatic—pertaining to a given template, context or model Introduction In organizations, accountability is a management control process in which responses are given for a person’s actions. They can be positive or negative. Depending on the response, the person might need to correct his or her error. In other words, accountability refers to individual responsibility for the work performed, and answering to peers and superiors for performance. Accountability is often used synonymously with responsibility, blameworthiness, and liability. As an aspect of governance, accountability has been central to discussions related to problems in the public, nonprofit, and corporate sectors. In leadership roles, accountability is the acknowledgment and assumption of responsibility for actions, products, decisions, and policies, including the administration, governance, and implementation within the scope of the role or employee position. Accountability also encompasses the obligation to report, explain, and answer for resulting consequences. As leaders often make decisions with far-reaching consequences, accountability has a substantial ethical component. Accountability and Expectations Accountability has a strong connection to expectations. Employees who do not meet the expectations of their supervisor are held accountable for their actions and must answer for their inability to do so. Accountability is crucial to ensuring high performance within an organization. However, managers must clearly communicate their expectations to the person responsible for a specified action or task. Clear communication of expectations and well-defined goals are very effective tools for enhancing performance at every level of organization. Without defined goals, employees lack a frame of reference for their performance. In many organizations, the management team and board of directors create goals for themselves and the general manager, the general manager creates goals for department managers, and the department managers create goals for entry-level employees. Both subordinates and supervisors should have a clear idea of how their projects should be handled and delivered. A clear expectation level and the understanding that all employees are accountable for their performance boosts employee morale and productivity in the workplace. However, because different individuals in large organizations contribute in various ways to a company’s decisions and policies, it is often difficult to identify who should be accountable for the results. Global Accountability Recently, accountability has become an important topic in the discussion about the legitimacy of international institutions. Because there is no global, democratically elected body to which organizations must report, global organizations are often criticized as having large accountability gaps. One issue in the global context is how the effectiveness of institutions such as the World Bank and the International Monetary Fund, founded and supported by wealthy nations to provide grants and loans to developing nations should be measured. The question persists as to whether these institutions should be accountable to their founders and investors or to the people and nations they help. In the debate over global justice and wealth distribution, those in highly developed, heavily populated areas tend to advocate greater accountability to traditionally marginalized populations and developing nations. On the other hand, those who adopt a more nationalistic or provincial view deny the tenets of moral universalism; they argue that beneficiaries of global development initiatives have no substantive entitlement to call international institutions to account. The One World Trust Global Accountability Report, published in a first full cycle from 2006 to 2008, is one attempt to measure the capability of global organizations to be accountable to all stakeholders. Example 1 The US Department of Organization provides specific guidelines about accountability of managers. Managers are responsible for the quality and timeliness of program performance, increasing productivity, controlling costs, mitigating adverse impacts of agency operations, and assuring that programs are managed with integrity and comply with the law. Example 2 At Enron, the actions of a few unethical individuals caused great harm to the broader corporation and all its stakeholders. The individuals involved were held accountable to reduce the likelihood similar things will happen again in the future. The Importance of Leverage Management roles are defined by the capacity to motivate and leverage human capital in the organization to achieve efficiency in operations. Key Points • While there are different ways to view the concept of gaining leverage as a manager, the underlying principle should be one of synergy. • • • Managers are responsible for planning, organizing, staffing, directing, monitoring, and motivating employees to create leverage in an operational system. Leverage primarily revolves around effective delegation and motivation. Effective managers must have a thorough understanding of each employee’s strengths and weaknesses, as well as their aspirations and motivators, to appropriately carry out essential tasks. Through combining delegation and motivation skills, managers effectively leverage human capital to achieve high levels of efficiency and employee satisfaction. Key Terms • • • incentives—ways to promote a desired action leverage—technique used to multiply gain or loss synergy—benefits resulting from combining two different groups, people, objects, or processes Why Leverage Matters Management roles are defined by the capacity of the manager to motivate and leverage human resources in an organization to achieve efficiency in operations. As a result, effective managers can optimize the time and effort of employees to attain the highest possible value. Optimization requires a thorough understanding of basic managerial functions and how incentives can be applied according to motivational theories in the workplace. Although there are different ways of understanding the concept of gaining leverage as a manager, the underlying principle should be one of synergy. The concept of synergy emphasizes that one additional employee’s output is greater than an arithmetic expectation. More simply put, synergy means that 1 + 1 > 2. A common adage in is that the synergy equation is 1 + 1 = 3. Leverage, therefore, is about getting more out of a system than the combined inputs, resulting in value added. Design Management Design management: Teams can create solutions through integration, giving the manager the ability to solve problems more complex than one individual can handle. Managerial Functions and Leverage Managers are responsible for planning, organizing, staffing, directing, monitoring, and motivating employees through the use of highly developed decision-making and interpersonal skills. Delegation Planning, organizing, and staffing are the preliminary steps to carry out a project, set schedules, and construct a team with the appropriate skills to execute the project effectively. This half of managerial responsibilities falls largely within the decision-making realm, which correlates to a manager’s ability to organize tasks and delegate them effectively to gain leverage. The concept of delegation enables managers to minimize their own time commitment to specific elements of a process, as well as improve quality and efficiency through the use of specialists (managers are typically generalists). Delegation therefore allows managers to optimize team structures and skill-set distribution to encourage synergy. Effective managers are able to juggle a number of teams of specialists, empowering their autonomy and controlling the workflow so it aligns with organizational objectives. Delegation is easy on paper, but it requires a number of intrinsic skills such as communication, organization, multitasking, and the ability to “zoom out” and observe the bigger picture, and identify the critical components. Motivation Planning, organizing, and staffing are followed by the more interpersonal elements of management: directing, monitoring, and motivating the staff. At this point, managers face the challenging task of assessing the skills of employees, assigning relevant tasks, monitoring progress, and providing incentives to drive productivity. Managers must have a thorough understanding of each employee’s strengths and weaknesses, as well as aspirations and motivators, to appropriately carry out these tasks. As a result, understanding motivational theories is at the heart of effectively managing employees. Motivating employees to leverage the human resources within an organization is central to a manager’s responsibilities. It is achieved by understanding what drives productivity. Generally, positive incentives far outweigh negative ones in leveraging employees. To gain leverage, managers must ascertain what opportunities will drive the highest level of productivity in their work groups. By effectively combining this motivational understanding with the expectations and responsibilities of managing employees, managers effectively leverage human capital to achieve high levels of efficiency and employee satisfaction. Example A business with high liquid capital may invest in information infrastructure to increase automation and reduce the cost of production. These changes will ultimately achieve a higher productivity. The Importance of Performance Targets Performance standards motivate employees and management to use their time efficiently by setting achievable objectives. Key Points • • • • A key performance indicator ( KPI ) sets a performance standard for an organization, a business unit, or an employee. Goal setting means establishing what a person or an organization wants to achieve. Goals should be specific, measurable, achievable, realistic, and time-targeted (SMART). Motivation is the key component to effective goal setting. Organizations must consider performance targets within the context of creating motivated employees, who will in turn perform more effectively. Performance targets are particularly useful because they can be quantified, allowing the measurement of outcomes and assessment of operations. Key Terms • • KPI—Key Performance Indicator; a tool to measure performance motivation—willingness to perform an action, especially a behavior; an incentive or reason for doing something Managerial effectiveness is often assessed on the ability to achieve performance targets. Three basic concepts are involved in communicating and achieving targets: key performance indicators, goal setting, and motivation. Performance Indicators A key performance indicator is a tool for performance measurement used by organizations. It is used to set a performance standard for an organization, a business unit, or an employee. It is also used to evaluate the overall success of the organization and the success of a specific activity in the organization. Success can be defined as progress toward strategic or operational goals like zero defects, percentage of customer satisfaction (or retention), or profitability margins. KPIs are usually understandable, meaningful, and measurable. For the employee to achieve them, objectives should be clear and simple to understand. Goal Setting Goal setting is an effective tool for progressive organizations, because it provides a sense of direction and purpose. Employees benefit greatly from understanding expectations of them and how they can measure this success (or lack thereof). A clear concept of achievement leads to independent personal development, and goal setting can improve the organization’s performance. Challenging goals tend to result in higher performance. Goal setting means establishing what a person or an organization wants to achieve. In setting objectives, managers must ensure the goals are both understandable and achievable to meet performance targets. The SMART (specific, measurable, achievable, realistic, and time-targeted) model is a good framework for generating goals and objectives. SMART Criteria Specific Goal must be specific enough to avoid confusion. Answer what, who, when, where, an Measurable Goals need benchmarks and degrees of success to be useful. Including a scale of ass goal. Achievable Objectives should always be within the grasp of the individual for whom they are assig ultimately lead to frustration. Relevant Objectives should be relevant to the broader organizational mission, and this relevance Time-bound Goals should also be confined by set period of time for completion. Source: Wikipedia Creative Commons Content (http://en.wikipedia.org/wiki/SMART_criteria) The SMARTER framework adds that objectives should be evaluated and reviewed consistently. Motivation Motivation elicits, controls, and sustains certain goal-directed behaviors. There are a number of approaches to motivation: physiological, behavioral, cognitive, and social. Motivated employees are also more quality oriented and productive. Financial Rewards for Managers Career success and fulfillment hinge on effective human-resource management and empowering employees with the necessary tools and skills. Key Points • Understanding an employee’s needs and future objectives is critical in assigning them responsibilities that align with their goals and that will serve to develop their skill set in a desired direction. • • • When assigning tasks, managers must keep career success and development in mind. It is beneficial to plan and implement employee objectives based upon career aspirations and skills. Managers are also tasked with monitoring and reviewing employee outcomes with an eye for improvement opportunities. Performance monitoring allows for active skill development through constructive feedback. Managers may employ numerous tools in developing employees in a meaningful and fulfilling way to ensure their future success. These tools include case studies, consultation, mentoring, and technical assistance. Key Term • empower—to give someone the strength or the means to accomplish a goal From a human-resources framework, managers are largely responsible for the well-being of their employees with regard to opportunities for career development and personal fulfillment. Understanding an employee’s needs and future objectives is critical in assigning them responsibilities that align with their goals and that will serve to develop their skill set in a desired direction. A manager is also a leader, and leadership is a complex facet of the managerial process. Leading employees in an empowering way and enabling career success and fulfillment are central to improving employee outcomes and creating more value for the organization. When assigning tasks, managers must keep career success and development in mind. A reasonable rule of thumb is the plan-implement-monitor-review model illustrated in the figure below. Planning (based on employee objectives) and implementing (based upon shared expertise) provide a framework to move the employee in the direction of success. Monitoring progress and reviewing it will allow the employee to remain meaningfully engaged, working toward the common goal of success while gaining experience and skills from managerial expertise. Employee Development Model Facilitating employee success: By employing these steps, a manager can help their employees be successful. Combining this model for success with a working understanding of a given employee’s objectives and fulfillment needs helps to ensure that employees remain motivated and satisfied with their current roles. Empowering employees in a developmental direction and providing them with challenges that stretch their abilities are substantial motivators. These are important developmental tools companies can use to obtain the highest possible value from their human resource investments. Strategies for Promoting Employee Success Promoting career success for employees and managers involves creating developmental goals that build stronger skills and aim toward fulfillment. Goal creation is generally achieved using varying approaches and experiences. These may include coaching, higher education, mentoring, reflective supervision, technical training, and consultation. Knowing when to apply which particular approach is the primary responsibility of a manager, as is assessing employees’ progress and trajectory toward completing their personal career objectives. Following are a few tools managers can use to optimize returns on career development: • • • • Case study method. Case studies are an excellent way to drive employee experience in a realistic and meaningful way. These incorporate situations that have occurred in the past as a method for practicing decision making and assessing performance. Conclusions can then be drawn by the employee or manager assuming the role of decision maker. Consultation. Consulting assesses employee abilities by observing performance, reflecting upon observations, and suggesting methods for improvement. This process is an important responsibility of any manager. Mentoring. Mentoring is an excellent approach to enhance career success. A manager matches two employees of different experience levels to learn from one another. Mentoring is usually accomplished by allowing an outside observer to evaluate and suggest improvements for newer employees who have had less time to develop in a particular role. Technical assistance. Helping employees implement new technologies and acquire modern skill sets is a growing field in career development. Technical training is provided to enable employees to be more effective with newer methodologies, tools, and equipment. This approach can be particularly important to career development for older demographics that may have extensive experience in more traditional methods. WEEK 2 Principles of Management Defining Management Management is the act of engaging with an organization’s human talent and other resources to accomplish desired goals and objectives. Key Points • • • • Management comprises planning, organizing, staffing, leading and directing, and controlling an organization (a group of one or more people or entities) or effort to accomplish a goal. In for-profit work, the primary function of management is meeting the needs of various stakeholders, such as customers, debtors, and owners. In representative democracies, voters elect politicians to public office, who then hire managers and administrators to oversee the everyday responsibilities of public-sector organizations. Since an organization can be viewed as a type of system, managers provide the human action needed for the organizational system to produce planned outcomes or goals that the stakeholders desire. Key Terms • • • stakeholders—persons or organizations with a legitimate interest in a given situation, action, or enterprise that are directly affected by the organization’s actions theoretical—of or relating to the underlying principles or methods of a given technical skill, art, etc., as opposed to its practice shareholder—the real owner (through stock holdings) of a publicly traded business that is run by management Overview Management is the act of engaging with an organization’s human talent and using the physical resources at a manager’s disposal to accomplish desired goals and objectives efficiently and effectively. Management comprises planning, organizing, staffing, leading, directing, and controlling an organization (a group of one or more people or entities) or effort to accomplish a goal. One of the most important duties for a manager is effectively using an organization’s resources. This duty involves deploying and manipulating human resources (or human capital), as well as efficiently allocating the organization’s financial, technological, and natural resources. Since organizations can be viewed as systems, management can also be defined as human action, such as product design, that enables the system to produce useful outcomes. This view suggests that we must manage ourselves as a prerequisite to attempting to manage others. Theoretical Scope Management may be considered as a type of function, one which measures financial metrics, adjusts strategic plans, and meets organizational goals. This applies even in situations where planning does not take place. From this perspective, Henri Fayol (1841–1925) considers management to consist of six functions: forecasting, planning, organizing, commanding, coordinating, and controlling. He was one of the most influential contributors to modern concepts of management. In another way of thinking, Mary Parker Follett (1868–1933) defined management as “the art of getting things done through people.” She described management as philosophy. Some people, however, find this definition useful but far too narrow. The phrase “management is what managers do” occurs widely, suggesting the difficulty of defining management, the shifting nature of definitions, and the connection of managerial practices with the existence of a managerial cadre or class. Another perspective regards management as equivalent to “business administration” and thus excludes management in places outside of commerce, for example in charities and in the public sector. More realistically, however, every organization must manage its work, people, processes, technology, and other resources to maximize their effectiveness and accomplish its goals. Nature of Managerial Work In the for-profit environment, management’s role is primarily to meet the needs of a range of stakeholders. This typically involves making a profit (for the shareholders), creating valued products at a reasonable cost (for customers), and providing rewarding employment opportunities (for employees). Nonprofit management has the added responsibility to attract and retain donors. In most models of management and governance, shareholders choose the board of directors by voting, and the board then hires senior management. Some organizations have experimented with other methods (such as employee-voting models) of selecting or reviewing managers, but this occurs only very rarely. In representative democracies, voters elect politicians to public office and the politicians hire managers and administrators to run organizations in the public sector. Several historical shifts in management have occurred throughout the ages. Toward the end of the twentieth century, business management came to consist of six separate branches: • • • human resource management operations or production management strategic management • marketing management Basic Functions Mary Parker Follett defined management as “the art of getting things done through people.” Management operates through various functions, such as planning, organizing, staffing, leading/directing, controlling/monitoring, and motivating: • • • • • • Planning. Deciding what needs to happen in the future (today, next week, next month, next year, over the next five years, etc.) and generating plans for action. Organizing. Implementing a pattern of relationships among workers and making optimum use of the resources required to enable the successful execution of plans. Staffing. Job analysis, recruitment, and hiring of people with the necessary skills for appropriate jobs. Providing or facilitating ongoing training, if necessary, to keep skills current. Leading and directing. Determining what needs to be done and getting people to do it. Controlling and monitoring. Checking current outcomes against forecast plans and making adjustments as needed so that goals are achieved. Motivating. Motivation is a basic function of management because without motivation, employees may feel disconnected from their work and the organization, which can lead to ineffective performance. If managers do not motivate their employees, the workers may not feel their work is contributing to the overall goals of the organization, which are usually set by top-level management. Fulfilling the Organizing Function Management organizes by creating patterns of relationships among workers and optimizing use of resources to accomplish business objectives. Key Points • The organizing function typically follows the planning stage. Specific organizing duties involve assigning tasks, grouping tasks into departments, assigning authority, and allocating resources across the organization. • • • Authority is a manager’s formal and legitimate right to make decisions, issue orders, and allocate resources to achieve the organization’s objectives. Types of authority include line, functional, and staff. Organizations will use different structural strategies, which significantly affects the chain of command and decision-making process within an organization. These structures include centralized, decentralized, tall, and flat. When approaching an organization within a company or institution, it is important to understand the implications of different structures as they pertain to the strategy and operations of the company. Key Terms • • • • capital expenditure—funds a company spends to acquire or upgrade a long-term asset controller—a person who audits and manages the financial affairs of a company or government; comptroller delegation—the act of committing a task to someone, especially a subordinate organize—to constitute in parts, each having a special function, act, office, or relation Management and Organization Management operates through various functions, often classified as planning, organizing, staffing, leading and directing, controlling and monitoring, and motivating. The organizing function creates the pattern of relationships among workers and makes optimal use of resources to enable the accomplishment of business plans and objectives. The organizing function typically follows the planning stage. Specific organizing duties involve the assignment of tasks, grouping tasks into departments, and assigning authority and allocating resources across the organization. The Management Process The management process involves planning, organizing, directing, and controlling. Structure Structure is the framework for how tasks are divided, resources are deployed, and departments are coordinated. It is a set of formal tasks assigned to individuals and departments. Formal reporting relationships include lines of authority, decision responsibility, number of hierarchical levels, and the spans of managers’ control. Structure is also the design of systems to ensure effective coordination of employees across departments. Authority and Chain of Command Authority is a manager’s formal and legitimate right to make decisions, issue orders, and allocate resources to achieve desired organizational outcomes. Responsibility is an employee’s duty to perform assigned tasks or activities. Accountability means that those with authority and responsibility must report and justify task outcomes to those above them in the chain of command. Through delegation, managers transfer authority and responsibility to their subordinates. Organizations today tend to encourage delegation from the highest to the lowest possible levels. Delegation can improve flexibility to meet customers’ needs and adapt to competitive environments. Managers may find delegation difficult, since control over the task assigned (and eventual outcome) is relinquished. One critical risk of command chains is micromanagement, where managers fail to delegate effectively and exercise excessive control over their subordinates’ projects. Micromanagement reduces efficiency and limits autonomy, thus limiting the adaptability of a given organization. Effective chains of command must allow for flexibility and efficient delegation. Types of Authority and Responsibility There are three types of authority: • • • Line authority. Managers have the formal power to direct and control immediate subordinates executing specific tasks within a chain of command, usually within a specific department. The superior issues orders and is responsible for the result, and the subordinate obeys, assuming responsibility only for executing the order according to instructions. Functional authority. Managers have formal power over a specific subset of activities that include outside departments. For instance, a production manager may have the line authority to decide whether and when a new machine is needed, but a controller with functional authority requires that a capital expenditure proposal be submitted first, showing that the investment in a new machine will yield a minimum return. The legal department may also have functional authority to interfere in any activity that could have legal consequences. For example, a purchase contract for a new machine cannot be approved without a review of the machine’s safety standards. Staff authority. Staff specialists manage operations in their areas of expertise. Staff authority is not real authority because a staff manager does not order or instruct; he or she instead advises, recommends, and counsels within his or her area of expertise. Staff authority represents a communication relationship with management. Its influence comes indirectly through the line authority at a higher level. Organizational Structure and Control/Decision Making There are four basic structures related to decision-making authority: • • • • Tall structure. A management structure characterized by an overall narrow span of management, a relatively large number of hierarchical levels, tight control, and reduced communication overhead. Decision making can be rapid if it occurs from the top down. Flat structure. A management structure characterized by a wide span of control and relatively few hierarchical levels, loose control, and ease of delegation. Decision making is often slower, as it involves a high degree of integration across the company. Centralization. The location of decision-making authority near top organizational levels. Similar to a tall structure, this expedites decision making from the top down. Decentralization. The location of decision-making authority is relatively evenly dispersed across the company. This works well when creativity and independent operations create value for the organization. As each structure creates a different organizational approach to operations, it is critical to consider how the selection of a structure will affect the business process. Enabling creativity and minimizing control often has costs of speed and efficiency, and vice versa. Fulfilling the Controlling Function Management control can be defined as a systematic effort to compare performance to predetermined standards and address deficiencies. Key Points • • • • Control is a continuous and forward-looking process designed to objectively benchmark operations with the projected plan or projections. The four basic elements in a control system are: the characteristic or condition to be controlled, the sensor, the comparator, and the activator. Control is a continuous process. Control is a continuous and forward-looking process designed to benchmark operations with the projected plan or projections. Key Terms • • • systematic—methodical, regular, and orderly control—influence or authority over hierarchy—arrangement of items in which the items are represented as being above, below, or at the same level as the others Definition of Control In 1916, Henri Fayol formulated one of the first definitions of control as it pertains to management: “Control consists of verifying whether everything occurs in conformity with the plan adopted, the instructions issued, and principles established. Its object is to point out weaknesses and errors in order to rectify [them] and prevent recurrence.” Management control can be defined as a systematic effort by business management to compare performance to predetermined standards, plans, or objectives in order to determine whether performance meets these standards. It is also used to determine if any remedial action is required to ensure that human and other corporate resources are being used in the most effective and efficient ways to achieve corporate objectives. Control can also be defined as “that function of the system that adjusts operations as needed to achieve the plan, or to maintain variations from system objectives within allowable limits.” The control subsystem functions in close harmony with the operating system. The degree to which they interact depends on the nature of the operating system and its objectives. Stability concerns a system’s ability to maintain a pattern of output without wide fluctuations. Rapidity of response pertains to the speed with which a system can correct variations and return to expected output. These definitions show that there is a close link between planning and controlling. Planning is a process by which an organization's objectives and the methods to achieve them are established, and controlling is a process that measures and directs the performance against the organization’s planned goals. Therefore, goals and objectives are closely tied: The managerial function and the correction of performance help to ensure that enterprise objectives and the goals devised to attain them are accomplished. Characteristics of Control Control has several characteristics: • • • a continuous process a management process embedded in each level of organizational hierarchy • • • • forward looking closely linked with planning a tool for achieving organizational activities an end process Sequence of Control A sequence of four basic elements comprise a control system: 1. The characteristic or condition to be controlled. We select a specific characteristic because there is a correlation between the characteristic and how the system is performing. The characteristic may be system output during any stage of processing or a condition that is the result of the system. For example, in an elementary school system, the hours a teacher works and the knowledge students gain on a national exam are characteristics that may be selected for measurement or control. 2. The sensor. This is the means for measuring the characteristic or condition. For example, in a home-heating system, the sensor would be the thermostat. In a quality control system, the measurement might be performed by visual inspection. 3. The comparator. This determines the need for correction by comparing what is occurring to the plan. Some deviation from the plan is usual and expected, but when variations are beyond those considered acceptable, corrective action is required. It involves a sort of preventative action to indicate that control is being achieved. 4. The activator. This is the corrective action taken to return the system to expected output. The actual person, device, or method used to direct corrective inputs into the operating system may take a variety of forms. It may be a hydraulic controller positioned by a solenoid or electric motor in response to an electronic error signal, an employee directed to rework parts that failed to pass quality inspection, or a school principal who decides to buy more books to provide for an increased number of students. As long as a plan is performed within allowable limits, corrective action is not necessary; however, this seldom occurs in practice. These occur in the same order and maintain a consistent relationship to each other in every system. Fulfilling the Leading Function Managers lead their organizations and can vary their style and approach to achieve the desired outcome. Key Points • • • • Leaders who demonstrate persistence, tenacity, determination, and synergistic communication skills will bring out the same qualities in their groups. Leadership can be viewed as either individualistic or group-based and can be considered “transactional” (i.e., procedures, rewards, incentives) or “transformational” (i.e., charisma, creativity, personal relationships). A leadership style is often determined by context, whereas the degree of control (autocratic or democratic) may alter based upon a situation or process. Positive reinforcement is an example of a leadership technique. It occurs through a positive stimulus in response to a behavior, to increase the likelihood of that behavior in the future. Key Term • laissez-faire—in business, an environment in which an organization’s employees are free from excessive oversight or management, with sufficient control only to ensure organizational goals are met Defining Leadership Over the years the philosophical terms “management ” and “leadership” have been used both as synonyms and with clearly differentiated meanings. Debate is fairly common about whether these terms should be restricted, reflecting an awareness of the distinction made by Burns (1978) between “transactional” leadership (characterized by emphasis on procedures, contingent reward, management by exception) and “transformational” leadership (characterized by charisma, personal relationships, creativity). Management is often associated with the former and leadership with the latter. Leaders who demonstrate persistence, tenacity, determination, and synergistic communication skills will bring out the same qualities in their groups. Good leaders use their own inner mentors to energize their teams and organizations, and lead their teams to achieve success. Group Leadership In contrast to individual leadership, some organizations have adopted a group leadership model. As the term suggests, with group leadership more than one person provides direction for a group. Some organizations have taken this approach in hopes of increasing creativity, reducing costs, or downsizing. Others may see the traditional leadership of a boss as too costly to team performance. In some situations, team members best able to handle any given phase of a project become its temporary leaders. Staff may experience more energy and success when each team member has access to elevated levels of empowerment. Leadership Styles A leadership style is a leader’s approach to providing direction, implementing plans, and motivating people. It is the result of the philosophy, personality, and experience of the leader. Rhetoric specialists have also developed models for understanding leadership (Hariman, 1995) (Salazar, 2009). Different situations call for different leadership styles. In an emergency, when there is little time to reach an agreement and where a designated authority has significantly more experience or expertise than the rest of the team, an autocratic leadership style may be most effective. However, in a highly motivated and aligned team, with a homogeneous level of expertise, a more democratic or laissez-faire style may be more effective. The leadership style adopted should be the one that will achieve the objectives of the group while balancing the interests of its individual members. Positive Reinforcement Anyone thinking about managing a team must consider positive reinforcement. B. F. Skinner, the father of behavior modification, developed this concept. Positive reinforcement occurs when a positive stimulus is presented in response to a behavior, increasing the likelihood of that behavior in the future. The following is an example of how positive reinforcement can be used in a business setting. Assume praise is a positive reinforcement for a particular employee. The employee is often late for work. The manager of the employee decides to praise the employee for showing up on time when the employee actually does so. As a result, the employee comes to work on time more often because the employee likes to be praised. In this example, praise (the stimulus) is a positive reinforcement for this employee because the employee arrives at work on time (the behavior) more frequently after being praised for it. The use of positive reinforcement is a successful and growing technique used by leaders to motivate and attain desired behaviors from subordinates. Organizations including Frito-Lay and 3M have used positive reinforcement to increase productivity. Praise is an inexpensive way to potentially increase performance and employee satisfaction. Fulfilling the Planning Function Planning is the process of thinking about and organizing the activities required to achieve strategic objectives. Key Points • • • • • Planning involves the maintenance and organizational approach of achieving strategic objectives. Business plans and marketing plans are examples of plans managers may develop to meet objectives. Strategic planning is an organization’s process of defining its strategy or direction and deciding how to allocate resources to pursue the strategy. When pursuing strategic planning, organizations should ask themselves what they do, for whom, and how they can excel (or differentiate from) competitors. Executing the planning function requires a comprehensive understanding (or generation of) a vision, mission, set of values, and general strategy. Key Terms • • • strategy—plan of action intended to accomplish a specific goal allocating—the act of distributing a given set of resources according to a plan. forecasting—the act of estimating future outcomes Planning Planning is the process of thinking about and organizing the activities required to achieve a desired goal. It involves creating and maintaining a given organizational operation. This thought process is essential to refining objectives and integrating with other plans. Planning combines forecasting of developments with preparing scenarios for how to react to those developments. It is important to keep in mind that forecasting predicts what the future will look like, whereas planning predicts what the future should look like. Research Planning Planning involves both forecasting and preparation. John Fedele/Getty Images Planning is also a management process, concerned with defining goals for a company’s future direction, and determining the missions and resources to achieve those targets. To meet objectives, managers may develop plans— such as business or marketing plans—to achieve specific goals or targets. Planning revolves largely around identifying the resources available for a given project and using them to achieve the best outcomes. Strategic Planning Strategic planning is an organization’s process for defining its direction and making decisions about resource allocation to pursue its strategy. To determine the direction of the organization, it is necessary to understand the organization’s current position and the possible avenues for pursuing a particular course of action. Generally, strategic planning deals with at least one of three key questions: • • • What do we do? For whom do we do it? How do we excel? The key components of strategic planning include an understanding of the firm’s vision, mission, values, and strategies. (Often there is a vision statement as well as a mission statement.) Following are explanations for these four elements: 1. Vision. The vision outlines what the organization wants to be or how it wants the world in which it operates to be (an “idealized” view of the world). It is a future-focused, long-term view. It can be emotive and a source of inspiration. For example, a charity working with the poor might have a vision statement that reads “A World Without Poverty.” 2. Mission. The fundamental purpose of an organization or an enterprise, is succinctly described in its mission. Why does it exist? What does it do to achieve its vision? For example, the charity above might state that its mission is “providing jobs for the homeless and unemployed.” 3. Values. These are beliefs shared among the stakeholders of an organization. Values drive an organization’s culture and priorities, and provide a framework for decision making. For example, “Knowledge and skills are the keys to success,” or “Give a man bread and feed him for a day, but teach him to farm and feed him for life.” These examples of values place long-term development and self-sufficiency over immediate gratification. 4. Strategy. Strategy, narrowly defined, is “the art of the general”—a combination of the ends (goals) for which the firm is striving and the means (policies) by which it is seeking to get there. A strategy is sometimes called a roadmap—the path chosen to move toward the end vision. The most important part of implementing the strategy is ensuring the company is going in the right direction, which is toward the end vision. Tools and Approaches There are many approaches to strategic planning, but typically one of the following is used: • • Situation-Target-Proposal. Situation: Evaluate the current situation and how it came about. Target: Define goals and/or objectives (sometimes called ideal state). Path/Proposal: Map a possible route to achieve the goals/objectives. Draw-See-Think-Plan. Draw: What is the ideal image or the desired end state? See: What is today’s situation? What is the gap from ideal and why? Think: What specific actions must be taken to close the gap between today’s situation and the ideal state? Plan: What resources are required to execute the activities? Among the most useful tools for strategic planning is a SWOT analysis (strengths, weaknesses, opportunities, and threats). The main objective of this tool is to analyze internal strategic factors (strengths and weaknesses attributed to the organization) and external factors beyond control of the organization, such as opportunities and threats. Leadership vs. Management Though they have traits in common, leadership and management both have unique responsibilities that do not necessarily overlap. Key Points • • • Many view leaders as those who direct the organization through vision and inspiration, whereas managers are results-oriented and more focused on task organization and efficiency. Managers sustain current systems and processes for accomplishing work, while leaders challenge the status quo and make change happen. Such distinctions may create a negative concept of managers. Leader brings to mind heroic figures rallying people together for a cause, while manager suggests less charismatic individuals focusing solely on efficiency. Key Terms • • leadership—a process of social influence in which one person enlists the aid and support of others in accomplishing a common task management—the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively Tasks vs. Vision The terms management and leadership have been used interchangeably, yet there are clear similarities and differences between them. Both terms suggest directing the activities of others. In one definition, managers do so by focusing on the organization and performance of tasks, and by aiming at efficiency, while leaders engage others by inspiring a shared vision and effectiveness. Managerial work tends to be more transactional, emphasizing processes, coordination, and motivation, while leadership has an emotional appeal, is based on relationships with followers, and seeks to transform. One traditional way of understanding the differences between managers and leaders is that people manage things but lead other people. More concretely, managers administer and maintain the systems and processes by which work gets done. This includes planning, organizing, staffing, leading, directing, and controlling the activities of individuals, teams, or organizations to accomplish a goal. Basically, managers are results-oriented problem-solvers responsible for day-to-day functions. They focus on the immediate, short-term needs of an organization. In contrast, leaders take the long-term view and are responsible for where a team or organization is heading and what it achieves. They challenge the status quo, make change happen, and work to develop the capabilities of people to contribute to achieving their shared goals. Additionally, leaders act as figureheads for their teams and organizations by representing their vision and values to outsiders. This definition of leadership may create a negative bias against managers as less noble or less important: Leader suggests a heroic figure, rallying people to unite under a common cause, while manager calls to mind less charismatic individuals who are focused solely on getting things done. Adapting and Innovating Benefits of Innovation Innovation may be linked to positive changes in efficiency, productivity, quality, competitiveness, and market share, among other factors. Key Points • • • • Innovation is the development of customer value through solutions that meet new needs, unarticulated needs, or existing market needs in unique ways. Innovative employees increase productivity by creating and executing new processes that may increase competitive advantage and provide meaningful differentiation. Managers who promote an innovative environment can see value through increased employee motivation, creativity, and autonomy; stronger teams; and strategic recommendations from the bottom up. Clarity about and understanding of roles, increased responsibilities, strategic partnerships, senior management support, organizational restructuring, and investment in human resources can all enrich organizational culture and innovation. Key Terms • • • efficiency—the extent to which a resource, such as electricity, is used for the intended purpose; the ratio of useful work to energy expended productivity—the rate at which goods or services are produced by a standard population of workers innovation—change in customs; something new and contrary to established customs, manners, or rites Defining Innovation Innovation is the development of customer value through solutions that meet new, undefined, or existing market needs in unique ways. Solutions may include new or more effective products, processes, services, technologies, or ideas that are more readily available to markets, governments, and society. Innovation is sometimes confused with invention or improvement. They are, however, different. Innovation is coming up with a better idea or method, or integrating a new approach within a contextual model, while invention is about creating something new. Innovation refers to finding new ways to do things, while improvement is about doing the same thing more effectively. Organizational Benefits of Innovation From an organizational perspective, managers encourage innovation because of the value it can capture. Innovative employees increase productivity by creating and executing new processes, which in turn may increase competitive advantage and provide meaningful differentiation. Innovative organizations are inherently more adaptable to the external environment; this allows them to react faster and more effectively to avoid risk and capture opportunities. From a managerial perspective, innovative employees tend to be more motivated and involved in the organization. Empowering employees to innovate and improve their work processes provides a sense of autonomy that boosts job satisfaction. From a broader perspective, empowering employees to engage in organization-wide innovation creates a strong sense of teamwork and community, and ensures that employees are actively aware of and invested in organizational objectives and strategy. Managers who promote an innovative environment can see value through increased employee motivation, creativity, and autonomy; stronger teams; and strategic recommendations from the bottom up. Managers can accomplish this by being clear about employees’ roles and responsibilities and providing top-down support, while allowing individuals freedom to pursue their assignments as they see fit. Supporting the HR and IT departments so that they can provide training and tools for higher employee efficiency can contribute substantially to a culture of internal innovation. This requires open-minded and motivational leaders in managerial positions. They must be able to steer employee efforts without diminishing employee creativity. Characteristics of Innovative Organizations According to recent research, companies that make a commitment to innovation are exceptional performers in their respective industries. Key Points • • • • Being receptive to new business ideas means being receptive to the idea that mistakes are a necessary part of the process. Everyone in the business needs to keep an open mind and develop the capacity to look at things with fresh eyes. It is likely that some successful innovations will result from chance discoveries. Managers must understand that employees too mired in routine work and too criticized for trying new methods will inherently fail to create innovations that may drive organizational growth. Many business experts argue that companies that make a substantial commitment to innovation and entrench it deeply throughout their culture will perform exceptionally well. But how can innovation be facilitated within the organizational framework? The following are some examples of characteristics that lead to successful innovation. Accept Mistakes as Part of the Process A 3M researcher was looking for ways to improve the adhesives used in tape. At first, it seemed as though his work was a failure. However, the adhesive he discovered in this process was later used on Post-it notes—a great innovation and business success for the company. Being receptive to new business ideas means being receptive to mistakes as a necessary, and sometimes even crucial, part of the process. Keep an Open Mind and Think Laterally Possibilities for innovation exist everywhere. To realize them, everyone in the business needs to keep an open mind and develop the capacity to look at things with fresh eyes. A dramatic example of company transformation through lateral thinking is the Finnish company Nokia. Its core business was originally wood pulp and logging. But when communism collapsed, it opened new markets for Russia’s seemingly limitless supply of wood forests, making it more difficult for Nokia to compete. Nokia’s management concluded that the only real competitive advantage they retained was their very efficient communications system developed in the 1970s to help managers keep in touch with remote logging operations. That single realization transformed the company into one of the world’s most successful vendors of communications equipment. Nokia successfully transformed itself from a logging company to an electroniccommunications company through innovation. Managerial Implications As is usually the case, these principles are easier said than done. Managers must carefully consider what type of work environment they project for their subordinates. Managers must understand that employees too mired in routine work and who are criticized for trying new methods will inherently fail to create innovations that may drive organizational growth. There is therefore a balancing act between enabling employees to try new things and take risks vs. ensuring that tasks are completed on time with reasonable success. Types of Innovation There are three main modes of innovation: entrepreneurial value-based, technology-based, and strategic-reflexive. Key Points • • • • The entrepreneurial method of innovation is one in which change is initiated by an individual’s actions and drive to create a business venture of adaptation. technology-based functional innovation occurs when the development of new technology drives innovation. The strategic-reflexive mode describes innovation that springs from individuals’ interactions with their organization’s common values and goals. Other types of innovation include: incremental, architectural, generational, manufacturing, financial, and cumulative. In business and economics, innovation is the catalyst to growth. Fuglsang and Sundbo (2005) suggest that there are three modes of innovation. The first is an entrepreneurial value-based method where change is initiated by an individual’s actions. The second is a technology-based functional mode in which the development of new technology drives innovation. The third is a strategic-reflexive mode in which innovation results from individuals’ interactions with their organization’s set of common values and goals. The following graphic provides an example of the innovation process. Innovation process: Innovation involves continuous improvement throughout phases of a development program. Phases can be iterative and recursive (meaning that they do not proceed linearly from one to the next; rather, earlier phases can be returned to for further improvement as needed). Such phases include market analysis and consumer research, which progress to design and prototyping, then naming and packaging design, and ultimately retail and production support. Entrepreneurial Innovation The innovation dimension of entrepreneurship refers to the pursuit of creative or novel solutions to challenges confronting a firm. These challenges can include developing new products and services or new administrative techniques and technologies for performing organizational functions (e.g., production, marketing, and sales and distribution). Technological Innovation Technological innovation takes place when companies try to gain a competitive advantage either by reducing costs or introducing a new technology. Technological innovation has been a hot topic in recent years, particularly when coupled with the concept of disruptive innovation. Disruptive innovation is usually a technological advancement that renders previous products/services (or even entire industries) irrelevant. For example, the smartphone disrupted landlines, Netflix made Blockbuster obsolete, and MP3s have marginalized CD players. Strategic Innovation The strategic-reflexive mode of innovation is the most effective mode for change and innovation. While technological innovation is clear and easy to define, strategic innovation is inherently intangible and organizational in nature. Strategic innovation pertains to processes: how things are done as opposed to what the end product is. Strategic changes can be disruptive but are more often incremental. Incremental innovation is the idea that small changes, when effected in large volume, can rapidly transform the broader organization. Walmart’s “Hub and Spoke” distribution model is a classic example of strategic innovation. Walmart succeeded thanks to process efficiency enabled via innovative operational paradigms and distribution strategies. By utilizing a maximum efficiency warehousing and distribution model, refined over and over again incrementally for improvement, Walmart has sustained a competitive advantage for decades. Other Applications of Innovation • • • • • • Generational innovation involves changes in subsystems linked together with existing linking mechanisms. Architectural innovation involves changes in linkages between existing subsystems. Incremental innovations improve price/performance advancement at a rate consistent with the existing technical trajectory. Radical innovations advance the price/performance frontier by much more than the existing rate of progress. Manufacturing process innovation refers to all the activities required to invent and implement a new manufacturing process. Cumulative innovation is any instance of something new being created from more than one source. Remixing music is a direct example of cumulative innovation. Financial innovation has brought many new financial instruments with payoffs or values depending on the prices of stocks. Examples include exchange-traded funds (ETFs) and equity swaps. Speed of Innovation Companies compete to adapt their products and services to incorporate new innovations first. Key Points • • • • Speed of innovation can pose a major challenge for organizations responding to external change. Profits depend on speed of innovation and the ability to attract customers. Big corporations used to dominate, but now industry leaders are often small, highly flexible groups that come up with great ideas, build trustworthy branding for themselves and their products, and market them effectively. A first-mover in a given innovation captures the obvious advantage of tapping into a new market before the competition. This can also allow the first-mover to capture the new technology for its own brand. First-movers encounter high fiscal risks in integrating a new product or service into their distribution, and failure often means sunk costs. Latecomers to the game can simply observe the success or failure of other competitors and make a more informed (and less risky) decision. Key Term • cannibalization—the reduction of sales or market share for one of your own products by introducing another The best ideas should be implemented as quickly as possible—not just by the idea generator but also by others who have a different viewpoint. It is imperative that the idea is honed and refined while it is still fresh. For example, an idea for a new product might start out as a crude model built from polystyrene, foam, or cardboard that will evolve quickly into a more professional prototype. Innovation involves continuous improvement throughout phases of a development program. Phases can be iterative and recursive (meaning that they do not proceed linearly from one to the next; rather, earlier phases can be returned to for further improvement as needed). Phases include market analysis and consumer research, which progress to design and prototyping, then naming and packaging design, and ultimately retail and production support. Robert Reich observes that profits in the old economy came from economies of scale, i.e., long runs of almost identical products. Thus, we had factories, assembly lines, and industries. Today, profits come from speed of innovation and the ability to attract and keep customers. Therefore, while the big winners in the old economy were big corporations, today’s big winners are often small, highly flexible groups that devise great ideas, develop trustworthy branding for themselves and their products, and market these effectively. The winning competitors are those first to provide lower prices and higher value through intermediaries of trustworthy brands. To keep the lead, however, these companies have to keep innovating lest they fall behind the competition. The Benefit of Moving First Speed of innovation poses a major challenge for organizations responding to external change. A high rate of change can be seen in the shortening of product life cycles, increased technological change, increased speed of innovation, and increased speed of diffusion of innovations. These are key challenges for organizations, as the profit generation of new ideas must fit into a slimmer chronological window—thus underlining the great value of being a first-mover. A first-mover in a given innovation captures the obvious advantage of tapping into a new market before its competitors. This also sometimes allows the first mover to identify its brand with the new technology (i.e., saying you’re going to “Google” something as shorthand meaning search for it online, or calling any MP3 player an iPod). These branding hurdles must be tackled by any competitor following in the footsteps of the first-mover. However, speed is not everything. First-movers encounter serious disadvantages, the most notable being freeloaders. First-movers also encounter high financial risks in integrating a new product or services into their distribution, and failure often means sunk costs. Latecomers to the game can simply observe the success or failure of other competitors and make more informed (and less risky) decisions about entering the market segment. Similarly, first-movers must carefully consider cannibalization—where their new innovative products steal sales from their older products still on store shelves. Speedy innovation and moving first requires great foresight, planning, and managerial skill to execute effectively and minimize risks. Sustainability Innovation Sustainability innovation combines sustainability (endurance through renewal, maintenance, and sustenance) with innovation. Key Points • • • Sustainopreneurship is using creative organizing to solve problems related to sustainability and in turn create social and environmental sustainability as a strategic objective and purpose. Solving sustainability-related problems is the be-all and end-all of sustainability entrepreneurship. Passively heated houses, solar cells, organic food, fair trade products, hybrid cars, and car sharing are all examples of sustainability innovations. Key Term • sustainability—configuring human activity so that societies are able to meet current needs while preserving biodiversity and natural ecosystems for future generations Sustainability is the capacity to endure through renewal, maintenance, and sustenance (or nourishment), which is different than durability (the capacity to endure through resistance to change). Innovation is the creation of new value through the use of solutions that meet new, previously unknown, or existing needs in new ways. Innovation should be pursued with sustainability in mind as a critical strategic objective, as the integration of new business ideas with the broader community and environment is central to long-term success. Sustainability Entrepreneurship Sustainopreneurship is using creative business organizing to solve problems related to sustainability to create social and environmental sustainability as a strategic objective and purpose, with an understanding that markets are embedded as part of the socio-sphere that is part of the biosphere. It is “business with a cause,” where the world’s problems are turned into business opportunities for deploying sustainability innovations. Sustainopreneurship is entrepreneurship and innovation for sustainability. This definition has three distinguishing dimensions. The first is oriented toward why, or a company’s purpose and motive in adopting sustainable entrepreneurship. The second and third reflect how the process is carried out. • • • Entrepreneurship consciously sets out to find or create innovations to solve sustainability-related problems. Entrepreneurship moves solutions to market through creative organizing. Entrepreneurship adds sustainability value while respecting the systems which support life. Solving sustainability-related problems from the organizational framework is the be-all and end-all of sustainability entrepreneurship. This means that all three dimensions are simultaneously present in the process. Example Sustainability is the core operating mission and vision of Interface Global, which produces modular carpeting. Through greening their supply chain, minimizing water use, cutting electric costs, reducing fuel costs through better distribution, and a number of other innovative process improvements, the company produces high quality carpets at a lower cost with a smaller environmental footprint. The company created a sustainable business strategy through innovative thinking. Social Innovation Social innovation refers to new strategies, concepts, ideas, and organizations that meet societal needs. Key Points • • Social innovation can refer to social processes of innovation, such as open-source methods and techniques. Social innovation can also refer to innovations that have a social purpose, like microcredit or distance learning. It can be related to social entrepreneurship. • Social innovation can take place within the government, for-profit, and nonprofit sectors, or in the spaces between them. Key Terms • • social—of or relating to society social capital—the value created by interpersonal relationships with expected returns in the marketplace Social innovation refers to new strategies, concepts, ideas, and organizations that extend and strengthen civil society or meet societal needs of all kinds— from working conditions and education to community development and health. Organizations, both for for-profit and nonprofit, benefit enormously from incorporating social innovation into their operations. Giving back to the community and empowering the individuals you work with and sell to (i.e., stakeholders) improves employee morale, grows wealth for potential customers, builds a strong brand, and underlines social responsibility and high ethical standards as central to the organizational character. Health Fair in India A health fair conducted through a partnership of the Max India Foundation and the SOIL social innovation program The term social innovation has overlapping meanings. Sometimes it refers to social processes of innovation like open-source methods and techniques. Other times it refers to innovations that have a social purpose, like microcredit or distance learning. The concept can also be related to social entrepreneurship (entrepreneurship is not necessarily innovative, but it can be a means of innovation). On occasion, it also overlaps with innovation in public policy and governance. Social innovation can take place within the government sector, the for-profit sector, the nonprofit sector, or in the spaces between them. Research has focused on the types of platforms needed to facilitate collaborative cross-sector social innovation. The Process of Social Innovation Social innovation is often an effort of mental creativity that involves fluency and flexibility across a wide range of disciplines. The act of social innovation in a sector encompasses diverse disciplines within society. The social innovation theory of connected difference emphasizes three key dimensions of social innovation: • • • It usually produces new combinations or hybrids of existing elements, rather than something completely new. It cuts across organizational or disciplinary boundaries. It creates compelling new relationships between previously separate individuals and groups. Social innovation is currently gaining visibility within academia. Examples of Social Innovation There are many examples of social innovation making a meaningful difference across the globe—from huge organizations like the Bill and Melinda Gates Foundation funding multinational initiatives to small groups of community leaders collecting money to help buy new high school textbooks. Specific examples include the following: • • • The University of Chicago sought to develop social innovations that would address and ameliorate the immense problems caused by poverty in a largely immigrant city around the turn of the twentieth century. Prominent social innovators include Bangladeshi Muhammad Yunus, the founder of Grameen Bank, who pioneered the concept of microcredit for supporting innovators in multiple developing countries in Asia, Africa, and Latin America. Stephen Goldsmith, former Indianapolis mayor, engaged the private sector in providing many city services. Commercializing Innovative Products Commercialization is the process or cycle of introducing a new product or production method into the market. Key Points • • • • The launch of a new product is the final stage of new product development. This is when the most money is spent for advertising, sales promotion, and other marketing efforts. It is important to emphasize that the commercialization strategy and feasibility should have been considered and approved long before the actual execution of commercialization—as the time, efforts, and development costs have already largely been incurred. Organizations must consider who they are selling to and where they are selling when determining the most effective process for commercialization. The primary target consumer group includes innovators, early adopters, heavy users, and opinion leaders. Their buy-in will ensure adoption by other consumers in the marketplace during the product growth period. Key Terms • • commercialization—the act of positioning a product to make a profit early adopter—a person who begins using a product or service at or around the time it becomes available Commercialization is often confused with sales, marketing, or business development. In the context of innovation, commercialization is the process of introducing a new product or service to the public market. Innovations are defined as new products or services that improve upon their predecessors, and the process of integrating them into the current market is a critical component of successfully bringing them to market. Because of poor planning, great innovations are not always brought to market due to a lack of feasibility or poor planning. Long-term planning is crucial in the commercialization process because this is when the most money will be spent—on advertising, sales promotions, and other marketing efforts after the launch of a new product. The Commercialization Process The commercialization process has three key aspects: • • • carefully selecting, based upon comprehensive market research, which products can be sustained financially in which markets for long-term success planning for various phases in the commercialization process, and considering geographic distribution, demographics, and other relevant factors identifying and involving key stakeholders, including consumers, early in the process Key Strategic Questions When bringing a product to market, a number of strategic questions must be answered long before substantial costs are incurred for commercialization. These questions are simple to ask but complex to answer, and business analysts and market researchers will spend a considerable amount of time approaching them via research models and careful financial consideration. • • When? The company has to time product introduction perfectly. If there is a risk of cannibalizing the sales of the company’s other products, if the product could benefit from further development, or if the economy is forecasted to improve in the near future, the product’s launch should be delayed. Similarly, many products (e.g., in the fashion industry) are seasonal, so they must be timed appropriately to maximize revenue. Where? The company has to decide where to launch its products. This can be in a single location, in one or several larger regions, or in a • • national or international market. The decision will be strongly influenced by the company’s resources: Larger companies can reach broader geographic audiences. It is important to keep in mind where the early adopters will be and where competitive gaps may exist. In the global marketplace, this question is increasingly complex. To whom? The primary target consumer group will have been identified earlier through research and test marketing. This group will include innovators, early adopters, heavy users, and opinion leaders. Their buyin will ensure adoption by other consumers in the marketplace during the product growth period. How? The company has to decide on an action plan for introducing the product,that will apply the answers to the previous three questions. It has to develop a viable marketing mix and create a marketing budget. While these questions are key considerations in commercialization, they should have been answered long before the commercialization stage. After all, if the need is not sufficiently widespread or the market not sufficiently developed, there is little reason to pursue an innovation in the first place. Fostering Innovation Offering employees challenges, freedom, resources, encouragement, and support can help them to innovate. Key Points • • • • People perform best when they are driven by inspiration and are encouraged to push their boundaries and think outside the box. Teamwork enhances people’s strengths and lessens their individual weaknesses. One of the most powerful tools for promoting employee creativity and innovation is recognition. Ultimately, in developing a culture of innovation you want employees to feel comfortable experimenting and offering suggestions without fear of criticism or punishment for mistakes. Strategies capable of producing innovation require resources and energy. Therefore, a business plan should include a discussion of the organizational structures and practices that will be put in place to encourage and support innovation. Amabile (1998) points to six general categories of management practice that affect creativity: • • • • challenge freedom resources work groups • • encouragement from supervisors organizational support Create a Culture of Innovation You will likely find that you need to generate hundreds of ideas to find ten good ones that will create value for your organization. This is part of the creative brainstorming process, and it should be encouraged. It is every staff member’s responsibility to generate ideas, not just top leadership's. Following are suggestions to encourage the flow of ideas: Encourage Creativity Encouraging creativity helps keep staff happy. If they think something is important and has the potential to create a financial payoff for the company, let them follow their idea. People perform best when they are driven by inspiration, and encouraged to push boundaries and think outside the box. Micromanagement discourages creativity, while independence encourages employees to own their innovative thinking and pursue the ideas they are passionate about. If management fosters a creative and open environment, innovation will happen naturally. Encourage Participation Teamwork enhances people’s strengths and mitigates individual weaknesses. Effective teamwork promotes awareness that it is in everyone’s best interests to keep the business growing and improving. Creating a participation-based environment means creating smart teams, encouraging open dialogue, and minimizing authority. Criticism is productive and should be encouraged, but it must be used constructively. Provide Recognition and Rewards One of the most powerful tools for promoting employee creativity and innovation is recognition. People want to be recognized and rewarded for their ideas and initiatives, and it is a practice that can have tremendous payoff for the organization. Sometimes the recognition required may be as simple as mentioning a person’s effort in a newsletter. If a staff member comes forward with a creative idea, recognize them in the company newsletter or at a staff meeting even if their idea can’t be implemented immediately. Make it clear that compensation and promotions are tied to innovative thinking. Enable Employee Innovation You may have an innovative culture in your organization, but you also need to familiarize staff with some of the hallmarks of continuing innovation. For example, you could educate employees at regular training sessions on topics such as creativity, entrepreneurship, and teamwork. Each session might conclude by assigning an exercise to be performed over a few weeks that will consolidate lessons learned. Your aim here is to give employees a taste of innovation so they will embrace the process. Other Motivators • • • Profit-sharing and bonuses Days off Extra vacation time Encourage employees to take advantage of coffee breaks, lunch breaks, and taxi rides. Often great ideas that can lead to innovation will happen where we least expect them. If it’s hard to get staff together for common informal breaks, consider taking them out for an informal meal where you can encourage creative discussion about work. Also be sure to encourage laughter at meetings because laughter is an effective measure of how comfortable people feel about expressing themselves. Technology and Innovation A Powerful Driver and an Enabler Technology is a powerful driver of both the evolution and proliferation of innovation. Key Points • • • • • Innovation is a primary source of competitive advantage for companies in essentially all industries and environments. It drives efficiency, productivity, and differentiation to fill a variety of needs. Technology builds upon itself, enabling innovative approaches within the evolution of technology. Technological hubs such as Silicon Valley provide powerful resources that entrepreneurs and businesses can leverage in pursuing innovation. Technological advances, particularly in communication and transportation, further innovation. India, China, and the United States are all strong representations of how embracing technology leads to innovation, which in turn leads to economic growth. Key Terms • innovation—the introduction of something new; the development of an original idea • scalable—capable of expansion Innovation is a primary source of competitive advantage for companies in essentially all industries and environments, and drives forward efficiency, higher productivity, and differentiation to fill a wide variety of needs. One particular perspective on economics isolates innovation as a core driving force, alongside knowledge, technology, and entrepreneurship. This theory of innovation economics notes that the neoclassical approach (monetary accumulation driving growth) overlooks the critical aspect of appropriate knowledge and technological capabilities. Scaling Technology Technology is a powerful driving force in innovative capacity, particularly as it pertains to both the evolution of innovations and the way they proliferate. Technology is innately scalable, demonstrating a consistent trend toward new innovations as a result of improving upon current ones. During a product's life cycle economic returns go through a steep exponential growth phase and an eventual evening out, which motivates businesses to leverage technology to produce new innovations. Technology Innovation Trajectory Note the overlapping trajectories of technologies: While an emerging product may start lower on the graph, its steep upward trajectory eventually overtakes current technology, dominating the market as both the technology and product production are refined and improved. Technology Hubs The proliferation of innovation pertains to two important factors of technology driving innovation: the creation of geographic hubs for technology, and empowerment of knowledge exchange through communication and transportation. Places like California’s Silicon Valley and Baden-Württemberg, Germany, are examples of the value of technological hubs. The close proximity of various resources and collaborators in each hub stimulates a higher degree of innovative capacity. Communication and cumulative knowledge in these technology hubs allow for innovations to spread via technology, and be adopted across the globe quicky. This spread of ideas can be built upon quickly and universally, creating the ability for innovation to be further expanded globally. Collaboration on a global scale as a result of technological progress has allowed exponential levels of innovation. Correlations Between Technology, Innovation, and Growth Empirical evidence generates a positive correlation between technological innovation and economic performance. Between 1981 and 2004, India and China developed a National Innovation System designed to invest heavily in research and development (R&D) with a particular focus on patents, high-tech, and service exports. During this time frame, both countries experienced extremely high levels of GDP growth by linking the science sector with the business sector, importing technology, and creating incentives for innovation. Additionally, the Council on Foreign Relations asserted that the United States’ large share of the global market in the 1970s was likely a result of its aggressive investment in new technologies. These technological innovations are hypothesized to be a central force driving steady US economic expansion, allowing it to maintain its place as the world’s largest economy. The Technology Life Cycle The technology life cycle describes the costs and profits of a product from technological development, to market maturity, to decline. Key Points • • • • • The technology life cycle seeks to predict the adoption, acceptance, and eventual decline of new technological innovations. Understanding and effectively estimating technology life cycle allows for a more accurate reading of whether, and when, research and development costs will be offset by profits. The technology life cycle has four distinct stages: research and development, ascent, maturity, and decline. The adoption of these technologies also has a life cycle with five chronological demographics: innovators, early adopters, early majority, late majority, and laggards. By leveraging these models, businesses and institutions can exercise foresight in ascertaining return on investment as their technologies mature. Key Terms • • foresight—the ability to accurately estimate future outcomes demographic—a characteristic that identifies populations within a statistical framework The technology life cycle (TLC) describes the costs and profits of a product, from the technological development phase, to market maturity, to eventual decline. R&D costs must be offset by profits once a product comes to market. Varying product lifespans mean that businesses must understand and accurately project returns on their R&D investments based on potential product longevity in the market. Due to rapidly increasing rates of innovation, products such as electronics and pharmaceuticals, in particular, are vulnerable to shorter life cycles (when considered against such benchmarks as steel or paper). Thus, TLC is focused primarily on the time and cost of development as it relates to the projected profits. TLC can be described as having four distinct stages: This graph illustrates the stages in the technological life cycle. • • • • Research and development. During this stage, risks are taken to invest in technological innovations. By strategically directing R&D toward the most promising projects, companies and research institutions slowly work their way toward beta versions of new technologies. Ascent. This phase covers the time frame from product invention to the point at which out-of-pocket costs are fully recovered. At that point the goal is to see to the rapid growth and distribution of the invention and leverage the competitive advantage of having the newest and most effective product. Maturity. As a new innovation becomes accepted by the general population and competitors enter the market, supply begins to outstrip demand. During this stage, returns begin to slow as the concept becomes normalized. Decline. The final phase is when the utility and potential value to be captured in producing and selling the product begins dipping. This decline eventually reaches the point of a zero-sum game, where margins are no longer procured. Product development and capitalizing on the new invention covers the business side of these R&D investments in technology. The other important consideration is the differentiation in consumer adoption of new technological innovations. These have also been distributed into phases which effectively summarize the demographic groups presented during each stage of TLC: Technology Adoption Life Cycle This adoption chart highlights the way in which consumers embrace new products and services. • • • • • Innovators. These are risk-oriented, leading-edge minded individuals who are extremely interested in technological developments (often within a particular industry). Innovators are a fractional segment of the overall consumer population. Early adopters. A larger but still relatively small demographic, these individuals are generally risk-oriented and highly adaptable to new technology. Early adopters follow innovators in embracing new products. They tend to be young and well-educated. Early majority. Much larger and more careful than the previous two groups, the early majority is open to new ideas but generally waits to see how they are received before investing. Late majority. Slightly conservative and risk-averse, the late majority is a large group of potential customers who need convincing before investing in something new. Laggards. Extremely frugal, conservative, and often technology-averse, laggards are a small population of usually older and uneducated individuals who avoid risks and only invest in new ideas once they are extremely well-established. Taking these two models into consideration, a business unit with a new product or service must consider the scale of investment in R&D, the projected life cycle the technology will likely maintain, and how customers will adopt the product. By leveraging these models, businesses and institutions can ascertain the returns on investment as their technologies mature. Assessing an Organization’s Technological Needs Assessing the internal technological assets and future needs of an organization prepares management for successful technology integration. Key Points • • • Companies must prioritize the ability to assess their technological needs, particularly those related to achieving optimal efficiency and productivity. Companies looking to stay ahead of the competition should gather data internally and externally to facilitate forecasting and help craft technology implementation strategies. The assessment process requires that companies work internally to isolate their technological strengths and weaknesses. Key Terms • • • introspection—self-assessment, or an individual's or company's looking inward to measure strengths and weaknesses forecasting—estimating how a condition will be in the future productivity—the rate at which products and services are produced relative to a particular workforce Remaining competitive and technologically vigilant are virtually synonymous in business development today. Companies must prioritize their ability to assess their technological needs, particularly as they relate to achieving optimal efficiency and productivity. The following concepts are relevant to this needs assessment: • • • • technology strategy—identifying the logic or role of technology within the company technology forecasting—identifying applicable technologies for the company, potentially through scouting technology roadmapping—ascertaining the trajectories of technological advancement, and applying business or market needs to the assessment technology portfolios—accumulation of all technologies relevant to products or operations to determine which are ideal for internal implementation All four concepts involve information gathering as well as introspection into business operations and processes. All four can be improved upon through technological advances. Integrated planning in pursuit of optimization through new technologies keeps efficiency at or above competitive levels. This internal technology assessment also includes noting when and whether it is necessary to construct employee training programs for new technology. Innovation Adoption Life Cycle As successive groups of consumers adopt new technology a bell curve emerges: This is called the innovation adoption life cycle. It is represented by the blue line on the graph. The percentages on the horizontal axis indicate the size of the populations (relative to the entire consumer group for a given good) in each segment. By keeping pace with technological innovation, and offering products early enough to capture the majority of the market, businesses can gain competitive advantage. If a business is too late to enter a newly emerged technological market, market share has often been claimed by others, as the yellow line on the graph indicates. Understanding Current Trends in Technology Understanding current technologies and trends allows a company to align and synchronize operations to optimize returns on innovation. Key Points • • • • • Business technology management (BTM) provides a bridge between previously established tools and standards within a business environment and the newer, more operationally efficient tools and standards technological progress provides. Aligning technologies with current business initiatives and strategies is the most basic way for a business to remain competitive in the current technological climate. Companies that can improve on alignment to synchronize their internal technological landscape (researching and developing innovations inhouse) can achieve foresight and long-term benefits by forecasting future technological needs. BTM has four dimensions: process, organization, information, and technology. Effectively employing these four dimensions of BTM provides companies the potential to project technological trends, and synchronize them with their strategies. Key Terms • • • alignment—the process of adjusting a mechanism (or business) so that its parts act in concert synchronization—the process of aligning all inputs to optimize output SBUs—strategic business units, or separate elements of a company organized by similar processes and objectives Businesses have the ongoing responsibility of keeping up with evolving technology trends to stay competitive. Trends in technology extend out like the branches of a tree: Each innovation creates the possibility for more new ones. The field of business technology management (BTM) arose to provide businesses with the best approaches for assessing and implementing technological advances in their strategies. BTM Alignment BTM provides a bridge between previously established tools and standards within a business environment and newer, more operationally efficient tools and standards in technology. BTM does this by creating a set of principles and guidelines for companies to follow as they pursue alignment. Alignment, in this respect, can be defined as how an institution’s technology supports and enables technology, while avoiding constraints related to company strategies, objectives, and competition. When companies accomplish this in any given technological environment, they have attained BTM maturity within a particular time frame and industry. Synchronization Alignment is only the first step. The next step is synchronization. Like alignment, synchronization enables execution, but it also helps companies develop the capacity to anticipate and adapt future business models and strategies. This is generally accomplished by investing in R&D and staying ahead of the standard technologies by anticipating or even innovating past them. This business technology leadership role is long-term oriented and very effective in maintaining competitive advantages in a given industry, but it is particularly important for industries in the tech sectors. R&D Cycle The cycle of research and development moves through theorizing, to hypothesizing, design, implementation, scale-up and study, and back to theorizing to begin the cycle again. Companies use four specific dimensions of BTM to achieve understanding of current technologies and trends: • • • • Process. Companies must execute a set of fluid and repeatable processes that can be consistently scaled up through evaluation. Organization. Utilizing an organized business structure or corporate framework, often through strategic business units ( SBUs ), provides substantial value in centralizing processes and assessing needs. Information. Scouting and assessing the current technological environment through extensive research teams is necessary to make the appropriate decisions. Technology. Finally, improving upon these processes within SBUs via leveraging the appropriate data and information will drive strategic acquisition of beneficial technological improvements based upon current trends. Taken together, these four dimensions applied to alignment and synchronization of new technology can help businesses keep up with or stay ahead of current technologies and trends. Companies can benefit from the intrinsic opportunities technological progress provides while offsetting the intrinsic risks of external technological development. Sourcing Technology Technology sourcing involves isolating and implementing new innovations within an existing business framework. Key Points • • • • • Sourcing new technology involves the scouting and researching of new technological potential and the eventual transfer of new technologies to a company. Technology scouting includes identifying new technologies, organizing and channeling data on them, and assessing the ease and value of implementing them. Companies capitalize on the successful scouting of a new technology by sourcing it from the appropriate party for their own use. Tech transfer drawbacks primarily involve the cost of licensing patents and training employees to effectively use the new technology. Some organizations, such as Sourceforge, Wikipedia, and Boundless, provide knowledge and technology for free in an open-source strategy. Key Terms • • • patent—legal right to a particular innovation, protecting it from being copied or employed by another without consent or license sourcing—obtaining the resources needed by a particular company or individual scouting—the act of seeking or searching Technology Sourcing Strategies Technology sourcing, or the pursuit of implementing new technologies within a business’s strategic framework, involves isolating and applying new technologies to current models. Technology can be developed internally, or isolated through technology scouting and then implemented through technology transfer. In deciding which approach is optimal for them, organizations must consider factors such as as the advantage of being first to market, R&D costs and capabilities, and market-research and data-gathering costs. Therefore the strategies behind sourcing technology can be complex, varying by industry, company size, economic strength, and the availability of easily implemented technology. Technology Scouting Technology Readiness Levels (TRL) Stages of technology development include basic technology research, research to prove feasibility, technology development, technology demonstration, system/subsystem development, and system test, launch, and operations. Technology scouting is essentially forecasting technological developments through information gathering. Technology scouts can either be internal employees or external consultants specifically designated to the task of researching developments in a particular technological field. This can be loosely referred to as a three-step process: 1. Identify emerging technologies. 2. Channel and organize new technological data within an organization. 3. Provide a corporate context to support or refute the acquisition of technology. When technology scouting isolates new developments that could potentially provide advantages for an incumbent, strategies to acquire or source the technology become a focal point. Technology transfer, and the commercialization of technological abilities, is an enormous market both in the United States and abroad. Though governments, universities, and open-source websites often provide knowledge and technological know-how free of charge, most often technology is not free. Technology Sourcing Pros and Cons In the Information Age knowledge is power, and more than ever companies are trying to protect their knowledge from competitors or freeloaders by using patents and trade secrets. Transfer of technology is therefore expensive, from licensing the patented technology to requesting training in new technological advances for staff. Despite the distinct advantages of staying ahead of the curve, there are some drawbacks to tech transfer. Investors must accept the inherent risk of the new technology, presenting significant hurdles to optimizing perceived potential or effective implementation. Early adopters and innovators suffer the risk of employing a new technology that has not been fully debugged, minimizing what should have been strong returns on investment (ROI). Technology scouts should therefore be highly circumspect and meticulous in their research processes, ensuring that new technological innovations will indeed provide what they promise. Managing Change for Organizations Managers as Leaders of Change Leaders are in the unique role of not only designing change initiatives but also enacting and communicating them. Key Points • • • • Managing change requires more than simple planning. Resistance to change, a human tendency, is significant. It must be addressed to ensure success. Leaders must define change strategy and communicate it effectively to shareholders, empower and support employees, and mitigate resistance to the change initiative. Conner identifies six distinct leadership styles related to change: antichange, rational, panacea, bolt-on, integrated, and continuous. Each leadership style represents a unique set of perceptions, attitudes, and behaviors regarding how organizational disruption should be addressed. Conner also posited that the six leadership styles are related to two different types of organizational change: first-order change and secondorder change. Different leadership styles are more effective in different situations. Key Terms • • attribute—a characteristic or quality of a something lead—to conduct or direct with authority Managing change requires strong leadership and an understanding of how organizational change occurs. Leaders are in the unique position not only of designing change initiatives but also enacting and communicating them to subordinates. Managing change requires more than simple planning: Resistance to change, a natural human tendency, needs to be addressed to ensure success. Leadership Strategies for Change The following six components of change are the responsibility of management: • • • Create a definable strategy. Define measurable stakeholder goals and objectives, create a business case for them and update it continuously; and monitor assumptions, risks, dependencies, costs, return on investment, and cultural issues affecting work progress. Communicate effectively. Explain to stakeholders why the change is being made, the benefits of successful implementation, and how the change is being rolled out. Empower employees. Devise an effective organization-wide plan for education, training, and other means for upgrading skills. • • • Counter resistance. Identify employee issues and align them to the overall strategic direction of the organization. Adapt the change initiative as needed to mitigate discontent. Support employees. Provide personal counseling as needed to alleviate change-related fears. Track progress. Monitor and fine-tune implementation along the way. Reengineering This flowchart shows the reciprocal relationships involved in each step of change management, sometimes referred to as reengineering. Six Leadership Styles for Change Conner (1998) identified six distinct leadership styles related to change: antichange, rational, panacea, bolt-on, integrated, and continuous. Each style “represents a unique set of perceptions, attitudes, and behaviors regarding how organizational disruption should be addressed.” Stopper (1999) described Conner’s six leadership styles as follows: • • • • • • The anti-change leader. A leader embracing this style seeks to avoid change as much as possible. The message is, “Stay the course. Keep adjustments small. No need to change in any major way.” The rational leader. This leader focuses on how to constrain and control change with logical planning and clearly defined steps. The panacea leader. The panacea leader believes that the way to respond to pressure for change is to communicate and motivate. These leaders understand resistance to change as well as the inevitability of change as organizations evolve. They tend to focus on fostering enthusiasm for change. The bolt-on leader. This leader strives to regain control of a changing situation by attaching (bolting on) change-management techniques to ad-hoc projects that are created in response to pressure for change. This manager is more concerned about helping others change than creating a strategy for the change itself. The integrated leader. The integrated leader searches for ways to use the structure and discipline that Harding and Rouse (2007) called “human due diligence” (the leadership practice of understanding the culture of an organization and the roles, capabilities, and attitudes of its people) as individual change projects are created and implemented. The concept is simply to combine, or integrate, human and cultural concerns with the strategy itself. The continuous leader. The continuous leader works to create an agile and quick-response organization that can anticipate threats and seize opportunities rapidly as change initiatives are designed and implemented. Continuous leaders believe that disruption is continuous, and adaptability is a necessary organizational competency. Conner says that the six leadership styles are related to two different types of organizational change: first-order change and second-order change. First-order change is incremental, piecemeal change. Second-order change is “nonlinear in nature and reflects movement that is fundamentally different from anything seen before within the existing framework.” He identifies the first four leadership styles as appropriate for managing first-order change. When an organization is engaging in discontinuous, transformational change, however, integrated and continuous leadership styles are more appropriate. Types of Organizational Change There are three main categories of change: business process reengineering, technological change, and incremental change. Key Points • • • Business process reengineering focuses on the analysis and design of workflows and processes within an organization. Technological change refers to the process of invention, innovation, and diffusion of technology or processes. incremental change means introducing many small, gradual changes to a project instead of a few large, rapid changes. Key Terms • • devise—to use one’s intellect to plan or design something incremental model—method of product development where the model is designed, implemented, and tested in a series of small steps until the product is finished Change management is an approach to shifting or transitioning individuals, teams, and organizations from their current state to a desired future state. It is an organizational process aimed at helping stakeholders accept and embrace change in their business environment. In some project management contexts, change management refers to a project management process wherein changes to a project are formally introduced and approved. Kotter defines change management as the utilization of basic structures and tools to control any organizational change effort. Change management’s goal is to maximize organizational benefit, minimize impacts on workers, and avoid distractions. There are different types of change an organization can face. Business Process Reengineering Business process reengineering (BPR) is a business management strategy first pioneered in the early 1990s. It focuses on the analysis and design of workflows and processes within an organization. BPR aims to help organizations fundamentally rethink how they do their work in order to dramatically improve customer service, cut operational costs, and become world-class competitors. In the mid-1990s, as many as 60 percent of the Fortune 500 companies claimed to have either initiated reengineering efforts or begun planning for them. BPR helps companies radically restructure their organizations by focusing on their business processes from the ground up. A business process is a set of logically related tasks performed to achieve a defined business outcome. Reengineering emphasizes a holistic focus on business objectives and how processes relate to them, encouraging full-scale recreation of processes rather than iterative optimization of sub-processes. Business process reengineering is also known as business process redesign, business transformation, and business process change management. Incremental Change Incremental change is a method of introducing many small, gradual (and often unplanned) changes to a project instead of a few large, rapid (and extensively planned) changes. Wikipedia illustrates the concept—an encyclopedia built bit by bit. Another example of incremental change is a manufacturing company making hundreds of small components that go into a larger product, like a car. Improving the manufacturing process of each of these integral components one at a time to cut costs and improve process efficiency overall is incremental change. Technological Change Technological change (TC) describes the overall process of invention, innovation, and diffusion of technology or processes. The term is synonymous with technological development, technological achievement, and technological progress. In essence, TC is the invention of a technology (or a process), the continuous process of improving a technology (which often makes it cheaper), and its diffusion throughout industry or society. In short, technological change is based on both better and more technology integrated into the framework of existing operational processes. Inside and Outside Forces for Organizational Change Inside forces include strategic and human resource changes, while outside forces include macroeconomic and technological changes. Key Points • • • • Change management is an approach to shifting individuals, teams, and organizations to a desired future state. Strategic, operational, and technological change are examples that can come from inside or outside the organization. Outside forces for change include macroeconomics, technological evolution, globalization, new legislation, and competitive dynamics. Inside forces for change include intrapreneurship, new management, and restructuring. The first step in effective change management is being prepared, in a timely and knowledgeable fashion, for internal and external potentialities that may force organizational adaptation. Key Term • macroeconomic—relating to the entire economy, including the growth rate, money and credit, exchange rates, the total amount of goods and services produced, and other broad economic concerns Change management is an approach to shifting or transitioning individuals, teams, and organizations from their existing state to a desired future state. Examples of organizational change can include strategic, operational, and technological changes coming from inside or outside the organization. Understanding key internal and external change catalysts is critical to successful change management for organizational leaders. Outside Forces While there are seemingly endless external considerations that can motivate an organization to change, a few common considerations should be constantly monitored. These include economic factors, competitive dynamics, new technology, globalization, and legislative changes: • • Economics. The 2008 economic collapse is a strong example of why adaptability is important. As consumers tightened their belts, organizations had to either do the same—lowering supply to match lower demand, or entice consumers with other goods. Migrating from one volume to another can be financially challenging, but change strategies like creating new affordable product lines or more efficient operational paradigms are key to success. Competition. Changes in the competitive landscape, such as new incumbents, mergers and acquisitions, new product offerings, and bankruptcies, can substantially impact a company’s strategy and operations. For example, if a competitor releases a new product that • • • threatens to steal market share, an organization must be ready to change and adapt to retain its customer base. Technology. Technological changes are a constant threat, and embracing new technologies ahead of the competition requires adaptability. When media went digital, adaptable companies found ways to evolve their operations to stay competitive. Many companies that could not evolve quickly failed. Globalization. Capturing new global markets requires product, cultural, and communicative adaptability. Catering to new demographics and identifying opportunities and threats as they appear in the global market is integral to adapting for optimal value. Legislation. New laws can dramatically change operations. Companies in industries that impact the environment must constantly strive to adapt to cleaner and more socially responsible operating methodologies. Failure to keep pace can result in substantial fines and other financial consequences, as well as negative branding. Inside Forces There are many inside forces to keep in mind too, ranging from employee changes, to cultural reform, to operational challenges. Understanding where change is coming from is the first step toward timely and appropriate change management. • • • Management change. New CEOs or other executive players can significantly impact strategy and corporate culture. Understanding the risks associated with hiring (or promoting) new upper management is key to making good decisions on the person who will be the best fit. Organizational restructuring. Organizations may have to significantly alter their existing structure to adapt to the development of new strategic business units, new product lines, or global expansion. Changing structure means disrupting hierarchies and communications, which must then be reintegrated. Employees must be trained on change and its implications for their everyday operations. Intrapreneurship. New ideas come from inside as well as outside the organization, and capitalizing on a great new idea will likely require some internal reconsideration. Integrating a new idea may require reallocation of resources, new hires and talent management, and new branding. Common Targets of Organizational Change Change management can be implemented to change an organization’s mission, strategy, structure, technology, or culture. Key Points • • • • Organizational change management should begin with a systematic diagnosis of the current situation in order to determine the organization‘s need for and ability to change. Prior to a cultural change initiative, a needs assessment should examine the current organizational culture and operations. The goal is a careful and objective consideration of what is working and what is not. Areas of change include mission, strategy, operations, technology, culture, branding, employees, and workflows. Change management should also make use of performance metrics, such as financial results, operational efficiency, leadership commitment, communication effectiveness, and the perceived need for change. Key Terms • • change management—the controlled implementation of required changes to a system, with version control and planned fallback organization—a group of people or legal entity with an explicit purpose and written rules When an organization requires changes to address counterproductive aspects of its culture, the process can be daunting. Cultural change is usually necessary to reduce employee turnover, influence employee behavior, make improvements to the company, refocus company objectives, rescale the organization, provide better customer service, or achieve other specific company goals and results. Many elements can impact cultural change, including the external environment and industry competitors, changes in industry standards, technology changes, the size and nature of the workforce, and the organization’s history and management. Assessing Change Needs Prior to launching a cultural change initiative, a company should carry out a needs assessment to examine the existing organizational culture and operations. Careful and objective consideration of what is working and what is not, as well as what is consistent with broader organizational objectives and what is not, are critical to success. Areas that need to change can be identified through interviews, focus groups, observation, and other methods of internal and external research. A company must clearly identify the existing culture and then design a change process to implement it. Common Areas of Change Common areas of organizational change include • • • • • • • • mission strategy operational changes, including structure and hierarchies technology culture employees and/or management workflows (particularly relevant in manufacturing) branding Organizational change management should begin with a systematic diagnosis of the existing situation to determine the organization’s need for and ability to change. The change management plan should specify the objectives, content, and process for change. Change management processes can benefit from creative marketing to facilitate communication between change audiences and a deep social understanding of leadership styles and group dynamics. To track transformation projects, organizational change management should include alignment of group expectations, communication, integration of teams, and training. To make the change in organizational culture as smooth and efficient as possible, change management should also use metrics to measure important indicators like financial results, operational efficiency, leadership commitment, communication effectiveness, and perceptions about the need for change. Organizational Development Organizational development is a deliberately planned effort to increase an organization’s relevance and viability. Key Points • • • • Organizational development (OD) is an ongoing, systematic process of implementing effective organizational change. The purpose of organizational development is to address the evolving needs of successful organizations. Organizational development is often facilitated with the assistance of a “catalyst ” or “change agent,” such as an effective or influential leader. An important role of a leader is to analyze and assess the effectiveness of the developmental process and motivate the organization to its targets. Key Terms • • viability—the ability to live or succeed catalyst—a person or other agent of progress or change OD is a deliberately planned effort to increase an organization’s relevance and viability. This process helps the organization to better absorb disruptive technologies, market opportunities, and ensuing challenges and chaos. Essentially, organizational development is the framework for a change process that is designed to produce desirable and positive results for all stakeholders and the environment. The Nature of Organizational Development Organizational development is a lifelong, built-in mechanism to improve an organization internally. This is often done with the assistance of a change agent, a catalyst who enables the application of theories and techniques from applied behavioral sciences, anthropology, sociology, and phenomenology. The terms change agent and catalyst suggest a leader who is engaged in transformational leadership as opposed to management, which is a more incremental or efficiency-based change methodology. Although behavioral science provided the basic foundation for the study and practice of OD, new and emerging fields of study have made their presence felt. Experts in systems thinking and organizational learning have also emerged as OD catalysts. These emergent perspectives view the organization as the holistic interplay of a number of systems that impact the processes and outputs of the entire organization. Applications of Organizational Development Twenty-first century management concepts such as system thinking are impacting the way we view the development of the organization today. The purpose of OD is to address the evolving needs of successful organizations. It involves concerted collaboration to discover the processes an organization can use to become more effective. Organizational development aims to improve an organization’s capacity to handle its internal and external functioning and relationships. This includes improving interpersonal and group processes, communication, the organization’s ability to cope with problems, decision-making processes, leadership styles, conflict and trust, and cooperation among organizational members. Weisbord Weisbord presents a six-box model for understanding, and thereby changing and improving an organization: 1. Purposes. Are employees clear about the organization’s mission, purpose, and goals? Do they support the organization’s purpose? 2. Structure. How is the organization’s work divided? Is there an adequate fit between the purpose and the internal structure? 3. Relationships. What are the relationships between individuals, units, or departments that perform different tasks? What are the relationships between the people and the requirements of their jobs? 4. Rewards. For what actions does the organization formally reward or punish its members? 5. Leadership. Does leadership watch for “blips” among the other areas and maintain balance among them? 6. Helpful mechanisms. Do planning, control, budgeting, and other information systems help organization members accomplish their goal? Lewin Lewin’s description of the change process involves three steps: 1. Unfreezing. Faced with a dilemma or issue, the individual or group becomes aware of a need to change. 2. Changing. The situation is diagnosed and new models of behavior are explored and tested. 3. Refreezing. Application of new behavior is evaluated, and if it proves to be reinforcing, the behavior is adopted. Effectiveness of Organizational Development The efficacy of organizational development is predicated on the adaptability of the organization and the overall successful integration of new ideas and strategies within an existing framework. Resistance to change is a fundamental organizational problem, as all organizations have a degree of general inertia. This is further complicated by the difficulty in quantitatively measuring changes in areas that are generally intangible, like culture. To remedy this, organizations pursuing OD must set clear and measurable objectives prior to committing to a change initiative. An important role of the leader is to analyze and assess the effectiveness of this developmental process and motivate the organization to achieve developmental targets. Managing Change for Employees Phases of Organizational Change: Lewin Kurt Lewin’s phases of change (unfreezing, change, and freezing) describe how people react and adapt to change. Key Points • • • • • Kurt Lewin described change as a three-stage process that includes unfreezing, change, and freezing. Lewin emphasizes that change is not a series of individual processes but rather a continuous flow from one process to the next. The first stage (unfreezing) involves overcoming inertia and dismantling the existing mind-set. This involves overcoming the initial defense mechanisms that people exhibit to avoid making a change. In the second stage, the actual change occurs. This is typically a period of confusion and transition. People are unsure about the change and what may happen in the future. In the third stage (freezing), the new mind-set of the change is becoming the standard, and people’s comfort levels return to normal. Although some managers still use Lewin’s model, its most important contribution is the idea that change should be thought of as a process instead of as individual stages. Key Terms • • organizational psychology—the scientific study of employees, workplaces, and organizations defense mechanisms—psychological strategies (such as denial, repression, or rationalization) for avoiding or adjusting to uncomfortable situations Change is a fundamental component to the continuous improvement and evolution of any organization. A few researchers and academics have determined how to best model and present methods of change for managing employees. Kurt Lewin, a leader in organizational psychology, was one of these academics. Kurt Lewin Lewin was an influential behavioral and organizational psychologist who proposed the Phases of Change model. The Three Phases of Change This early model developed by Lewin describes change as a three-stage process of unfreezing, change, and freezing. In this Phases of Change model, Lewin emphasizes that change is not a series of individual processes; rather, change flows from one process to the next. The first stage, unfreezing, involves overcoming inertia and dismantling the existing mind-set. It involves people getting over the initial defense mechanisms they exhibit to avoid making a change. People eventually realize that change is necessary and urgent, and this realization allows them to move on to the next stage. In the second stage, the change occurs. This is typically a period of confusion and transition: People are unsure about the change and what may happen in the future. They know that the old ways are being challenged, but they do not yet have a clear picture of what will replace them. During this stage, an organization’s leaders need to focus on clearly communicating to employees the reasons for change and the steps needed to achieve it. Lewin labeled the third and final stage freezing, though it may be useful to think of this stage as refreezing. During this stage, the new mind-set of the change begins to become the standard, and people’s comfort levels return to normal. Many people criticize this component of Lewin’s model, arguing that there is never time for people to comfortably adapt to change in today’s fastpaced world. Although some managers still use Lewin’s model, its most important contribution is the idea that change should be thought of as a process instead of individual stages. This is important for understanding how employees may react to change in the workplace and why some may adapt more quickly to change than others. Strategies for Successful Organizational Change To implement a successful change, managers should focus on communication, training, monitoring, and counseling for their workforce. Key Points • • • • Organizational change often elicits concern and discomfort among employees. Change is a human effort as much as a strategic one. During an organizational change, managers must communicate the reasons for the change as well as the process needed to make the change. This should include clear objectives and strategic implications. Effective education and training are essential for employees to understand and adapt to a change in the workplace. One of the most important steps in managing change is monitoring its effects in the organization. Quantitative tools can be used to measure and assess effectiveness. Key Terms • proactive change—the shifting or transitioning of individuals, teams, and organizations from a current state to a desired future state before an event provokes change • reactive change—the shifting or transitioning of individuals, teams, and organizations from a current state to a desired future state in response to an event Understanding Change Management There is often internal resistance to organizational change. This resistance often stems from people’s fear—of change in the work itself, change in the process for completing work, or the possibility that change may result in job loss. As a result, managers and organizational leaders should have a strategic approach to enabling change while preserving organizational effectiveness. Change management is the study of how to integrate changes without damaging an organization’s culture or efficiency. It is about knowing strategically what to change and how to manage the human element of the change process. Four elements comprise the change process: • • • • recognizing changes in the broader business environment developing the adjustments required to meet the company’s needs training employees on the changes winning employee support for the changes Note that training and supporting employees is an important facet of change management. This is a critical managerial responsibility to enable successful change. Key Enablers of Change Transparency and Effective Communication During an organizational change, it is essential for managers to communicate the reasons for the change as well as the process needed to make the change. For example, if management wants to implement a procedure that will help to improve the productivity of the workforce, but the procedure requires more labor to get the new procedure up and running, they should communicate why the change in procedure is necessary. Staff understanding of why the change is taking place helps foster agreement with the implementation, because the staff can see the benefit. Effective Education and Training Education and training are essential for employees to understand and adapt to a change in the workplace. Employees will likely be unfamiliar with a new process being introduced, and with how it will fit into their daily workflow. Training is necessary to help employees become familiar with the change and better adapt to it. Personal Counseling When a major change happens in the workplace, some employees may feel very uncomfortable with it—especially those who are most affected by the change. For these employees it may be useful to have a program, most likely through human resources, that will help them adapt to the change. Monitoring the Implementation One of the most important steps in managing a successful change is monitoring how the change is playing out in the organization. This can be accomplished by looking at historical data and examining how employees are performing in the changed environment compared to how they performed in the past. Management will want to monitor how the change is affecting the overall production process. If, after the initial implementation, the change has not improved the process, managers may want to fine-tune the process to make sure the change is successful. Steps to Smooth Organizational Change: Kotter Kotter’s model details a process where managers may initiate, direct, implement, and foster organizational change via employee engagement. Key Points • • • John Paul Kotter is a former professor at the Harvard Business School who is regarded as an authority on leadership and change. The eight stages of Kotter’s change model include: increase urgency, build the guiding team, get the vision right, communicate for buy-in, empower action, create short-term wins, don’t let up, and make change stick. By following Kotter’s eight steps, managers can implement change and make it an integral part of the organization’s culture. This is accomplished by making sure that change remains a part of the culture and becomes an expectation for continued development of the organization. Key Terms • • vision—clear, distinctive, and specific vision of the future, usually connected with a leader’s strategic advances for the organization. buy-in—support, agreement, approval; a sense of belief in the potential outcomes achieved through a group process John Paul Kotter John Paul Kotter was a professor at the Harvard Business School, an acclaimed author, and chief innovation officer at Kotter International. He is regarded as an authority on leadership and change. Kotter created the Eight Steps to Change model, currently the most widely used framework for managing organizational change. Through observation, Kotter concluded that the organizations that are the most successful in implementing change go through the following eight steps. The Eight Steps 1. Increase urgency. Managers must inspire people to move, make objectives real and relevant, and further employees’ desire to make change happen. Getting momentum for change is key. 2. Build the guiding team. The company must get the right leaders in place—those with the right emotional commitment and understanding, and the right mix of skills and levels. 3. Get the vision right. Managers must encourage the team to establish a simple vision and strategy, and then focus on the emotional and creative aspects necessary to drive service and efficiency. 4. Communicate for buy-in. Involving as many people as possible, managers must communicate the essentials, and appeal and respond to people’s needs. Additionally, they must remove clutter and streamline communications, making change efficient rather than overwhelming for employees. 5. Empower action. This step focuses on removing obstacles, enabling constructive feedback, and garnering support from leaders—complete with rewards that motivate people, and recognize progress and achievements. 6. Create short-term wins. Managers must set goals that can be broken down into manageable objectives. They must also manage a number of initiatives taking place simultaneously, and finish current stages before starting new ones. 7. Don’t let up. Managers must foster and encourage determination, persistence, and ongoing progress reporting. This can be done by highlighting achieved and future milestones. 8. Make change stick. This step reinforces the value of successful change via recruitment, promotion, and new change leadership. The company should change a fundamental part of the culture during this step, so people do not consider change as foreign. A step in Kotter’s model of change is to celebrate short-term wins while working toward an overall goal of change. By following these eight steps to successful change, managers can work to mitigate the risks associated with changes that employees do not like. In order to reduce potential organizational obstacles, managers have to make sure that all of their employees are on board and willing to help make change. WEEK 3 Print The Mission Statement A mission statement defines the fundamental purpose of an organization or enterprise. Key Points • • • • A mission statement’s purpose is to retain consistency in overall strategy and to communicate core organizational goals to all stakeholders. The business owners and upper managers develop the mission statement and uphold it as a standard across the organization. It provides a strategic framework for running the organization. In a best-case scenario, an organization conducts internal and external assessments to ensure the mission statement is being upheld. A mission statement contains information about the key market, contribution, and distinction of an organization. It describes what the organization does, why, and how it excels at what it does. Key Terms • • mission—set of tasks that fulfills a purpose or duty; an assignment set by an employer stakeholder—person or organization with a legitimate interest in a given situation, action, or enterprise A mission statement defines the purpose of a company or organization. The mission statement guides the organization’s actions, spells out overall goals, and guides decision making. The mission statement is generated to retain consistency in overall strategy and to communicate core organizational goals to all stakeholders. The business owners and upper managers develop the mission statement and uphold it as a standard across the organization. It provides a strategic framework the organization is expected to abide by. Mission Statement An example of a mission statement, which includes the organization’s aims and stakeholders, and how it provides value to these stakeholders. In a best-case scenario, an organization conducts internal and external assessments relative to the mission statement. The internal assessment should focus on how members inside the organization interpret the mission statement. The external assessment, which includes the business’s stakeholders, is also valuable since it offers a different perspective. Discrepancies between these two assessments can provide insight into the effectiveness of the organization’s mission statement. Contents Effective mission statements start by articulating the organization’s purpose. Mission statements often include the following information: • • • • aim(s) of the organization the organization’s primary stakeholders, such as clients or customers, shareholders, congregation, donors, students, etc. how the organization provides value to its stakeholders; that is, by offering specific types of products or services declaration of the organization’s core purpose According to business professor Christopher Bart, the commercial mission statement consists of three essential components: 1. Key market: Who is your target client/customer? ( generalize if necessary) 2. Contribution: What product or service do you provide to that client? 3. Distinction: What makes your product or service so unique that the client should choose you? Assimilation To be truly effective, an organizational mission statement must be assimilated into the organization’s culture. Leaders have the responsibility of communicating the vision regularly, creating narratives that illustrate the vision, acting as role models by embodying the vision, creating short-term objectives compatible with the vision, and encouraging employees to craft their own personal vision that is compatible with the organization’s overall vision. Mission and Vision Statements Along with strategic planning, mission and vision statements are among the most widely used tools, and consistently rank above average in satisfaction. • • April 02, 2018 min read • • • • • • • • A Mission Statement defines the company’s business, its objectives and its approach to reach those objectives. A Vision Statement describes the desired future position of the company. Elements of Mission and Vision Statements are often combined to provide a statement of the company’s purposes, goals and values. However, sometimes the two terms are used interchangeably. Usage and satisfaction among survey respondents ;"> How Mission and Vision Statements work: Typically, senior managers will write the company’s overall Mission and Vision Statements. Other managers at different levels may write statements for their particular divisions or business units. The development process requires managers to: • Clearly identify the corporate culture, values, strategy and view of the future by interviewing employees, suppliers and customers Address the commitment the firm has to its key stakeholders, including customers, employees, shareholders and communities Ensure that the objectives are measurable, the approach is actionable and the vision is achievable Communicate the message in clear, simple and precise language Develop buy-in and support throughout the organization • • • • RELATED TOPICS • • • Corporate Values Statements Cultural Transformation Strategic Planning HOW BAIN CAN HELP • • • Strategy Results Delivery® Bain Behavior Change Approach Companies use Mission and Vision Statements to: Internally • • • • • Guide management’s thinking on strategic issues, especially during times of significant change Help define performance standards Inspire employees to work more productively by providing focus and common goals Guide employee decision making Help establish a framework for ethical behavior Externally • • • Enlist external support Create closer linkages and better communication with customers, suppliers and alliance partners Serve as a public relations tool What is Strategy? A strategy is a plan of action designed to achieve a specific goal or series of goals within an organizational framework. Key Points • • • • Strategic management is the process of building capabilities that allow a firm to create value for customers, shareholders, and society, while operating in competitive markets. Strategy entails specifying the organization's mission, vision, and objectives; developing policies and plans to execute the vision; and allocating resources to implement those policies and plans. Strategy is largely about using internal assets to create a value-added proposition. This helps to capture opportunities in the competitive environment while avoiding threats. Experts in the field of strategy define the potential components of strategy and the different forms strategy can take. Key Terms • • strategic management—the art and science of formulating, implementing, and evaluating cross-functional decisions that will enable an organization to achieve its objectives balanced scorecard—strategic performance management tool used by managers to track the execution of activities within their control and monitor the consequences of those actions • strategy—a plan of action intended to accomplish a specific goal Strategy involves the action plan of a company for building competitive advantage and increasing its triple bottom line over the long term. The action plan relates to achieving the economic, social, and environmental performance objectives; in essence, it helps bridge the gap between the long-term vision and short-term decisions. Strategic Management Strategic management is the process of building capabilities that allow a firm to create value for customers, shareholders, and society, while operating in competitive markets (Nag, Hambrick, & Chen, 2006). It entails the analysis of internal and external environments of firms to maximize the use of resources in relation to objectives (Bracker, 1980). Strategic management can depend upon the size of an organization and the proclivity to change the organization’s business environment. The process of strategic management entails: • • • Specifying the organization’s mission, vision, and objectives Developing policies and plans that are designed to achieve these objectives Allocating resources to implement these policies and plans As an example, let’s take a company that wants to expand its current operations to produce widgets. The company’s strategy may involve analyzing the widget industry along with other businesses producing widgets. Through this analysis, the company can develop a goal for how to enter the market while differentiating from competitors’ products. It could then establish a plan to determine if the approach is successful. Keeping Score A balanced scorecard is a tool sometimes used to evaluate a business’s overall performance. From the executive level, the primary starting point will be stakeholder needs and expectations (i.e., financiers, customers, owners, etc.). Following this, inputs such as objectives, operations, and internal processes will be developed to achieve these expectations. Another way to keep score for a strategy is to use a strategy map. Strategy maps help to illustrate how various goals are linked and provide trajectories for achieving them. Strategy Map for a Public-Sector Organization Various goals are linked and there are trajectories for achieving them. Common Approaches to Strategy Richard Rumelt In 2011, Professor Richard P. Rumelt described strategy as a type of problem solving. He outlined a perspective on the components of strategy, which include the following: • • • Diagnosis. What is the problem being addressed? How do the mission and objectives imply action? Guiding Policy. What framework will be used to approach the operations? (This, in many ways, should be the decision of a given competitive advantage relative to the competition.) Action Plans. What will the operations look like (in detail)? How will the processes be enacted to align with the guiding policy and address the issue in the diagnosis? Michael Porter In 1980, Michael Porter wrote that formulation of competitive strategy includes the consideration of four key elements: • • • • company strengths and weaknesses personal values of the key implementers (i.e., management or the board) industry opportunities and threats broader societal expectations Henry Mintzberg Henry Mintzberg stated that there are prescriptive approaches (what should be) and descriptive approaches (what is) to strategic management. Prescriptive schools are “one size fits all” approaches that designate best practices, while descriptive schools describe how strategy is implemented in specific contexts. No single strategic managerial method dominates, and the choice between managerial styles remains a subjective and context-dependent process. As a result, Mintzberg hypothesized five strategic types: • • strategy as plan—a directed course of action to achieve an intended set of goals, similar to the strategic planning concept strategy as pattern—a consistent pattern of past behavior with a strategy realized over time rather than planned or intended. (Where the realized pattern was different from the intent, Mintzberg referred to the strategy as emergent.) • • • strategy as position—locating brands, products, or companies within the market based on the conceptual framework of consumers or other stakeholders; a strategy determined primarily by factors outside the firm strategy as ploy—a specific maneuver intended to outwit a competitor strategy as perspective—executing strategy based on a “theory of the business,” or a natural extension of the mindset or ideological perspective of the organization Example A company wants to expand its current operations to produce widgets. The company’s strategy may involve analyzing the widget industry along with other businesses producing widgets. Through this analysis, the company can develop a goal for how to enter the market while differentiating from competitors’ products. It could then establish a plan to determine if the approach is successful. The Role of Vision A clear and well-communicated vision is essential for a leader to gain support and for followers to understand a leader’s goals. Key Points • • • Vision is defined as a clear, distinctive, and specific view of the future that is usually connected with strategic decisions for the organization. A thriving organization will have a vision that is succinct, understandable, and indicative of the direction that the company wants to head in the future. Leaders are essential for communicating the vision of the organization and promoting it through the decisions they make and the strategies they pursue. Key Term • vision—a clear, distinctive, and specific view of the future that is usually connected with a leader’s strategic advances for the organization A vision is defined as a clear, distinctive, and specific view of the future, and is usually connected with strategic advances for the organization. Effective leaders clearly define a vision and communicate it in a way that fosters enthusiasm and commitment throughout the organization. This ability to express a vision and use it to inspire others differentiates a leader from a manager. Many researchers believe that vision is an essential quality of effective leaders—as important as the abilities to communicate and to build trust. Effective leaders clearly communicate their vision of the organization. Their decisions and strategies reflect their view of what an enterprise can be rather than what it currently is. A strong leader builds trust in the vision by acting in ways that are consistent with it and by demonstrating to others what it takes to make the vision a reality. Vision is an essential component of an organization’s success. A thriving organization will have a vision that is succinct, indicates the direction the company is heading, and widely understood throughout all levels of the organization. The more employees are aware of, understand, and believe in the vision, the more useful it is in directing their daily behavior. Vision and mission are sometimes used interchangeably, but there is a useful distinction between the two. A vision describes an organization’s direction, while its mission defines its purpose. By focusing on the value an organization creates, the mission helps prioritize activities and provides a framework for decision-making. Vision also plays a significant role in a leader’s strategy for the organization. By setting the direction, a vision underscores the necessity of all areas of a business working toward the same goal. This unity of purpose often involves changing what is done and how, and aligning the activities and behavior of people. A vision reduces ambiguity and provides focus—two benefits that are especially valuable in turbulent or rapidly changing times. WEEK 4 SWOT Analysis A SWOT analysis allows businesses to assess internal strengths and weaknesses in relation to external opportunities and threats. Key Points • • • SWOT analysis is a strategic planning method used to evaluate a business’s strengths, weaknesses, opportunities, and threats. The goal of a SWOT analysis is to analyze the business environment to develop a strategic plan of action that captures opportunities using internal strengths (and avoids threats while addressing weaknesses). Businesses set objectives after the SWOT analysis has been performed, which allows the organization to define achievable goals. Key Term • environment—the surroundings of, and influences on, a particular item of interest A method of analyzing the environment in which businesses operate is referred to as a context analysis. One of the most recognized of these is the SWOT (strengths, weaknesses, opportunities, and threats) analysis. Performing a SWOT analysis allows a business to gain insights into its internal strengths and weaknesses and to relate these insights to the external opportunities and threats posed by the marketplace the business operates in. The main goal of a context analysis, SWOT or otherwise, is to analyze the business environment to develop a strategic plan. SWOT and Strategy The SWOT analysis matrix illustrates where the company’s strengths and weaknesses lie relative to factors in the market. Strengths and opportunities (the S and O of SWOT) are both helpful toward achieving company objectives, but strengths originate internally while opportunities originate externally. Similarly, weaknesses and threats (the W and T of SWOT) are harmful toward achieving objectives, but weaknesses originate internally and threats originate externally. Assessing all four points of the SWOT acronym ensures a thorough evaluation. A SWOT analysis is a strategic planning method used to evaluate the strengths, weaknesses, opportunities, and threats related to a project or business venture. A SWOT assessment involves specifying the business’s objective and then identifying the internal and external factors that are favorable and unfavorable toward the business’s ability to achieve its objective. Setting the objective, in terms of moving from strategy planning to strategy implementation, should be done after the SWOT analysis has been performed. Doing so allows the organization to set achievable goals and objectives. Components of SWOT • • • • strengths—internal characteristics of the business that give it an advantage over competitors weaknesses—internal characteristics that place the business at a disadvantage against competitors opportunities—external chances to improve performance in the overall business environment threats—external elements in the environment that could cause trouble for the business Identifying SWOTs is essential, as subsequent stages of planning can be derived from the analysis. Decision makers first determine whether an objective is attainable, given the SWOTs. If the objective is not attainable, a different objective must be selected, and then the process can be repeated. Users of SWOT analysis must ask and answer questions that generate meaningful information for each category to maximize the benefits of the evaluation and identify the organization’s competitive advantages. **You can use the following links as well** https://pestleanalysis.com/what-is-pestle-analysis/ https://www.cgma.org/resources/tools/essential-tools/porters-five-forces.html Print Planning Tools Goal Setting Goal setting, similar to management by objectives (MBO) and SMART, is a simple method for strategists to establish and enforce specific goals within the organization or strategic business unit (SBU). Goal setting creates incentives for employees by identifying achievable end results, which drive the direction of the company toward commonly established goals. This theory was developed by Edwin A. Locke in the 1960s. It is considered an “open” theory, which implies that new thoughts and developments may be layered on top of the original goal-setting framework. Management by Objectives MBO is the process of defining, disseminating, and implementing the strategic objectives that an organization has identified. Objectives provide factual and achievable strategies that align with employee and manager goals to ensure that all participants are on the same page. It is also useful to set goals and a timeline to assess progress and ensure that each individual is achieving their part of the plan. SMART Goals The SMART model aims to design goals that are specific, measurable, achievable, realistic, and time-targeted (SMART). The SMART model identifies specific goals, measures inputs and outputs, ensures that the goals are attainable and relevant to the mission of the company, and constructs a timeline. (See table in “Core Requirements of Successful Managers” section, Week 1.) Though there are many other potential tools for strategists, these three provide a strong framework for further development of strategic methodologies. Incorporating concepts such as forecasting and benchmarking within larger corporate strategy frameworks such as SMART goals and MBO will equip strategists with strong short-term and long-term approaches. The Importance of Strategy Strategic management is critical to organizational development as it aligns the mission and vision with operations. Key Points • • • • • Strategic management seeks to coordinate and integrate the activities of the various functional areas of a business in order to achieve long-term organizational objectives. The initial task in strategic management is typically the compilation and dissemination of the vision and the mission statement. This outlines, in essence, the purpose of an organization. Strategies are usually derived by the top executives of the company and presented to the board of directors to ensure they are in line with the expectations of the stakeholders. The implications of the selected strategy matter. They are illustrated through achieving high levels of strategic alignment and consistency relative to both the external and internal environment. All strategic planning deals with at least one of three key questions: What do we do? For whom do we do it? How do we excel? In business strategic planning, the third question refers more to beating or avoiding competition. Key Terms • • board of directors—the group elected by stockholders to establish corporate policies and make managerial decisions mission statement—declaration of the overall goal or purpose of an organization Strategic management is critical to the development and expansion of all organizations. It represents the science of crafting and formulating short-term and long-term initiatives directed at optimally achieving organizational objectives. Strategy is inherently linked to a company’s mission statement and vision—these elements constitute the core concepts that allow a company to execute its goals. The company strategy must constantly be edited and improved to move in conjunction with the demands of the external environment. Strategy and Management As a result of its importance to the business or company, strategy is generally perceived as the highest level of managerial responsibility. Strategies are usually derived by the top executives of the company and presented to the board of directors in order to ensure they are in line with the expectations of company stakeholders. This is particularly true in public companies, where profitability and maximizing shareholder value are the company’s central mission. The implications of the selected strategy are also highly important. These are illustrated through achieving high levels of strategic alignment and consistency relative to both the external and internal environment. In this way, strategy enables the company to maximize internal efficiency while capturing the highest potential of opportunities in the external environment. Key Strategic Questions The initial task in strategic management is to compile and disseminate the organization’s vision and mission statement. These outline, in essence, the purpose of the organization. Additionally, they specify the organization’s scope of activities. Strategic planning is the formal consideration of an organization’s future course, and all strategic planning deals with at least one of three key questions: • • • What do we do? For whom do we do it? How do we excel? In business-related strategic planning, the third question focuses to a large degree on beating the competition. Strategic management is the art, science, and craft of formulating, implementing, and evaluating cross-functional decisions that will enable an organization to achieve its long-term objectives. It involves specifying the organization’s mission, vision, and objectives; developing policies and plans to achieve these objectives; and allocating resources to implement the policies and plans. Strategic management seeks to coordinate and integrate the activities of a company’s functional areas in order to achieve long-term organizational objectives. Product Improvement Strategies This strategy map illustrates an example of how product improvements are designed and implemented. Improvements move from the original plan, to design changes, to production modification, to deployments, to upgrades. Making Strategy Effective Effective strategies must be suitable, feasible, and acceptable to stakeholders. Key Points • • • • • Johnson, Scholes, and Whittington suggest evaluating strategic options based on three key criteria: suitability, feasibility, and acceptability. Suitability refers to the overall rationale of the strategy and its fit with the organization’s mission. Feasibility refers to whether or not the organization has the resources necessary to implement the strategy. Acceptability is concerned with stakeholder expectations and the expected outcomes of implementing the strategy. Will Mulcaster provides an additional 11 strategic forces which may impact the effectiveness of a given strategy. Key Terms • • strategy—plan of action intended to accomplish a specific goal effectiveness—the capability of producing a desired result Effectiveness is the capability to produce a desired result. Strategy is considered effective when short-term and long-term objectives are accomplished and are in line with the mission, vision, and stakeholder expectations. This requires upper management to recognize how each organizational component combines to create a competitive operational process. Suitability, Feasibility, and Acceptability With the above framework in mind, a number of academics have proposed perspectives on strategic effectiveness. Johnson, Scholes, and Whittington suggest evaluating the potential success of a strategy based on three criteria: • • Suitability. One method is through the previously discussed SWOT analysis. A suitable strategy fits the organization’s mission, reflects its capabilities, and captures opportunities in the external environment, while avoiding threats. A suitable strategy should derive competitive advantage(s). Feasibility. One method of analyzing feasibility (whether or not the organization has the capital, people, time, market access, expertise and • other resources required to implement the strategy) is to conduct a break-even analysis. It can identify whether there are sufficient inputs to generate outputs, as well as whether there is enough consumer demand to cover the costs involved. Acceptability. It is important for stakeholders to accept the strategy and its risk, as well as the potential returns. Employees are particularly likely to have concerns about non-financial issues like working conditions and outsourcing. One method of assessing acceptability is through a whatifanalysis, identifying best and worst-case scenarios. Mulcaster’s Managing Forces Framework Mulcaster (2009) argued that while research has been devoted to generating alternative strategies, there has not been enough attention paid to the conditions that influence the effectiveness of strategies and strategic decision making. For instance, in retrospect the financial crisis of 2008 and 2009 could have been avoided if banks had paid more attention to the risky nature of their investments. However, hindsight cannot address how banks should change the ways they make future decisions. Mulcaster’s Managing Forces framework addresses this issue by identifying 11 forces that should be taken into account when making strategic decisions and implementing strategies: • • • • • • • • • • • time opposing forces politics perception holistic effects adding value incentives learning capabilities opportunity cost risk style While this is quite a bit to consider, the key is to be as circumspect as possible when analyzing a given strategy. In many ways it is similar to the potential issues a scientist faces. A scientist must always be objective and conduct experiments without a bias toward a specific outcome. Scientists don’t prove something to be true; they test hypotheses. Similarly, strategists must not create a strategy to get to an end point; they must instead create a series of likely end points based on organizational inputs and operational approaches. Uncertainty is key to allowing strategic improvement for higher efficacy. Example A firm may perform a break-even analysis to determine if a strategy is feasible. The break-even point (BEP) is the point at which expenses and revenue are equal; there is no net loss or gain. For example, imagine that if a business sells fewer than 200 tables each month, it will incur a loss; and if it sells more, it will make a profit. Knowing this, managers could determine if they expected to be able to make and sell 200 tables per month and then implement a strategy consistent with their projections. https://www.business.gov.au/news/how-to-set-goals-and-objectives-for-yourbusiness Week 5 https://learn.umuc.edu/d2l/le/content/347188/viewContent/14273033/View Human Resource Management The mission of human resource management is to coordinate people within an organization to achieve the organization’s goals. Key Points • • • • Human resource management (HRM) views people as organizational assets and internal customers, and works to create both job satisfaction and employee efficiency and effectiveness. HRM concentrates on internal sources of competitive advantage. It regards people as an organization's most important asset. The Department of Human Resources (HR) communicates with employees and adapts the organization's culture and structure to their needs—for example, in negotiating with unions or reengineering processes. HR leads the employment life cycle, from attracting and hiring the right employees to facilitating performance reviews and processing terminations. Key Terms • • human capital—the stock of competencies, knowledge, and social and personality attributes, including creativity, which are embodied in the ability to perform labor so as to produce economic value asset—any component, model, process, or framework of value that can be leveraged or reused Human resource management (HRM) is the coordination of an organization’s people to achieve specific business objectives, fulfill staffing needs, and maintain employee satisfaction. HRM accomplishes this through the use of people, processes, and technology that focus on the internal parts of the organization rather than on the external environment. HRM draws from many diverse fields—such as psychology, business management, process management, information technology, statistical analysis, sociology, and anthropology—to achieve these objectives. General Functions of HRM HRM concentrates on internal sources of competitive advantage, regarding people as the most important asset of the organization. The HRM relationship with people is proactive and seeks to enhance organizational performance. HR professionals emphasize the quantitative, calculative, and strategic aspects of managing human resources systematically by managing communication, motivation, leadership, and relationships. HRM’s general functions are as follows: • • • • • • aligning human resources and business goals reengineering organization processes listening and responding to employees to maintain high job-satisfaction levels managing transformation and change staffing (i.e., hiring and firing) and training understanding and integrating labor laws and ethics HRM at the Organizational Level At the macro level, HR staff is in charge of overseeing organizational leadership and culture. The role of HRM includes ensuring that an organization complies with employment and labor laws, which differ by location. The role also may include overseeing health, safety, and security. In circumstances where employees desire, and/or are legally authorized to hold a collective bargaining agreement, the human resources department typically also serves as the company’s primary liaison with the employees’ representatives (usually a labor union). HR professionals also may engage in advocacy on employment issues— usually through industry representatives—with governmental agencies such as the U.S. Department of Labor and the National Labor Relations Board. HRM and Employees At the individual-employee level, HRM is concerned with the worker’s experience throughout the employment life cycle. This includes recruitment, selection, onboarding, and training. HRM assesses talent through performance appraisal tools, and administers rewards systems. HRM sometimes may include payroll and benefits administration as well, although these activities are now often outsourced. Finally, HRM includes employee termination—including resignations, performance-related dismissals, and layoffs. Human Resource Planning Human resource planning identifies the competencies needed to fulfill an organization’s goals and acquires the appropriate talent. Key Points • • • • The human resource planning process identifies organizational goals and matches them with the competencies employees need to achieve those goals. Human resource planning serves as a link between human resource management and the organization’s strategic plan. A plan is made to either develop competencies from within the organization or hire new people who already have them. The plans and strategies for fulfilling human resource needs are continually evaluated and improved, and the acquired resources are continuously developed. Key Term • competency—the ability to perform a specific task Human resource planning is the process of systematically forecasting worker supply and demand, and deploying skills to meet the strategic objectives of the organization. Human resource planning identifies current and future human resource needs for an organization, based on the goals and objectives set by upper management. This planning responds to the the business’s strategy by ensuring the availability of an adequate number of quality workers. Human resource planning serves as a link between human resource management and the overall strategic plan of an organization. Organizations gain advantage by deploying people strategically according to their plans. The Planning Process The planning processes is loosely about determining what will be accomplished within a given time frame, along with the numbers and types of human resources needed to achieve defined business goals. This is typically accomplished by defining competencies workers need to achieve business goals, matching people with those competencies to the right tasks, and assessing the process for progress and improvement. Thus, human resources professionals need to understand each and every task within the organization, as well as the skills and competencies individuals require so they can carry out those tasks. As appropriate, human resource managers may note experience and competency gaps, and recommend new roles, as well as overseeing recruitment, hiring, and training. Competency Development Competency-based management supports the integration of human resource planning with business planning by allowing organizations to assess current human resource capacity based on employees’ skills and abilities. These skills and abilities are measured according to what is needed to achieve the vision, mission, and business goals of the organization. Targeted human resource strategies, plans, and programs work to address the gaps in the organization’s workforce through • • • • hiring and staffing employee learning and education career development succession management Evaluation and Improvement Strategies and programs for competency development are monitored and evaluated regularly to ensure that they are moving the organization in the desired direction, including closing employee-competency gaps. Corrections are then made as needed to the broader human resource planning process. This makes for a constantly evolving planning process for human resource professionals. Print Defining "Organization": Management's Role Management is tasked with generating an organizational system and integrating operations for high efficiency. Key Points • • • • • Management may be described as the the people who design an organization's structure and determine how different aspects of the organization will interact. Management entails six basic functions: planning, organizing, staffing, leading, controlling, and motivating. Different levels of management will participate in different components of organizational design, with upper management creating the initial architecture and structure. Organizational design is a function based largely on systems thinking: identifying the moving parts that add value to the organization and ensuring that they function together as an effective and efficient whole. Organizational design is less static in modern organizations; therefore, management must actively adapt organizational design to various challenges, opportunities, and technological improvements to maintain competitive output. Key Terms • organization chart—graphic display of reporting relationships, which sometimes specifies position titles and individual’s names • systems thinking—the process of understanding how the parts within a whole influence one another Management and Organizational Design Management can be described as the people who design an organization’s structure and determine how aspects of the organization will interact. When designing an organization, managers must consider characteristics like simplicity, flexibility, reliability, economy, and acceptability. Different levels of management participate in different components of the design process, with upper management creating the initial organizational architecture and structure. Organizational design is based largely on systems thinking. Systems thinking involves identifying the moving parts within an organization that add value and ensuring that these parts function together as an effective and efficient whole. Perspective is essential in systems thinking: A manager’s role in organizational design is to refrain from thinking of departments, individuals, processes, and problems as separate from the system, and instead think of them as indivisible components of the broader organizational process. Modern organizations exist within a framework of globalization and constant technological disruptions. As a result, their organizational design is less static than in the past. Management must actively adapt their organizations to meet the various challenges, opportunities, and technological improvements in ways that will maintain competitive output. Because the organization is always changing, the problems of process and design are essentially limitless. Using a systems approach, managers view their objectives as moving targets and actively engage in expanding the organization day by day. Management Processes Organizations can be viewed as systems in which management creates the architecture for the system of production. The managers’ role in organizational design is central but must be understood in the context of their overall organizational responsibilities. Management operates through functions such as planning, organizing, staffing, leading/directing, controlling/monitoring, and motivation. These functions enable management to create strategies and compile resources to lead operations and monitor outputs. Four Functions of Management Management operates through four main functions: planning, organizing, directing (i.e., leading), and controlling (i.e., monitoring and assessing). Management Hierarchy All levels of management perform the four functions of planning, organizing, directing, and controlling. However, the amount of time a manager spends on each function depends on his or her level and the needs of the organization: • • • Top-level managers. The board of directors, president, vice-president, CEO, and other similar positions are responsible for planning and directing the entire organization. Middle-level managers. General managers, branch managers, and department managers—all of whom are accountable to top-level managers for the functions of their departments—devote more time to organizing and directing. First-level managers. Supervisors, section leads, foremen, and similar positions focus on controlling and directing. As a result of this hierarchy, upper management will view the organizational design from a macro-level and consider all moving parts of the organization. Middle-management will generally focus on operations within functional or geographic areas. Lower-level managers will look at specific processes within functions or regions. From a hierarchical perspective, the higher a manager is in the organization, the broader the view they will take and the greater number of moving parts they will consider. Four Basic Organization Types Most organizations fall into one of four types: pyramid, or hierarchy; committee, or jury; matrix; or ecology. Key Points • • • • • Organizations fall into one of four basic types: pyramid or hierarchy; committee or jury; matrix; or ecology. From a business perspective, choice of organizational design has substantial implications for strategy, authority distribution, resource allocation, and functional approaches. A pyramid or hierarchy has a leader responsible for making all decisions that affect the organization. He or she manages other organizational members. A committee or jury organization consists of groups of peers who decide collectively, sometimes by casting votes, on appropriate courses of action within the organization. A matrix organization assigns workers to more than one reporting line in an attempt to maximize the benefits of both functional and decentralized forms of organization. In an ecology, each business unit represents an individual profit center that holds employees accountable for the unit’s profitability. Key Terms • • common law—a precedent or policy developed by judges through decisions of courts and similar tribunals functional—a structure that consists of activities such as coordination, supervision, and task allocation Basic Organizational Structures An organization is a social entity with collective goals that is linked to an external environment. Most organizational structures fall into one of four types: pyramid or hierarchy; committee or jury; matrix; or ecology. From a business perspective, the choice of organizational design has substantial implications for strategy, authority distribution, resource allocation, and functional approaches. Pyramid or Hierarchy In an organization using a pyramid or hierarchy structure the leader is responsible for all decisions and their ramifications. This leader manages other organizational members. Pyramids and hierarchies often rely on bureaucratic practices, such as clearly defined roles and responsibilities, and rigid command and control structures. Like a physical pyramid, these organizations need a sturdy base with sufficient members to support various levels of management within the overall structure so that the organization does not fall short of its goals. From a business perspective, a hierarchy will often be divided according to function or geography. For example, a global retailer may use a geographic hierarchy at the upper level, with each geographic branch forming a functional hierarchy beneath. A smaller organization operating in a single region may simply have a functional hierarchy. Iraqi Special Security Organization This organizational chart of the Iraqi Special Security Organization illustrates a hierarchy. Note the layers in the organization’s hierarchy: The lowest layer includes individual branches, the next layer involves supervisory directorates that report to the director’s office, which is accountable to the scientific branch. Committee or Jury A committee or jury consists of a group of peers who decide collectively, sometimes by casting votes, on the appropriate course of action within an organization. Committees and juries have a basic distinction: Members of a committee usually perform additional actions after the group reaches a decision, while a jury’s work concludes once the group has reached a decision. In addition to the legal application of juries to render verdicts and determine sentencing, juries are also are often used to determine the results of athletic contests, awards programs, and similar competitions. In the business world, a committee structure is more commonly found in smaller institutions. A start-up company with three people, for example, may easily function as a committee in which decisions are made via discussion. Committees represent a decentralized approach to organizational design and tend to have a collaborative, often unstructured workplace. The more people that are involved, the more disparate and less effective committee structures become. Matrix Matrix organizations assign employees to two reporting lines, each with a boss representing a different hierarchy. One hierarchy is functional and assures that experts in the organization are well-trained and assessed by bosses who are highly qualified in the same areas of expertise. The other hierarchy is executive and works to ensure the experts bring specific projects to completion. Matrix organizations are by far the most complex. They are more common in large corporations. Projects can be organized by product, region, customer type, or other organizational need. The matrix structure combines the best parts of both separate structures. In a matrix organization, teams of employees perform work to take advantage of the strengths and compensate for the weaknesses of both the functional and decentralized forms of organizational structure. Matrix organizations may be further categorized as one of the following types: • • • Weak functional matrix. A project manager with limited authority is assigned to oversee cross-functional aspects of the project. Functional managers maintain control over their resources and project areas. Balanced functional matrix. A project manager is assigned to oversee the project. Power is shared equally between the project manager and functional managers, combining the best aspects of functional and project-oriented organizations. This system is the most difficult to maintain because of difficulties in power-sharing. Strong project matrix. A project manager is primarily responsible for the project. Functional managers provide technical expertise and assign resources as needed. Ecology In an ecology, each business unit represents an individual profit center that holds employees accountable for the unit’s profitability. Ecologies foster intense competition, as all members are paid for the actual work they perform. Ineffective parts of the organization are left to fail and thriving parts are rewarded with more work. Companies that use this organizational structure define roles and responsibilities strictly, and each business unit tends to operate autonomously. In an ecology organization, clearly defined, measurable objectives that reflect the business’s goals are critical. The Organizational Chart An organization chart is a diagram that illustrates the structure of an organization. Key Points • • • Organization charts are a vital tool of management and can be classified into three broad categories: hierarchical, matrix, and flat (or horizontal). Organization charts illustrate the structure of an organization, the relationships and relative ranks of its business units and divisions, and the positions or roles assigned to each one. Managers and other employees should procure copies of the organizational chart, so that they understand how authority is distributed within and who to consult about various concerns. Key Term • decentralized—dispersed rather than concentrated in a single, central location or authority An organization chart is a diagram that illustrates the structure of an organization, the relationships and relative ranks of its business units and divisions, and the positions or roles assigned to each unit or division. Examples of these roles include department managers, subordinates within the departments, directors, and chief executive officers. When an organization chart grows too large, it can be split into smaller charts that show only individual departments within the organization. Prior to applying for a job or beginning work with an organization, a prospective employee should procure a copy of its organization chart. New employees or managers then will know who to consult about particular issues, and will understand the distribution of authority within the company. The chart can also provide insight into the broader company strategy—such as the degree of innovation versus process control, the flexibility of project management, the degree of autonomy, and the broader company culture. Types of Organizational Charts Types of organization charts include hierarchical, matrix, and flat (also known as horizontal). These are described briefly below. Hierarchical A hierarchical organization chart includes several reporting layers. Every entity within the organization—except for the owners—is subordinate, and reports to, a higher-level entity. Matrix A matrix organizational chart displays how people with similar skills are pooled together for work assignments. Matrix Organizational Chart In a matrix structure, the organization is grouped by both product and function. Product lines are managed horizontally and functions are managed vertically. This means that each function—e.g., research, production, sales, and finance—has separate internal divisions for each product. Flat or Horizontal A flat organization chart shows few or no levels of management between staff and managers. A flat chart will simply look like a line of boxes with no overt authority implied. Characteristics of Organizational Structures Important characteristics of an organization’s structure include span of control, departmentalization, centralization, and decentralization. Key Points • • • • • Organizational structures provide basic frameworks to help operations function smoothly. Span of control refers to the number of subordinates a supervisor has. It is a means of ensuring proper coordination and a sense of accountability among employees. Departmentalization is the way an organization groups tasks together. There are five common approaches: functional, divisional, matrix, team, and network. Centralization, which locates decision-making authority at the upper levels of an organization, increases consistency in employees’ processes and procedures for performing tasks. Decentralization occurs when decision-making authority is located at lower organizational levels. With decentralized authority, important decisions are made by middle-level and supervisory-level managers, thereby increasing adaptability. Key Term • span of control—the number of subordinates a supervisor has Organizational structures provide basic frameworks to help operations proceed smoothly and functionally. Types of organizational structures include functional, divisional, matrix, team, network, and horizontal structures. Each of these structures provides different degrees of four common organizational elements: span of control, departmentalization, centralization, and decentralization. Span of Control Span of control—or the number of subordinates a supervisor has—is a means to ensure proper coordination and a sense of accountability among employees. It determines the number of levels of management an organization has as well as how many employees a manager can efficiently and effectively manage. In the execution of a task, hierarchical organizations usually have different levels of task processes. Workers at various levels send reports on their progress to the next levels until the work is completed. In the past it was not uncommon to see an average 1:4 span (one manager supervising four employees). With the development of inexpensive information technology in the 1980s, corporate leaders flattened many organizational structures and caused average spans to move closer to 1:10. As technology developed further and eased many middle-managerial tasks (such as collecting, manipulating, and presenting operational information), upper management increased financial savings by hiring fewer middle managers. Departmentalization Departmentalization is the process of grouping individuals into departments and grouping departments into total organizations. Different approaches include • • • • • functional—departmentalization by common skills and work tasks divisional—departmentalization by common product, program, or geographical location matrix—a complex combination of functional and divisional team—departmentalization by teams of people brought together to accomplish specific tasks network—independent departments providing functions for a central core breaker Centralization Centralization occurs when decision-making authority is located in the upper organizational levels. Centralization increases consistency in the processes and procedures that employees use in performing tasks. In this way, it promotes workplace harmony among workers and reduces the cost of production. Centralization is usually helpful when an organization is in crisis or faces the risk of failure. Centralization allows for rapid, department-wide decision-making; there is also less duplication of work because fewer employees perform the same task. However, it can limit flexibility and natural synergies. Autonomy in decisionmaking is reserved for only a small number of individuals within the workforce, potentially limiting creativity. Centralization vs. Decentralization Notice how the centralized organization is one asterisk with many spokes, whereas the decentralized organization is made up of many interconnected asterisks. Decentralization Decentralization occurs when decision-making authority is dispersed among the lower organizational levels. With decentralized authority, important decisions are made by middle- and supervisory-level managers. With fewer hierarchical layers to navigate, this kind of structure helps to enable adaptability, quick reactions to lower-level issues, and more empowered employees. However, making organization-wide changes that are implemented homogeneously can become quite difficult in this system Factors to Consider in Organizational Design Considerations of the external environment—including uncertainty, competition, and resources—are key in determining organizational design. Key Points • • • • Organizational design is dictated by a variety of factors, including the size of the company, the diversity of the organization's operations, and the environment in which it operates. According to several theories, considerations of the external environment are a key aspect of organizational design. These considerations include how organizations cope with conditions of uncertainty, procure external resources, and compete with other organizations. A company in a highly uncertain environment must prioritize adaptability over a more rigid and functional strategy. In contrast, a company in a mature market with limited variability and uncertainty should pursue more structure. A company with a low-cost strategy relative to its competition may benefit from a more simplistic and fixed structural approach to operations, while a company pursuing differentiation must prioritize flexibility and a more diversified structure. Key Terms • • strategy—a plan of action intended to accomplish a specific goal differentiation—a strategy focused on creating a unique product for a population Overview Organizational design is dictated by a variety of factors, including company size, diversity of the organization’s operations, and the operating environment. Considerations of the external environment are a key aspect of organizational design. The operating environment of an organization can be approached from a number of different angles, each of which generates different structural and design strategies to remain competitive. Complexity Complexity theory postulates that organizations must adapt to uncertainty in their environments. This theory views organizations as collections of strategies and structures that interact to achieve the highest efficiency within a given environment. Therefore, companies in a highly uncertain environment must prioritize adaptability over a more rigid and functional strategy. Alternatively, a fixed and specific approach to organizational design will capture more value in a mature market, where variability and uncertainty are limited. Resource Dependence Another perspective on organizational design is resource dependence theory— the study of how external resources affect the behavior of the organization. Procuring external resources is important in both the strategic and tactical management of any company. Resource-dependence theory explores the implications regarding the optimal divisional structure of organizations, recruitment of board members and employees, production strategies, contract structure, external organizational links, and many other aspects of organizational strategy. Competition Another environmental factor that shapes organization design is competition. Higher levels of competition require different organizational structures to offset competitors’ advantages while emphasizing the company’s own strengths. A company that demonstrates stronger differentiation compared to its competition benefits from implementing a divisional or matrix strategy that enables management of a wide variety of demographic-specific products or services. Alternatively, a company that demonstrates a low-cost strength (producing products cheaper than the competition) benefits from a structural or bureaucratic strategy to streamline operations. Identifying External Factors In considering organizational design relative to the environment, managers may find it helpful to employ two specific frameworks to identify external factors, and internal strengths and weaknesses: • • SWOT analysis. A company’s strengths and weaknesses are assessed in the context of the opportunities and threats in the business environment. A SWOT analysis enables a company to identify the ideal structure to maximize its internal strengths while capturing external opportunities and avoiding threats. Porter’s five-forces analysis. This analysis identifies factors in the industry’s competitive environment that may substantially influence a company’s strategic design. The five forces include: (1) power of buyers, (2) power of suppliers, (3) rivalry (competition), (4) substitutes, and (5) barriers to entry (how difficult it is for new firms to enter the industry). Understanding these forces gives the company an idea of how adaptable or fixed the organizational structure should be to capture value. Porter’s Five Forces The five environmental factors that can influence a company’s strategic design: power of buyers, power of suppliers, competition, substitutes, and barriers to entry Smaller, more agile companies tend to thrive better in uncertain or constantly changing markets, while larger, more structured companies function best in consistent, predictable environments. Understanding organizational design tools and frameworks alongside the varying external forces that act upon a business will allow companies to make strategic decisions to optimize their competitive strength. Considering Company Size The size and operational scale of a company are important to consider when identifying the ideal organization structure. Key Points • • • • • Company size plays a substantial role in determining the ideal structure of the company: the larger the company, the greater its need for complexity and divisions to achieve synergy. Companies may adopt any of six organizational structures based on company size and diversity in scope of operations: (1) pre-bureaucratic, (2) bureaucratic, (3) post-bureaucratic, (4) functional, (5) divisional, and (6) matrix. Smaller companies function best with pre-bureaucratic or postbureaucratic structures. Pre-bureaucratic structures are inherently adaptable and flexible. Therefore, they are particularly effective for small companies aspiring to expand. Larger companies usually achieve higher efficiency through functional, bureaucratic, divisional, and matrix structures (depending on the scale, scope, and complexity of operations). Understanding the pros and cons of each structure will help companies to plan their organization design and structure in a way that optimizes resources and allows for growth. Key Terms • • • economies of scale—processes in which an increase in quantity will result in a decrease in average cost of production (per unit) homogeneous—having a uniform makeup; having the same composition throughout economies of scope—strategies of incorporating a wider variety of products or services to capture value through the ways they interact or overlap Company Size and Organizational Structure Organizational design can be defined narrowly as the strategic process of shaping the organization’s structure and roles to create or optimize competitive capabilities in a given market. This definition underscores why it is important for companies to identify the factors of the organization that determine its ideal structure—specifically, the size, scope, and operational initiatives of the company. Company size plays a particularly important role in determining an organization’s ideal structure: the larger the company, the greater the need for increased complexity and divisions to achieve synergy. The organizational structure should be designed to optimize efficiency and maximize output. Larger companies with a wider range of operational initiatives require careful structural considerations to achieve optimization. Types of Organizational Structure Companies may adopt one of six organizational structures based upon company size and diversity of their operational scope. Pre-bureaucratic Ideal for smaller companies, the pre-bureaucratic structure deliberately lacks standardized tasks and strategic division of responsibility. Instead, this agile framework aims to leverage employees in any and all roles to optimize competitiveness. Bureaucratic A bureaucratic framework functions well in large corporations with relatively complex operational initiatives. This structure is rigid and mechanical, with strict subordination to ensure consistency across varying business units. Post-bureaucratic This structure is a combination of bureaucratic and pre-bureaucratic, where individual contribution and control are coupled with authority and structure. In this structure, consensus is the driving force behind decision making and authority. Post-bureaucratic structure is better suited to smaller or mediumsized organizations (such as nonprofits or community organizations), where the importance of the decisions made outweighs efficiency. Functional A functional structure focuses on developing highly efficient and specific divisions that perform specialized tasks. This structure works well for large organizations pursuing economies of scale, usually through production of a large quantity of homogeneous goods at the lowest possible cost and highest possible speed. The downside of this structure is that each division is generally autonomous, with limited communication across business functions. Divisional A divisional structure is also a framework best leveraged by larger companies that, instead of economies of scale, are in pursuit of economies of scope. Economies of scope simply means a wide variety of products and services. As a result, different divisions will handle different products or geographic locations/markets. For example, Disney may have one division for TV shows, one for movies, one for theme parks, and one for merchandise. Matrix A matrix structure is used by the largest companies with the highest level of complexity. This structure combines functional and divisional concepts to create a product-specific and division-specific organization. In the Disney example, the theme park division would also contain a functional structure within it (i.e., theme park accounting, theme park sales, theme park customer service, etc.). Strategic Organizational Design Structure becomes more difficult to change as companies evolve. For this reason, understanding which specific structure will function best for a given company environment is an important early step for the management team. Smaller companies function best as pre-bureaucratic or post-bureaucratic; the inherent adaptability and flexibility of the pre-bureaucratic structure is particularly effective for small companies aspiring to expand. Larger companies, on the other hand, achieve higher efficiency through functional, bureaucratic, divisional, and matrix structures (depending on the scale, scope, and complexity of operations). McDonald’s restaurants departmentalize elements of their operation to optimize efficiency. This structure is divisional, meaning each specific company operation is segmented (for example, operations, finance/accounting, marketing, etc.). Considering Technology Technology impacts organizational design and productivity by enhancing the efficiency of communication and resource flow. Key Points • • • • Organizations use technological tools to enhance productivity and to initiate new and more efficient structural designs for the organization. These uses of technology become potential sources of economic value and competitive advantage. An example of an organizational structure emerging from newer technological trends is what some have called the “virtual organization,” which connects a network of organizations via the internet. A network structure is another kind of organizational structure that relies heavily on technology for communication. More traditional organizational structures also benefit greatly from the advance of technology. Managers can communicate and delegate much more effectively through technologies such as email, calendars, online presentations, and other virtual tools. Key Terms • • supply chain—a system of organizations, people, technology, activities, information, and resources involved in moving a product or service from the supplier to the customer network—any interconnected group or system Organizational design can be defined narrowly as the strategic process of shaping an organization’s structure and roles to create or optimize capabilities for competition in a given market. Technology is an important factor to consider in organizational design. Modern organizations can be treated as complex and adaptive systems that include a mix of human and technological interactions. Organizations can use technological tools to enhance productivity and initiate new and more efficient structural designs for the organization, thereby adding potential sources of economic value and competitive advantage. Technology has opened doors to incorporating new and advanced forms of organizational design. This is most notably seen through rapid global communications that are economical, enabling constant contact. Technological Organizational Structures An example of an organizational structure that has emerged from newer technological trends is what some have called the “virtual organization,” which connects a network of organizations via the internet. Over the internet, an organization with a small core can still operate globally as a market leader in its niche. This can dramatically reduce costs and overhead, remove the necessity for an expensive office building, and enable small, dynamic teams to travel and conduct work wherever they are needed. A similar organizational design that relies heavily on technological capabilities is the network structure. While the network structure existed prior to recent technologies (i.e., affordable communications via internet, cell phones, etc.), the existence of complex telecommunications networks and logistics technologies has greatly increased the viability of this structure. Technology and Traditional Structures Technology has affected management in dramatic ways. Managers can communicate and delegate much more effectively through email, online calendars, chat, and other virtual tools. Increases in technology have essentially allowed organizations to scale up their companies through more effective and efficient teams, and to take on more workers. In addition, technology has impacted supply chain management, with the capacity to track, forecast, predict, and refine outbound logistics. This offers advantages from minimizing the costs of warehousing and fuel to mitigating negative environmental impacts. Considering the Organizational Life Cycle The life cycle of an organization is an important consideration for determining its overall design and structure. Key Points • • • From an organizational perspective, the life cycle can refer to various factors such as the age of the organization, the maturation of a particular product or process, or the maturation of the broader industry. In organizational ecology, age dependence refers to examining how an organization’s risk of mortality relates to its age. Daft’s model includes four stages. Enterprise life cycle in enterprise architecture argues for a life cycle concept as an overarching design strategy—a dynamic, iterative process of changing the enterprise over time by incorporating, • maintaining, and disposing of new and existing elements of the enterprise. Companies must understand clearly where they are in their life cycle and what influence it will have on their optimal organizational structure. Key Terms • • • life cycle—the useful life of a product or system; the developmental history of an individual, group or entity assessment—an appraisal or evaluation strategy—a plan of action to accomplish a specific goal Organizational design can be defined narrowly as the strategic process of shaping a structure and roles to create or optimize capabilities for competition in a given market. The life cycle of an organization, industry, or product can be important factors in organizational design. Overview of the Life Cycle From an organizational perspective, life cycle can refer to various factors including the age of the organization, maturation of a particular product or process, or maturation of the broader industry. In organizational ecology, age dependence refers to how an organization’s risk of mortality relates to its age. Generally speaking, organizations go through the following stages: 1. 2. 3. 4. 5. Birth Growth Maturity Decline Death The Enterprise Life Cycle The enterprise life cycle is a model for how organizations remain relevant. It is the dynamic, iterative process of changing an enterprise over time by incorporating new business processes, technologies, and capabilities, as well as maintaining, using, and disposing of existing elements of the enterprise. Daft’s Four Stages Daft (2009) theorized four stages of the organizational life cycle, each with critical transitions: 1. Entrepreneurial stage → Crisis: Need for leadership 2. Collectivity stage → Crisis: Need for delegation 3. Formalization stage → Crisis: Too much red tape 4. Elaboration stage → Crisis: Need for revitalization The life cycle of an organization is important to consider when making decisions about the organization’s structure and design. Daft’s model underlines critical problems within each stage of an organization’s life cycle that can often be solved through intelligent structural design. Daft first notes that the entrepreneurial (or startup) stage of an organization requires leadership. In this situation, decision-making must be enabled and bureaucracy should be minimized. This lends itself well to pre-bureaucratic structures in which everyone involved is empowered to take the reins and employ their creativity and innovation. In the collectivity stage, momentum has been created and expansion is required. This is where functional or divisional strategies may begin to emerge, enabling managers to build teams and delegate tasks. Companies continue to expand in the formalization stage, requiring increased bureaucracy and more levels of authority to approve a given decision. In this stage they grow large enough to accommodate functional, divisional, or even matrix structures in order to produce at scale. Organizations in this stage must be careful not to fall too strongly into rigid structures that inhibit or disrupt efficiency, communication, or decision-making. The Enterprise Life Cycle comes strongly into play in the elaboration stage. During this stage the organization must retain its relevance in the industry through reinforcing competitive advantages and/or creating new products to fill changing consumer needs. This requires a great deal of organized creativity and exploration of new markets, which may justify team or divisional structures within the broader organizational structure. Such structures allow small teams to experiment and react quickly as they try new entrepreneurial strategies while the larger organization maintains operative efficiency in established markets. Print Common Organizational Structures Organizations can be structured in various ways. The structure of an organization determines how it operates and performs. Functional Structure An organization with a functional structure is divided based on functional areas, such as IT, finance, or marketing. Key Points • • • A common type of structure used is functional organization. The organization is divided into smaller groups based on specialized functional areas, such as IT, finance, or marketing. Functional departmentalization arguably allows for greater operational efficiency because employees with shared skills and knowledge are grouped together by function. A disadvantage of the functional structure is that groups may not communicate with one another, potentially decreasing flexibility and innovation. A recent trend aimed at mitigating this disadvantage is to use teams that cross traditional departmental lines. Key Terms • • silo—in business, a unit or department in which communication and collaboration occur vertically, with limited cooperation outside the unit departmentalization—organization into groups by function, geographic location, or other factors Overview of the Functional Structure Organizations commonly use a functional structure, which divides people into smaller groups by areas of specialty such as IT, finance, operations, and marketing. Some refer to these functional areas as “silos,” because they are operate vertically and are disconnected from each other. In a functional organizational structure, the company’s top management team typically consists of several functional heads such as the chief financial officer and the chief operating officer. Communication generally occurs within each department and is transmitted across departments through the department heads. Functional Structure at FedEx This organizational chart shows a broad functional structure at FedEx. Each function—such as HR, finance, and marketing—is managed from the top down via functional heads (CFO, CIO, vice presidents, etc.). Advantages of a Functional Structure Functional departments arguably permit greater operational efficiency, because employees with shared skills and knowledge are grouped together. Each group of specialists can therefore operate independently. Management acts as the point of cross-communication between functional areas. This arrangement enables specialization. Disadvantages of a Functional Structure A disadvantage of this structure is the tendency for functional groups to not communicate with one another, potentially decreasing flexibility and innovation. Functional structures may also be susceptible to tunnel vision, with each function perceiving the organization only from its group’s frame of reference. Recent trends to mitigate these disadvantages include using crossdepartmental teams and promoting cross-functional communication. Functional structures appear in a variety of organizations across many industries. They may be most effective within large corporations that produce relatively homogeneous goods. Smaller companies that require more adaptability and creativity may feel confined by the silos that functional structures tend to produce. Divisional Structure A divisional structure groups organizational functions by product or region. Key Points • • • • The divisional structure groups each organizational function into a division that may correspond to either product or geography. Each division contains all resources and functions needed to support the product line or geography (for example, its own finance, IT, and marketing departments). A multidivisional form, or “M-form,” is a legal structure in which a parent company owns subsidiaries, each using the parent company’s brand and name. The divisional structure is useful because failure of one division doesn’t directly threaten the others. In a multidivisional structure, the • subsidiaries benefit from the the brand and capital of the parent company. Disadvantages of a divisional structure can include operational inefficiencies from separating specialized functions. For the multidivisional structure, disadvantages can include increased accounting and taxes. Key Terms • • • parent company—an entity that owns or controls another entity division—a section of a large company subsidiary—a company owned by a parent company or holding company Divisional Structure Overview A divisional organization groups each function into a division. US Department of Energy Organizational Chart DOE divisions are organized under three undersecretaries. Each DOE division has a specific responsibility: nuclear security, science, or energy. Divisional Strategies Divisions typically correspond to either products or geographic regions. Each division contains all the necessary resources and functions to support a particular product line or geography (for example, its own finance, IT, and marketing departments). Product and geographic divisional structures may be characterized as follows: • • Product departmentalization. A divisional structure organized by product departmentalization means that the various activities related to the product or service are under the authority of one manager. If the division builds luxury sedans or SUVs, for example, the SUV division will have its own sales, engineering, and marketing departments distinct from the departments within the luxury sedan division. Geographic departmentalization. Geographic departmentalization involves grouping activities based on geography, such as an Asia/Pacific or Latin America division. Geographic departmentalization is particularly important if tastes and brand responses differ across regions, as it allows for flexibility in product offerings and marketing strategies (an approach known as localization). A common legal structure known as the multidivisional form, “M-form,” also uses the divisional structure. In this form, a parent company owns subsidiary companies, each of which uses its brand and name. The whole organization is ultimately controlled by central management; however, most decisions are left to autonomous divisions. This business structure is typically found in companies that operate worldwide—for example, Virgin Group is the parent company of Virgin Mobile and Virgin Records. Advantages of a Divisional Structure As with all organizational structure types, the divisional structure offers distinct advantages and disadvantages. Generally speaking, divisions work best for companies with wide variance in product offerings or regions of geographic operation. The divisional structure can be useful because it affords the company greater operational flexibility. In addition, the failure of one division does not directly threaten the others. In the multidivisional structure, subsidiaries benefit from the use of the brand and capital of the parent company. Disadvantages of a Divisional Structure Some disadvantages of this structure include operational inefficiencies from separating specialized functions—for example, finance personnel in one division not communicating with those in other divisions. Disadvantages of the multidivisional structure can include increased accounting and tax implications. Matrix Structure The matrix structure is a type of organizational structure in which individuals are grouped via two operational frames. (See matrix organizational chart in the section “Defining Organization: Management’s Role.”) Key Points • • • • The matrix is a type of organizational structure in which individuals are grouped using two different operational perspectives. Matrix structures are inherently complex and versatile, making them more appropriate for large companies operating across different industries or geographic regions. Proponents suggest that matrix management is more dynamic than functional management because it allows team members to share information more readily across task boundaries and allows for specialization. A disadvantage of the matrix structure is the increased complexity in the chain of command, which can lead to a higher manager-to-worker ratio and contribute to conflicting loyalties among employees. Key Term • matrix—two-dimensional array Overview of the Matrix Structure The matrix structure is a type of organizational structure in which individuals are grouped by two different operational perspectives simultaneously. This structure has both advantages and disadvantages but is generally best employed by companies large enough to justify the increased complexity. In matrix management, the organization is grouped by two perspectives the company deems most appropriate. Common organizational perspectives include function and product, function and region, or region and product. In an organization grouped by function and product, for example, each product line will have management that corresponds to each function. If the organization has three functions and three products, the matrix structure will have nine (3 × 3) potential managerial interactions. Thus, matrix structures are inherently more complex than other more linear structures. Advantages of a Matrix Structure Proponents of matrix management suggest that it allows team members to share information more readily across task boundaries, countering the tendency to construct silos within functional management. Matrix structures also allow for specialization that can both increase depth of knowledge and assign individuals according to project needs. Disadvantages of a Matrix Structure A disadvantage of the matrix structure is the increased complexity in chain of command when employees are assigned to both functional and project managers. The higher manager-to-worker ratio that sometimes results can increase costs or lead to conflicting employee loyalties. It can also create a gridlock in decision making if a manager on one end of the matrix disagrees with another manager. Blurred authority in a matrix structure can result in reduced agility in decision making and conflict resolution. A matrix structure should generally only be used when the operational complexity of the organization demands it. A company that operates in various regions with various products may require interaction between product development teams and geographic marketing specialists—suggesting a matrix may be applicable. Generally speaking, larger companies with a need for a great deal of cross-departmental communication benefit most from this model. Team-Based Structure The team structure is a newer, less hierarchical organizational structure in which individuals are grouped into teams. Key Points • • • • The team structure in large organizations is a newer type of organizational structure. A team should be a group of workers, with complementary skills and synergistic efforts, all working toward a common goal. An organization may have several teams that can change over time. Teams that include members from different functions are known as cross- functional teams. Although teams are characterized as less hierarchical, they typically still include a management structure (or management team). Critics argue that the use of the word “team” to describe modern organizational structures is a fad—that some teams are not really teams at all but merely groups of staff. • One aspect of team-based structures likely to persist indefinitely is the integration of team cultures within an broader structure (such as a functional structure with interspersed teams). Key Terms • • synergistic—cooperative, working together, interacting, mutually stimulating hierarchical—classified or arranged according to various criteria into successive ranks or grades Overview of the Team-Based Structure The team structure is considered a newer type for large organizations. It is less hierarchical, less structured, and more fluid than traditional structures like functional or divisional organization. A team is a group of employees—ideally with complementary skills and synergistic efforts—working toward a common goal. Teams are created by grouping employees in a way that generates a variety of expertise and addresses a specific operational component of an organization. These teams can change and adapt to fulfill group and organizational objectives. Some teams endure over time, while others—such as project teams—are disbanded when a project ends. Teams that include members from different functions are known as cross-functional teams. Although teams are described as less hierarchical, they typically still include a management structure. Critics argue that using the word team to describe modern organizational structures is a fad, and that some teams are not really teams at all but rather groups of staff. That said, team-building is now a frequent practice of many organizations and can include activities such as bonding exercises and even overnight retreats to foster team cohesion. To the extent that these exercises are meaningful to employees, they can be effective in improving employee motivation and company productivity. Integration with Other Structures One aspect of team-based structures that will likely persist indefinitely is the integration of team cultures within a broader structure (e.g., a functional structure with teams interspersed). Such integration allows for the authority and organization of a more concrete structure while at the same time capturing the cross-functional and projected-oriented advantages of teams. For example, imagine Procter & Gamble brings together a group of employees from finance, marketing, and research and development—all representing different geographic regions. This newly created team is tasked with creating a laundry detergent that is convenient, economical, and aligned with the company’s manufacturing capabilities. The project team might be allocated a certain number of hours a month to devote to team objectives; however, members of the team would still be expected to continue with their responsibilities within their functional departments. Network Structure In the network structure, managers coordinate and control both internal and external relationships with their firm. Key Points • • • • • The team structure in large organizations is a newer type of organizational structure. A team should be a group of workers, with complementary skills and synergistic efforts, all working toward a common goal. An organization may have several teams that can change over time. Teams that include members from different functions are known as cross- functional teams. Although teams are characterized as less hierarchical, they typically still include a management structure (or management team). Critics argue that the use of the word “team” to describe modern organizational structures is a fad—that some teams are not really teams at all but merely groups of staff. One aspect of team-based structures likely to persist indefinitely is the integration of team cultures within an broader structure (such as a functional structure with interspersed teams). Key Terms • • synergistic—cooperative, working together, interacting, mutually stimulating hierarchical—classified or arranged according to various criteria into successive ranks or grades Overview of the Network Structure An organization can be structured in various ways that determine how it operates and performs. The network structure is a newer type of organizational structure often viewed as less hierarchical (i.e., more flat), more decentralized, and more flexible than other structures. Managers coordinate and control relations that are both internal and external to the firm. The concept underlying the network structure is the social network—a social structure of interactions. At the organizational level, social networks can include intraorganizational or interorganizational ties representing either formal or informal relationships. At the industry level, complex networks may include technological and innovation networks that may span several geographic areas and organizations. From a management perspective, the network structure is unique among the other structures in that it focuses on the internal dynamics within the firm. A network organization sounds complex, but it is a simple concept. Take, for example, a T-shirt design company: Because the company is mainly interested in design, it may not want to get too heavily involved in either manufacturing or retail—both necessary aspects of the business. So, although the company may rent retail space, it may purchase production capabilities from partner organizations with manufacturing facilities. While the core company focuses mainly on designing products and tracking finances, this network of partnerships enables much more than just a design operation. Like other organizational structures, the network structure has its advantages and its disadvantages. Advantages of a Network Structure Proponents argue that the network structure is more agile compared to other structures (such as functional, division, or even some team structures). Silos are minimized and communication flows freely, possibly opening up more opportunities for innovation. Because the network structure is decentralized, it has fewer tiers in its organizational makeup, a wider span of control, and a bottom-up flow of decision making and ideas. Disadvantages of a Network Structure On the other hand, this more fluid structure can lead to more complex relationships in the organization. For example, lines of accountability may be less clear, and reliance on external vendors can be quite high. These potentially unpredictable variables essentially reduce the core company’s control over operational success. Modular Structure In the modular structure, an organization focuses on developing specialized and relatively autonomous strategic business units. Key Points • • • • • The modular structure divides a business into small, tightly knit strategic business units (SBUs) focused on specific elements of the organizational process. Interdependencies between modules tends to be weak; however, flexibility is extremely high. An advantage of the modular structure is that loosely coupled structures enable organizations to be more flexible and restructure more easily. For example, a firm can switch between different providers and thus respond more quickly to different market needs. Increased internalization and more tightly coupled structures can produce better communication and intellectual property gains. As a result, some argue that the modularity of a firm should be limited to the extent the flexibility it affords results in gains. Various degrees of modularity are possible; however, a business must be consistent in the degree of modularity it employs. Key Terms • • disaggregation—division or breaking up into constituent parts, particularly categories which have been lumped together modular—consisting of separate units, especially where each unit performs a specified function and can then be mixed and matched with other units to connect, interact, or exchange resources Overview of the Modular Structure The modular structure divides a business into small, tightly knit strategic business units (SBUs) that focus on specific elements of the organizational process. Interdependence among the units is limited because the focus of many SBUs is more inward than outward, and loyalty within SBUs tends to be very strong. The term modularity is widely used in studies of technological and organizational systems. Product systems are deemed modular when they can be broken down into a number of components that can then be mixed and matched to connect, interact, or exchange resources. Modularization leads to disaggregating the traditional form of hierarchical governance into relatively small, autonomous organizational units, or modules. Modules are not generally interdependent, so the modular organization is extremely flexible. For example, a firm that employs contract manufacturing rather than in-house manufacturing is using an independent organizational component. The organization can switch between different contract manufacturers that perform different functions (and the contract manufacturer can similarly work for different companies). Another modular model, one that is more internally focused, involves various consumer services catering to dramatically different needs or demographics. In health care, for example, the surgery unit may interact with various other hospital departments at different times for different reasons. Advantages of a Modular Structure One advantage of the modular structure is that loosely coupled structures can enable organizations to be more flexible and restructure more easily. For example, a company using a modular structure can respond more quickly to different market needs. An organization can also fill its internal corporate needs by creating a new modular department that operates interdependently with the whole. Disadvantages of a Modular Structure On the other hand, more internalization and more tightly coupled structures can produce better communication and intellectual property gains. As a result, critics of the modular organization argue that a firm’s modularity should be limited to the extent that its flexible nature affords gains. Various degrees of modularity are possible but not necessarily useful if the pros do not outweigh the cons. Managers must carefully consider whether or not a modular structure would be useful, either entirely or partially, for their own organizations. Culture Defining Organizational Culture Organizational culture can be defined as the collective behavior of people within an organization and the meanings behind their actions. LEARNING OBJECTIVES Define culture and it’s conceptual development within the context of organizations and innovation KEY TAKEAWAYS Key Points • Culture is inherently intangible, and a static definition of culture struggles to encapsulate the meaning and implications of its role in an organization. • One way to define culture is simply as the overarching mentality and expectation of behavior within the context of a given group (e.g., an organization, business, country, etc.). • Corporate culture is usually derived from the top down (i.e., upper management sets the tone) and comes in the form of expectation and consistency throughout the organization. • Culture can be manipulated and altered depending on leadership and members. Instilling positive culture that promotes effective employee behavior is a manager’s primary task. • While there are many models for and perspectives on defining culture within an organization, models such as Geert Hofstede’s, Edgar Schein’s and Gerry Johnson’s are useful in properly framing a comprehensive definition. Key Terms • culture: The beliefs, values, behavior, and material objects that constitute a people’s way of life. Culture is inherently intangible, and a static definition of culture struggles to encapsulate the meaning and implications of its role in an organization. One way to define culture is simply as the overarching mentality and expectation of behavior within the context of a given group (e.g., an organization, business, country, etc.). Culture provides a guiding perspective on how individuals within that group should act, and what meaning can be derived from those actions. Expectation, traditions, value, ethics, vision, and mission can all both communicate and reinforce a given group culture. Above all else, culture must be shared internally; otherwise it loses its form. Culture in Business Corporate culture is usually derived from the top down (i.e., upper management sets the tone) and comes in the form of expectation and consistency throughout the organization. All employees and managers must uphold these cultural expectations to generate a working environment that correlates to cultural expectations. The shared assumptions should be implicit in behavior and explicit in the mission, vision and ethics statements of the organization. Consistency between expectation and action is key here. People working at Wikimedia: Even small things, such as the way an office space is set up, can set the tone for organizational culture. Culture and Adaptability Culture can be manipulated and altered, depending on leadership and members. Let’s take the simple example of a car dealership. Selling cars is usually a commission business, where the salesperson is a central success factor. Many car dealerships find that competition is an effective cultural component and embed that into the organization. This is easily accomplished with the right tools. A car dealership owner may hire specifically for competitiveness, making it clear that this is the type of individual they want to hire. The owner can create high variable salary and low fixed salary so that high performers are much more highly prized and rewarded than ineffective salespeople. The owner could give out awards at the end of each quarter to the most successful salesperson. The list could go on and on, but the important consideration here is how strategy and culture can be intertwined to evolve together. Perspectives on Culture Culture is a deeply important element of organizations and societies that is studied extensively in a variety of disciplines. This has generated more definitions of culture and how to go about empirically measuring it than could be touched upon in one overview. However, a few important perspectives for a business manager include: • Hofstede’s Cultural Dimensions Theory – Postulates that cultural differences to be aware of include different perspectives on power distance, masculinity (vs. femininity), individualism (vs. collectivism), avoidance of uncertainty, long-term orientation, and indulgence. • • Schein’s Cognitive Levels of Organizational Culture – Edgar Schein believes that culture can be viewed most simply via artifacts (e.g., facilities, dress code, etc.), more acutely through values (e.g., focus on quality, loyalty or other central values) and most complexly through tacit assumptions (i.e., unspoken rules of behavior and other intangible expectations that are very difficult to observe and measure). Gerry Johnson’s Cultural Web – This includes the elements of culture, which is an important aspect of how we define it. Johnson underlines the paradigm, control system, organizational structure, power structure, symbols, stories, and myths as central determinants of what a given organizational culture stands for. While each of these theories is complex, all together they help create a clearer picture of what exactly culture is and how it applies to managers and organizations. The Impact of Culture on an Organization Culture is a malleable component of an organization that can adapt and evolve through influences to create value. LEARNING OBJECTIVES Identify the central components of an organization or company that result from the influence cultural dispositions KEY TAKEAWAYS Key Points • Culture, particularly in large organizations that have a great deal of momentum, can be difficult to influence or change. • Understanding how to change an organizational culture requires some insight into what creates culture in the first place and how altering those components may impact meaningful cultural development. • Some examples of organizational facets that influence culture are mission and vision statements, control systems, organizational structures, power hierarchies, symbols, routines, and internal stories and myths. • When integrating culture change, it is important to update mission and vision statements, ensure buy-in from upper management, update control systems and power hierarchies, hire people representative of the desired culture (and remove those who are not), and update the corporate ethos. Key Terms • • • paradigm: A system of assumptions, concepts, values, and practices that constitutes a way of viewing reality. joint venture: A cooperative partnership between two individuals or businesses in which profits and risks are shared. inertia: The property of a body that resists any change to its uniform motion; equivalent to its mass. Figuratively, in a person, unwillingness to change. Culture, particularly in large organizations that have a great deal of internal momentum, can be difficult to influence or change. The size of an organization and the strength of its culture are the biggest contributors to cultural inertia. Big and strong organizational cultures will have a powerful tendency to continue moving in the direction they are already moving (momentum). Therefore, managers must understand not only how to create culture, but also how to change it when necessary to ensure a positive, efficient and ethical culture. Cultural Factors Understanding how to change an organizational culture requires some insight into what creates culture in the first place and how altering those components may impact meaningful cultural development. Gerry Johnson’s cultural web offers great clarity about how an organizational culture responds to and reflects influencing factors. These include: • • • • • • • The paradigm: The mission statement, vision, ethics statement, and other overt definitions of culture. Control systems: The processes in place to monitor what is going on, such as an employee handbook. Organizational structures: This comes down to the hierarchy, or who reports to whom and why. Power structures: Similar to the organizational structure above, this pertains to who has the power to make decisions. Symbols: Most organizations have brand images and other symbols which represent what the culture stands for (logos, etc.). Rituals and routines: In the business setting this is simply the way in which group interactions are organized. One example is the weekly staff meeting. Stories and myths: CEOs and other figureheads often have stories or legends associated with them; this generates culture through idolatry. While these are only a few of the elements of culture, they capture a wide variety of components that managers can use to influence and change the general cultural predisposition. Implementing Culture Change Cummings and Worley identify a useful way to frame the stages or steps in integrating broad organizational change through cultural reform in six stages, which correlates well with the factors identified above. These stages include: 1. Ensure clarity in the strategic vision. This means making sure that the mission statement, vision statement and overall strategy work together to create one strong culture statement. The vision in particular must describe the new culture forcefully and persuasively. 2. Ensure buy-in from the top down. This means communicating (and often determining) specific aspects of needed culture change at the upper managerial level. 3. Lead by example. Top management needs to exhibit the kinds of values and behaviors that they want to see in the rest of the company. 4. Identify areas in the organizational structure and control systems which require updates to conform with the new or adapted culture. This includes altering employee handbooks, compensation strategies, hierarchy, decision-making authority and other central components of structure. 5. Follow through on the mandate. Terminating employees who do not conform to the desired culture is difficult. But it allows you to bring in new talent that aligns better with your desired culture. Ensuring proper emphasis on the new culture in training materials is useful in this process. 6. Finally, ensure that the ethical and legal implications of the adapted culture are understood, planned for and in line with corporate ethics. Joint ventures and mergers and acquisitions usually require large cultural changes. When different cultures come together it is wise to expect some degree of culture-clash and differences of opinion. Managers, particularly upper management, must be aware of the implications of cultural change, the facets of organizational culture and the steps involved in altering it. While this model describes a long process that is generally more applicable to large cultural overhauls, the general strategy is useful for managers leading meaningful cultural change at all levels. Types of Organizational Culture While there is no single “type” of organizational culture, some common models provide a useful framework for managers. LEARNING OBJECTIVES Differentiate between varying organizational culture tendencies, specifically within the context of Hofstede’s cultural dimensions theory KEY TAKEAWAYS Key Points • While there are many ways to divide and define culture into “types,” Geert Hofstede, Edgar Schein, and Charles Handy provide three basic theoretical frameworks. • Hofstede postulates six dimensions of culture based on a study conducted at IBM offices in 50 different countries. These include power distance, uncertainty avoidance, individualism (vs. collectivism), masculinity (v.s femininity), long-term orientation, and restraint. • Edgar Schein organizes culture into three types: artifacts (tangible cultural displays), values, and assumptions. • Charles Handy identifies four types of organizational culture: power, role, task, and person. Each type of culture has strong implications on types of organizational structure. Key Terms • • cultural: Of or pertaining to culture. normative: Of, pertaining to, or using a norm or standard. Several methods have been used to classify organizational culture. While there is no single “type” of organizational culture, and cultures can vary widely from one organization to the next, commonalities do exist, and some researchers have developed models to describe different indicators of organizational cultures. We will briefly discuss the details of three influential models on organizational cultures. Hofstede’s Cultural Dimensions While there are several types of cultural and organizational theory models, Hofstede’s cultural dimensions theory is one of the most cited and referenced. Hofstede looked for global differences in culture across 100,000 IBM employees in 50 countries in an effort to determine the defining characteristics of global cultures in the workplace. With the rise of globalization, this is particularly relevant to organizational culture. Through this process, he underlined observations that relate to six different cultural dimensions (originally there were five, but they have been updated in response to further research): • Power distance: Power distance is simply the degree to which an authority figure can exert power and how difficult it is for a subordinate to contradict them. • Uncertainty avoidance: Uncertainty avoidance describes an organization’s comfort level with risk-taking. As risk and return are largely correlative in the business environment, it is particularly important for organizations to instill a consistent level of comfort with taking risks. • Individualism vs. collectivism: This could best be described as the degree to which an organization integrates a group mentality and promotes a strong sense of community (as opposed to independence) within the organization. • Masculinity vs. femininity: This refers to the ways that behavior is characterized as “masculine” or “feminine” within an organization. For example, an aggressive and hyper-competitive culture is likely to be defined as masculine. • Long-Term Orientation: This is the degree to which an organization or culture plans pragmatically for the future or attempts to create short-term gains. How far out is strategy considered, and to what degree are longerterm goal incorporated into company strategy? • Indulgence vs. Restraint: This pertains to the amount (and ease) of spending and fulfillment of needs. For example, a restrained culture may have strict rules and regulations for tapping company resources. Edgar Schein’s Cultural Model Edgar Schein’s model underlines three types of culture within an organization, which, as a simpler model than Hofstede’s, is somewhat more generalized. Schein focuses on artifacts, values, and assumptions: Schein’s model: Diagram of Schein’s organizational behavior model, which depicts the three central components of an organization’s culture: artifacts (visual symbols such as office dress code), values (company goals and standards), and assumptions (implicit, unacknowledged standards or biases). • Artifacts: The simplest perspective on culture is provided by the tangible artifacts that reveal specific cultural predispositions. How desks are situated, how people dress, how offices are decorated, etc., are examples of organizational artifacts. • Values: Values pertain largely to the ethics embedded in an organization. What does the organization stand for? This is usually openly communicated with the public and demonstrated internally by employees. An example might be a non-profit organization trying to mitigate poverty. The values of charity, understanding, empowerment, and empathy would be deeply ingrained within the organization. • Assumptions: The final type of culture, according to Schein, is much more difficult to deduce through observation alone. These are tacit assumptions that infect the way in which communication occurs and individuals behave. They are often unconscious, yet hugely important. In many ways, this correlates with Hofstede’s cultural dimensions. For example, a culture of avoiding risk wherever possible may be an assumption which employees act upon without realizing it, and without receiving any directives to do so. High power distance could be another, where employees intuit that they should show a high degree of deference to their superiors without being specifically told to do so. Charles Handy’s Four Types of Culture Charles Handy put forward a framework of four different types of culture that remains relevant today. His four types include: • Power culture: In this type of culture, there is usually a head honcho who makes rapid decisions and controls the organizational direction. This is most appropriate in smaller organizations, and require a strong sense of deference to the leader. • Role culture: Structure is defined and operations are predictable. Usually this creates a functional structure, where individuals know their job, report to their superiors (who have a similar skill set), and value efficiency and accuracy above all. • Task culture: Teams are formed to solve particular problems. Power is derived from membership in teams that have the expertise to execute a task. Due to the importance of given tasks, and the number of small teams in play, a matrix structure is common. • Person culture: In this type of culture, horizontal structures are most applicable. Each individual is seen as valuable and more important than the organization itself. This can be difficult to sustain, as the organization may suffer due to competing people and priorities. While there are many other ways to divide and define culture, these three offer a good window into the literature surrounding cultural types. Core Culture Core culture is the underlying value that defines organizational identity through observable culture. LEARNING OBJECTIVES Identify the general definition and characteristics of a healthy core culture, alongside how this translates into observable culture. KEY TAKEAWAYS Key Points • Core and observable culture are two facets of the same organizational culture, with core culture being inward-facing and intrinsic and observable culture being more external and tangible (outward-facing). • In essence, core culture defines the values and assumptions of an organization, as described by Edgar Schein’s Model of Organizational Culture. • Core culture is made up of the intangible values and ethos that define an organization’s cultural framework. Observable culture is the external reflection of this cultural perspective. • Management is tasked with both the creation and consistent application of core culture at the organizational level. Key Terms • Core Culture: The underlying value that defines the organization’s identity through observable culture. Core Culture and Observable Culture Core and observable culture are two facets of the same organizational culture, with core culture being inward-facing and intrinsic and observable culture being more external and tangible (outward-facing). Core culture, as the name denotes, is the root of what observable culture will communicate to stakeholders. Core culture is more ideological and strategic, representing concepts such as vision (long-term agenda and values), while observable culture is more of a communications channel (i.e., stories, logos, symbols, branding, mission statement, and office environment). Edgar Schein and Core Culture One useful theoretical framework to consider when differentiating between core and observable culture is Edgar Schein’s Organizational Culture Model. This mode simply and efficiently illustrates the cultural facets of a given organization as an upside-down triangle. Schein’s model of organizational culture: Diagram of Schein’s organizational behavior model, which depicts the three central components of an organization’s culture: artifacts (visual symbols such as office dress code), values (company goals and standards), and assumptions (implicit, unacknowledged standards or biases). The broader base at the top of the inverted pyramid represents artifacts, the simplest and most physical (i.e., observable) elements of a given culture. This includes the way desks are situated in an office (collaborative or individualistic?), the colors and shapes used in the logo, the general dress code, etc. The next level is values, which bridges the gap between observable and core culture. Values are explicitly and observably stated in organizational literature (i.e., the employee handbook and mission statement), but also implicitly executed in individual behaviors. While it is observable when the CEO makes a public statement for shareholders or when the promotional team writes a press release, it is also derived directly from discussions of what the core culture is. This is where observable culture begins to transform into core culture. The final component identified by Schein is parallel with the concept of core culture: assumptions. The assumptions made by the individuals within an organization are so intimately tied to the core organizational culture that they are virtually unrecognizable. In many ways, one could equate core culture with an individual’s subconscious. While our subconscious so often drives our conscious behavior, we rarely realize it. Core culture has the same relationship with observable culture: core culture is created first, and ultimately drives the visible cultural aspects of the organization. Creating Core Culture Organizational culture, both observable and core, is created first at the managerial level. Leaders must define not only what it is they are working towards, but also how the organization will come to define itself during the process. The core culture created by leadership sets the tone for employee behavior and assumptions in the future. Upper management must decide which values and ethos will constitute the core of the organizational culture, and then instill this internally, in their employees, and communicate it externally, to stakeholders (via observable culture). Management is tasked with both the creation and consistent application of core culture at the organizational level. Building Organizational Culture Managers are tasked with both creating and communicating a consistent organizational culture. LEARNING OBJECTIVES Describe strategies used by managers to create and maintain a consistent organizational culture. KEY TAKEAWAYS Key Points • The process of instilling culture into an organization involves communicating and integrating a broad cultural framework throughout the organizational process. • A strong culture is integral to long-term organizational sustainability and success; a primary responsibility of management is to both define and communicate this sense of shared organizational culture. • Organizational culture is often defined by the work environment that management creates (i.e., mission statement, organizational structure, rules, symbols, etc.). • Managers must be careful to instill the culture that is most conducive to both the strategy and objectives of the organization over the long term. Key Terms • • organizational culture: The collective behavior of the people who make up an organization, including values, visions, norms, working language, systems, symbols, beliefs, and habits. culture: The beliefs, values, behavior, and material objects that constitute a people’s way of life. Organizational culture refers to the collective behavior of the people who make up an organization; this includes their values, visions, norms, working language, systems, symbols, beliefs, and habits. Organizational culture affects the way people and groups interact with each other, with clients, and with stakeholders. A strong culture is integral to long-term organizational sustainability and success, and one of management’s primary responsibilities is to both define and communicate this sense of shared culture. The process of ingraining culture into an organization is simply one of communicating and integrating a broad cultural framework throughout the organizational process. Central to this process is ensuring that each and every employee both understands and aligns with the values and direction of the broader organization. This creates a sense of community among employees and ensures that the broader objectives and mission of the organization are clear. While there are a variety of cultural perspectives and many organizational elements within a culture, the initial process of instilling culture is relatively consistent from a managerial perspective. The creation of a given culture is often defined by management’s strategy for addressing the following issues: • The paradigm: Management determines both the mission and vision of the organization and sets a groundwork for the values that employees are expected to align with. Determining these factors and communicating them effectively are absolutely critical to successfully instilling organizational culture. • Control systems: An example of this may be an employee handbook where behavioral expectations are laid out explicitly (where possible) for employees to read and understand. • Organizational structures: The choice of an organizational structure has enormous cultural implications for openness of communication, organization of resources, and flow of information. • Power structures: Power and culture are often intertwined: the degree to which specific individuals are free (or not) to make decisions is indicative of the openness and fluidity of the organization. • Symbols: All strong brands associate with symbols (think logos). These are not randomly selected: symbols show which specific facets of an organizational culture management considers most important. • Rituals and routines: Routines are strong behavior modifiers that significantly impact the culture of a given organization. A looser and more open work environment (limited routines, high individual freedom) may create more innovation while heavily structured routines may create more efficiency and predictability. • Stories and myths: Finally, stories are powerful communicators of culture. Walmart uses Sam Walton’s founding as a powerful myth to promote efficiency and the desire to try new things and integrate various products and services. This is organizationally defining. Cultural change in an organization: The feedback loop of cultural change in an organization involve people’s intentions to enable, engage, encourage, and exemplify the new desired behaviors; this in turn influences the frequency of behaviors. After enough reinforcement, those behaviors become the norm, which self-reinforces through increasing people’s exemplification of those behaviors. Overall, managers must be aware of their role as cultural ambassadors and their responsibility in creating a context for successfully instilling organizational culture. For example, promoting a strong authoritarian hierarchy and strong innovation would be an oversight in the field of organizational culture from a management professional. Managers must be careful to instill the culture that is most conducive to both the strategy and objectives of the organization over the long term. Communicating Organizational Culture Management is tasked with both creating culture and accurately communicating it across the organization. LEARNING OBJECTIVES Recognize the role of management in communicating and teaching organizational culture to employees and subordinates. KEY TAKEAWAYS Key Points • Corporate culture is used to control, coordinate, and integrate company subsidiaries. • The role of the manager is essential to the successful communication of a given organizational culture because managers are figureheads and role models for how individuals in the organization should behave. • Organizations should strive for what is considered a “healthy” organizational culture to increase productivity, growth, efficiency, and to reduce counterproductive behavior and turnover of employees. Key Terms • organization: A group of people or other legal entities with an explicit purpose and written rules. Corporate culture is used to control, coordinate, and integrate company subsidiaries. Culture runs deeper than this definition, however, because culture also represents the embedded values, traditions, beliefs, and behaviors of a given group. Culture is indicative not only of what individuals pursue and believe in, but also their behaviors, assumptions, and communications. As a result, culture is both complex to create and challenging to communicate and imbue within the organization. Communicating Culture The role of the manager is essential to the successful communication of a given organizational culture because managers are figureheads and role models for how individuals in the organization should behave. While it is too simplistic to say that culture is a top-down communicative process, there is relevance to the idea that culture generally begins with the founders of the organization and the values they emphasize in the organizational growth and hiring process. Organization triangle: This organization triangle illustrates the idea that structure, process, and the people involved all contribute to the culture of an organization. Leaders have a number of tools and strategies at their disposal to communicate culture. Some of the most critical of these are structure, hierarchy, mission and vision statements, employee handbooks, hiring processes, and employee training and initiation. With many diverse tools for communicating culture comes the challenge of aligning each perspective for consistency of message: for instance, the employee training program must emphasize the same values as the mission statement and must match the executive mandate for organizational structure and design. Communication is the core tool for managing this cultural integration, enabling executives to remind employees what the organization stands for and why it’s important. Holding company-wide quarterly meetings to emphasize objectives and strategy and sending out emails with key successes and developmental challenges are great ways to keep the conversation going. The Role of HR It is also critical to make the hiring process match and promote the culture by hiring talent that is consistent with cultural expectations and implementing training programs that effectively emphasize what the organization stands for and why. Human resource professionals are tasked with identifying candidates with culturally consistent perspectives and with underlining the importance of cultural considerations in interviews and on-boarding processes. Building a Culture of High Performance A high-performing culture is a results-driven business culture focused on generating efficiency and completing objectives. LEARNING OBJECTIVES Analyze the primary drivers and positive characteristics of a high-performing culture. KEY TAKEAWAYS Key Points • Every business has its own culture. High- performance cultures are specifically focused on setting and accomplishing objectives with a high degree of efficiency and efficacy. • High-performing teams are an integral component of high-performance cultures. • A high-performing team is a group of people with complementary talents and skills. They are given clear roles and are committed to a common purpose. This enables synergy. • Culture is a combination of individual perspectives and the environment in which they operate. Business looking to create a high-performance culture must create an interdependent environment which empowers employee responsibility and decision -making. Key Terms • SMART: Goal-setting criteria: Specific, Measurable, Attainable, Realistic, and Timely. • • performing: The stage of group development when the the team is able to function as a unit, finding ways to get the job done smoothly and effectively without inappropriate conflict or supervision. high-performing team: groups that are highly focused on their goals and that achieve superior business results. Organizations need to be productive in order to achieve their goals. Over time, productivity can become a part of organizational culture, eventually becoming integrated into the company’s operations and processes. The business becomes known for its productivity, and high performance becomes second-nature for its employees. A high-performing culture is defined by a focus on generating and accomplishing objectives. There is a strong sense of both results-orientation and employee interdependence. A High-Performing team An effective way to achieve high-performing culture is to create high-performing teams. A high-performing team is best defined as a group of interdependent employees whose skills and personalities complement one another and lead to above-average operational results. High-performance teams are a central building block of high-performance culture, and they thrive in innovative and empowering environments. Leadership in any team environment is critical to success, but leadership within a high-performance culture is often complex. While leadership is normally static in a hierarchical environment, high-performance teams benefit from shared leadership by utilizing the different talents and perspectives of each team member in the decision-making process. This creates a strong culture of shared leadership which in turn can generate above-average results and highly motivated employees who trust one another. Culture is defined by creating its own consciousness in an organization, indicating shared norms and values. These shared values are central elements of the organization, as they generate buy-in and dedication from employees. These shared values create an expectation of success, both professional and personal, that can create high levels of trust and shared accountability. In short, shared values are key to creating strong team dynamics. There are ten elements in particular that are important to successfully integrating high-performance teams within an organizational culture: 1. Participative leadership – Involve the entire team when making decisions, and rely on specialists only when applicable. 2. Effective decision making – Ensure that decision-making is both strategic and efficient. Group decision-making is often slowed when team dynamics are weak, which requires team-building to fix. 3. Open and clear communication – As always with group dynamics, communication is key to success. Ensure everyone is speaking and listening. 4. Valued diversity – Team synergy is lost when groupthink dominates the discussion. Instill open-mindedness and dispel social fears of disagreeing. 5. Mutual trust – Reliance upon one another, and trust in each other’s skills and capabilities, allows for less duplication of work and more overall synergy. 6. Managing conflict – Conflict is inevitable and not necessarily a bad thing. Deal with it calmly and without personal biases or emotions. Let the best ideas win. 7. Clear goals – SMART objectives are essential to high performance, just as understanding where one is going is essential to finding the best route. 8. Defined roles and responsibilities – Everyone should have a clear understanding of why they are on the team and what they are responsible for. 9. Coordinated relationships – Building strong team dynamics requires team members to understand each other and build strong relationships. Utilize ice-breaking activities and promote casual discussion to get this started. 10. Positive atmosphere – Wherever possible, make sure the general perspective is one of constructive commentary. Maintaining a positive outlook empowers communication and improves team spirit. New York Yankees: A Great Team Benefits of Innovation Innovation may be linked to positive changes in efficiency, productivity, quality, competitiveness, and market share, among other factors. LEARNING OBJECTIVES Identify the organizational benefits derived through enabling internal innovation KEY TAKEAWAYS Key Points • Innovation is the development of customer value through solutions that meet new needs, unarticulated needs, or existing market needs in unique ways. • Innovative employees increase productivity by creating and executing new processes which in turn may increase competitive advantage and provide meaningful differentiation. • Managers who promote an innovative environment can see value through increased employee motivation, creativity, and autonomy; stronger teams; and strategic recommendations from the bottom up. • Clarity about and understanding of roles, increased responsibilities, strategic partnerships, senior management support, organizational restructuring, and investment in human resources can all enrich organizational culture and innovation. Key Terms • • • efficiency: The extent to which a resource, such as electricity, is used for the intended purpose; the ratio of useful work to energy expended. productivity: The rate at which goods or services are produced by a standard population of workers. innovation: A change in customs; something new and contrary to established customs, manners, or rites. Defining Innovation Innovation is the development of customer value through solutions that meet new, undefined, or existing market needs in unique ways. Solutions may include new or more effective products, processes, services, technologies, or ideas that are more readily available to markets, governments, and society. Innovation is easily confused with words like invention or improvement. They are, however, different terms. Innovation refers to coming up with a better idea or method, or integrating a new approach within a contextual model, while invention is more statically about creating something new. Innovation refers to to finding new ways to do things, while improvement is about doing the same thing more effectively. Organizational Benefits of Innovation From an organizational perspective, managers encourage innovation because of the value it can capture. Innovative employees increase productivity through by creating and executing new processes, which in turn may increase competitive advantage and provide meaningful differentiation. Innovative organizations are inherently more adaptable to the external environment; this allows them to react faster and more effectively to avoid risk and capture opportunities. From a managerial perspective, innovative employees tend to be more motivated and involved in the organization. Empowering employees to innovate and improve their work processes provides a sense of autonomy that boosts job satisfaction. From a broader perspective, empowering employees to engage in broader organization-wide innovation creates a strong sense of teamwork and community and ensures that employees are actively aware of and invested in organizational objectives and strategy. Managers who promote an innovative environment can see value through increased employee motivation, creativity, and autonomy; stronger teams; and strategic recommendations from the bottom up. Managers can accomplish this through providing top-down support to employees, providing clear roles and responsibilities while allowing individuals the freedom to pursue these as they see fit. Supporting the HR and IT departments so that they can provide training and tools for higher employee efficiency can contribute substantially to a culture of internal innovation. This requires open-minded and motivational leaders in managerial positions who are capable of steering employee efforts without diminishing employee creativity. Characteristics of Innovative Organizations According to recent research, companies that make a commitment to innovation are exceptional performers in their respective industries. LEARNING OBJECTIVES Outline the critical success factors and characteristics of an adaptable and innovative organizational culture KEY TAKEAWAYS Key Points • Being receptive to new business ideas means being receptive to the idea that mistakes are a necessary part of the process. • Everyone in the business needs to keep an open mind and develop the capacity to look at things with fresh eyes. • It is likely that some successful innovations will result from chance discoveries. • Managers must understand that employees too mired in routine work and too criticized for trying new methods will inherently fail to create innovations that may drive organizational growth. Key Terms • innovation: A change in customs; something new and contrary to established customs, manners, or rites. Many business experts argue that companies that make a substantial commitment to innovation and entrench it deeply throughout their culture will perform exceptionally well. But how can innovation be facilitated within the organizational framework? The following are some examples of characteristics that lead to successful innovation. Accept Mistakes as Part of the Process A Minnesota Mining & Manufacturing researcher was looking for ways to improve the adhesives used in 3M tapes that he discovered an adhesive that formed itself into tiny spheres. At first, it seemed as though his work was a failure. However, the new adhesive was later used on Post-it notes—a great innovation and business success for the company. Being receptive to new business ideas means being receptive to mistakes as a necessary, and sometimes even crucial, part of the process. Keep an Open Mind and Think Laterally Possibilities for innovation exist everywhere. To realize them, everyone in the business needs to keep an open mind and develop the capacity to look at things with fresh eyes. The classic example of a company that completely transformed itself as a result of lateral thinking is the Finnish company Nokia, whose original core business was wood pulp and logging. When the collapse of communism opened the Russian market to the west, Nokia’s core business was seriously threatened by cheaper imports from Russia’s seemingly limitless forests. In the deep recession of the early 1990s, Nokia’s management concluded that the only real competitive advantage they retained was a very efficient communications system developed in the 1970s that helped them keep in touch with their remote logging operations. That single realization transformed the company into one of the world’s most successful vendors of communications equipment. Nokia cell phone: Nokia successfully transformed itself from a logging company to an electronic-communications company through innovation. Managerial Implications As is usually the case, these principles are easier said than done. Managers must carefully consider what type of work environment they project for their subordinates. Managers must understand that employees too mired in routine work and who are criticized for trying new methods will inherently fail to create innovations that may drive organizational growth. There is therefore a balancing act between enabling employees to try new things and take risks vs. ensuring that tasks are completed on time with reasonable success. Types of Innovation There are three main modes of innovation: entrepreneurial value-based, technology-based, and strategic-reflexive. LEARNING OBJECTIVES Outline a categorical overview of the potential ways in which innovation can be pursued and identified. KEY TAKEAWAYS Key Points • The entrepreneurial method of innovation is one in which change is initiated by an individual’s actions and drive to create a business venture of adaptation. • Technology-based functional innovation occurs when the development of new technology drives innovation. • The strategic -reflexive mode describes innovation that springs from individuals’ interactions with their organization ‘s common values and goals. • Other types of innovation include: incremental, architectural, generational, manufacturing, financial, and cumulative. Key Terms • innovation: A change in customs; something new and contrary to established customs, manners, or rites. In business and economics, innovation is the catalyst to growth. Fuglsang and Sundbo (2005) suggest that there are three modes of innovation. The first is an entrepreneurial value-based method where change is initiated by an individual’s actions. The second is a technology-based functional mode in which the development of new technology drives innovation. The third is a strategicreflexive mode in which innovation results from individual’s interactions with their organization’s set of common values and goals. The following graphic provides an example of the innovation process. Innovation process: Innovation involves continuous improvement throughout phases of a development program. Phases can be iterative and recursive (meaning that they do not proceed linearly from one to the next; rather, earlier phases can be returned to for further improvement as needed). Such phases include market analysis and consumer research, which progress to design and prototyping, after which follow naming and packaging design and ultimately retail and production support. Entrepreneurial Innovation The innovation dimension of entrepreneurship refers to the pursuit of creative or novel solutions to challenges confronting a firm. These challenges can include developing new products and services or new administrative techniques and technologies for performing organizational functions (e.g., production, marketing, and sales and distribution). Technological Innovation Technological innovation takes place when companies try to gain a competitive advantage either by reducing costs or by introducing a new technology. Technological innovation has been a hot topic in recent years, particularly when coupled with the concept of disruptive innovation. Disruptive innovation is usually a technological advancement that renders previous products/services (or even entire industries) irrelevant. For example, the smartphone disrupted landlines, Netflix made Blockbuster obsolete, and mp3s have marginalized CD players. Strategic Innovation The strategic-reflexive mode of innovation is the most effective mode for change and innovation. While technological innovation is clear and easy to define, strategic innovation is inherently intangible and organizational in nature. Strategic innovation pertains to processes: how things are done as opposed to what the end product is. Strategic changes can be disruptive but are more often incremental. Incremental innovation is the idea that small changes, when effected in large volume, can rapidly transform the broader organization. Walmart’s “Hub and Spoke” distribution model is a classic example of strategic innovation. Walmart succeeded thanks to process efficiency enabled via innovative operational paradigms and distribution strategies. By utilizing a maximum efficiency warehousing and distribution model, refined over and over again incrementally for improvement, Walmart has sustained a competitive advantage for decades. Other Applications of Innovation • Generational innovation involves changes in subsystems linked together with existing linking mechanisms. • Architectural innovation involves changes in linkages between existing subsystems. • Incremental innovations improve price/performance advancement at a rate consistent with the existing technical trajectory. Radical innovations advance the price/performance frontier by much more than the existing rate of progress. • Manufacturing process innovation refers to all the activities required to invent and implement a new manufacturing process. • Cumulative innovation is any instance of something new being created from more than one source. Remixing music is a direct example of cumulative innovation. • Financial innovation has brought many new financial instruments with payoffs or values depending on the prices of stocks. Examples include exchange-traded funds (ETFs) and equity swaps. Speed of Innovation Companies compete to adapt their products and services to incorporate new innovations first. LEARNING OBJECTIVES Recognize the challenge inherent in adopting new ideas and the subsequent considerations pertaining to the speed of pursuing them. KEY TAKEAWAYS Key Points • Speed of innovation can pose a major challenge for organizations responding to external change. • Profits depend on speed of innovation and the ability to attract customers. Big corporations used to dominate, but now industry leaders are often small, highly flexible groups that come up with great ideas, build trustworthy branding for themselves and their products, and market them effectively. • A first-mover in a given innovation captures the obvious advantage of tapping into a new market before the competition. This can also allow the first-mover to capture the new technology for its own brand. • First-movers encounter high fiscal risks in integrating a new product or services into their distribution, and failure often means sunk costs. Latecomers to the game can simply observe the success or failure of other competitors and make a more informed (and less risky) decision. Key Terms • • innovation: A change in customs; something new and contrary to established customs, manners, or rites. Cannibalization: The reduction of sales or market share for one of your own products by introducing another. The best ideas should implemented as quickly as possible—not just by the idea generator but also by others who have a different viewpoint. It is imperative that the idea is honed and refined while it is still fresh. For example, an idea for a new product might start out as a crude model built from polystyrene, foam, or cardboard that will evolve quickly into a more professional prototype. Product Innovation Approach: Innovation involves continuous improvement throughout phases of a development program. Phases can be iterative and recursive (meaning that they do not proceed linearly from one to the next; rather, earlier phases can be returned to for further improvement as needed). Such phases include market analysis and consumer research, which progress to design and prototyping, after which follow naming and packaging design and ultimately retail and production support. Robert Reich observes that profits in the old economy came from economies of scale, i.e., long runs of almost identical products. Thus we had factories, assembly lines, and industries. Today, profits come from speed of innovation and the ability to attract and keep customers. Therefore, while the big winners in the old economy were big corporations, today’s big winners are often small, highly flexible groups that devise great ideas, develop trustworthy branding for themselves and their products, and market these effectively. The winning competitors are those who are first at providing lower prices and higher value through intermediaries of trustworthy brands. To keep the lead, however, these companies have to keep innovating lest they fall behind the competition. The Benefit of Moving First Speed of innovation poses a major challenge for organizations responding to external change. A high rate of change can be seen in the shortening of product life cycles, increased technological change, increased speed of innovation, and increased speed of diffusion of innovations. These are key challenges for organizations, as the profit generation of new ideas must fit into a slimmer chronological window—thus underlining the great value of being a first-mover. A first-mover in a given innovation captures the obvious advantage of tapping into a new market before its competitors. This also sometimes allows the firstmover to identify its brand with the new technology (i.e., saying “Google it” as shorthand for online search or calling any and all mp3 players an iPod). These branding hurdles must be tackled by any competitor following in the footsteps of the first-mover. However, speed is not everything. First-movers encounter serious disadvantages, the most notable of which are freeloaders. First-movers also encounter high fiscal risks in integrating a new product or services into their distribution, and failure often means sunk costs. Latecomers to the game can simply observe the success or failure of other competitors and make more informed (and less risky) decisions about entering the market segment. Similarly, first movers must carefully consider cannibalization—where their new innovative products steal sales from their older products still on store shelves. Speedy innovation and moving first requires great foresight, planning, and managerial skill to execute effectively to minimize risks. Sustainability Innovation Sustainability innovation combines sustainability (endurance through renewal, maintenance, and sustenance) with innovation. LEARNING OBJECTIVES Describe how organizational culture adds value by generating an innovative approach to sustainability issues KEY TAKEAWAYS Key Points • Sustainopreneurship describes using creative organizing to solve problems related to sustainability to in turn create social and environmental sustainability as a strategic objective and purpose. • Solving sustainability-related problems is the be-all and end-all of sustainability entrepreneurship. • Passively heated houses, solar cells, organic food, fair trade products, hybrid cars, and car sharing are all examples of sustainability innovations. Key Terms • • sustainability: Configuring human activity so that societies are able to meet current needs while preserving biodiversity and natural ecosystems for future generations. innovation: A change in customs; something new and contrary to established customs, manners, or rites. Sustainability is the capacity to endure through renewal, maintenance, and sustenance (or nourishment), which is different than durability (the capacity to endure through resistance to change). Innovation is the creation of new value through the use of solutions that meet new, previously unknown, or existing needs in new ways. Innovation should be pursued with sustainability in mind as a critical strategic objective, as the integration of new business ideas with the broader community and environment is central to long-term success. Sustainability Entrepreneurship “Sustainopreneurship” describes using creative business organizing to solve problems related to sustainability to create social and environmental sustainability as a strategic objective and purpose, while at the same time respecting the boundaries set in order to maintain the life support systems of the process. In other words, it is “business with a cause,” where the world’s problems are turned into business opportunities for deploying sustainability innovations. Sustainopreneurship is entrepreneurship and innovation for sustainability. This definition is highlighted by three distinguishing dimensions. The first is oriented towards “why” – a company’s purpose and motive in adopting sustainable entrepreneurship. The second and third reflect two dimensions of “how” the process is carried out. • Entrepreneurship consciously sets out to find or create innovations to solve sustainability-related problems. • Entrepreneurship moves solutions to market through creative organizing. • Entrepreneurship adds sustainability value while respecting life support systems. Solving sustainability-related problems from the organizational frame is the be-all and end-all of sustainability entrepreneurship. This means that all three dimensions are simultaneously present in the process. An example to provide context: Interface Global produces modular carpeting. Sustainability is the core operating mission and vision of the broader organization. Through greening their supply chain, minimizing water use, cutting electric costs, reducing fuel costs through better distribution, and a number of other innovative process improvements, Interface Global produces high quality carpets at a lower cost and smaller environmental footprint. The company created a sustainable business strategy through innovative thinking. Social Innovation Social innovation refers to new strategies, concepts, ideas, and organizations that meet societal needs of all kinds. LEARNING OBJECTIVES Define social innovation and the potential positive outcomes of employing it within an organizational culture KEY TAKEAWAYS Key Points • Social innovation can refer to social processes of innovation, such as open source methods and techniques. • Social innovation can also refer to innovations that have a social purpose, like microcredit or distance learning, and can be related to social entrepreneurship. • Social innovation can take place within the government sector, the for-profit sector, the nonprofit sector (also known as the third sector), or in the spaces between them. Key Terms • • • social: Of or relating to society. innovation: A change in customs; something new and contrary to established customs, manners, or rites. social capital: The value created by interpersonal relationships with expected returns in the marketplace. Social innovation refers to new strategies, concepts, ideas, and organizations that extend and strengthen civil society or meet societal needs of all kinds—from working conditions and education to community development and health. Organizations, both for for-profit and nonprofit, benefit enormously from incorporating social innovation into their operations. Giving back to to the community and empowering the individuals you work with and sell to (i.e., stakeholders) improves employee morale, grows wealth for potential customers, builds a strong brand, and underlines social responsibility and high ethical standards as central to the organizational character. Example of a social innovation program: A health camp conducted for villagers as part of the Social Innovation Program at SOIL, in partnership with the Max India Foundation. The term “social innovation” has overlapping meanings. Sometimes it refers to social processes of innovation like open-source methods and techniques. Other times it refers to innovations that have a social purpose, like microcredit or distance learning. The concept can also be related to social entrepreneurship (entrepreneurship is not necessarily innovative, but it can be a means of innovation). On occasion, it also overlaps with innovation in public policy and governance. Social innovation can take place within the government sector, the for-profit sector, the nonprofit sector (also known as the third sector), or in the spaces between them. Research has focused on the types of platforms needed to facilitate such cross-sector collaborative social innovation. The Process of Social Innovation Social innovation is often an effort of mental creativity that involves fluency and flexibility across a wide range of disciplines. The act of social innovation in a sector encompasses diverse disciplines within society. The social innovation theory of “connected difference” emphasizes three key dimensions of social innovation: 1. First, it usually produces new combinations or hybrids of existing elements, rather than wholly new. 2. Second, it cuts across organizational or disciplinary boundaries. 3. Last, it creates compelling new relationships between previously separate individuals and groups. Social innovation is currently gaining visibility within academia. Examples of Social Innovation There are many examples of social innovation making a meaningful difference across the globe—from huge organizations like the Bill and Melinda Gates Foundation funding multinational initiatives to small groups of community leaders collecting money to help buy new high school textbooks. Some specific examples include: • The University of Chicago sought to develop social innovations that would address and ameliorate the immense problems caused by poverty in a largely immigrant city around the turn of the 20th century. • Prominent social innovators include Bangladeshi Muhammad Yunus, the founder of Grameen Bank, who pioneered the concept of microcredit for supporting innovators in multiple developing countries in Asia, Africa, and Latin America. • Stephen Goldsmith, former Indianapolis mayor, engaged the private sector in providing many city services. Commercializing Innovative Products Commercialization is the process or cycle of introducing a new product or production method into the market. LEARNING OBJECTIVES Examine the three key aspects of the commercialization process and outline the four key questions that must be answered prior to the commercialization of a new and innovative product KEY TAKEAWAYS Key Points • The actual launch of a new product is the final stage of new product development. This is when the most money is spent for advertising, sales promotion, and other marketing efforts. • It is important to emphasize that the commercialization strategy and feasibility should have been considered and approved long before the actual execution of commercialization – as the time, efforts and development costs have already largely been incurred. • Organizations must consider who they are selling to and where they are selling when determining the most effective process for commercialization. • The primary target consumer group includes innovators, early adopters, heavy users, and opinion leaders. Their buy-in will ensure adoption by other consumers in the marketplace during the product growth period. Key Terms • • commercialization: The act of positioning a product to make a profit. early adopter: A person who begins using a product or service at or around the time it becomes available. Commercialization is often confused with sales, marketing, or business development. In the context of innovation, commercialization is the process of introducing a new product or service to the public market. Innovations are defined as new products or services that improve upon their predecessors, and the process of integrating them into the current market is a critical component of successfully bringing them to market. Great innovations are not always brought to market due to a lack of feasibility or poor planning. Long-term planning is crucial in the commercialization process because this is when the most money will be spent—on advertising, sales promotions, and other marketing efforts after the launch of a new product. Product innovation approach: Innovation involves continuous improvement throughout phases of a development program. Phases can be iterative and recursive (meaning that they do not proceed linearly from one to the next; rather, earlier phases can be returned to for further improvement as needed). Such phases include market analysis and consumer research, which progress to design and prototyping, after which follow naming and packaging design and ultimately retail and production support. The Commercialization Process The commercialization process has three key aspects: • Carefully select, based upon comprehensive market research, which products can be sustained financially in which markets for long-term success. • Planning for various phases and/or stages in the commercialization process is key. Consider geographic distribution, different demographics, etc. • Finally, identify and involve key stakeholders early, including consumers. Key Strategic Questions When bringing a product to market, a number of key strategic questions need to be answered satisfactorily long before substantial costs are incurred for commercialization. These questions are simple to ask but complex to answer, and business analysts and market researchers will spend a considerable amount of time approaching them via research models and careful financial consideration. • • • • When: The company has to time introducing the product perfectly. If there is a risk of cannibalizing the sales of the company’s other products, if the product could benefit from further development, or if the economy is forecasted to improve in the near future, the product’s launch should be delayed. Similarly, many items are seasonal (e.g., fashion) and so should be timed appropriately to maximize revenue. Where: The company has to decide where to launch its products. This can be in a single location, in one or several larger regions, or in a national or international market. This decision will be strongly influenced by the company’s resources; larger companies can reach broader geographic audiences. It is important to keep in mind where the early adopters will be and where competitive gaps may exist. In the global marketplace, this question is increasingly complex. To whom: The primary target consumer group will have been identified earlier through research and test marketing. This primary consumer group will include innovators, early adopters, heavy users, and opinion leaders. Their buy-in will ensure adoption by other consumers in the marketplace during the product growth period. How: The company has to decide on an action plan for introducing the product by implementing these decisions. It has to develop a viable marketing mix and create a respective marketing budget. While these questions are key considerations in the commercialization process, remember that they should have been answered long before the commercialization stage. After all, if the need is not sufficiently widespread or the market not sufficiently developed, there is little reason to have pursued a given innovation in the first place. Fostering Innovation Offering employees challenges, freedom, resources, encouragement, and support can help them to innovate. LEARNING OBJECTIVES Outline how to encourage creativity, participation and innovation through effective management KEY TAKEAWAYS Key Points • People perform best when they are driven by inspiration and are encouraged to push their boundaries and think outside the box. • Teamwork enhances people’s strengths and lessens their individual weaknesses. • One of the most powerful tools for promoting employee creativity and innovation is recognition. • Ultimately, in developing a culture of innovation you want employees to feel comfortable experimenting and offering suggestions without fear of criticism or punishment for mistakes. Key Terms • • innovation: A change in customs; something new and contrary to established customs, manners, or rites. creativity: The quality or ability to create or invent something. Strategies capable of producing innovation require resources and energy; it is therefore necessary to discuss in your business plan the organizational structures and practices you will put in place to encourage and support innovation. Amabile (1998) points to six general categories of effective management practices that create a learning culture within an organization: 1. Providing employees with a challenge 2. Providing freedom to innovate 3. Providing the resources needed to create new ideas/products 4. Providing diversity of perspectives and backgrounds within groups 5. Providing supervisor encouragement 6. Providing organizational support Innovation: Cartoon shows the challenge of translating innovation (designers) to economic success. Create a Culture of Innovation You will likely find that you need to generate hundreds of ideas to find ten good ones that will create value for your organization. This is part of the creative brainstorming process, and it should be encouraged. It should be the responsibility of every individual in the organization to come up with ideas, not just the founder or key staff. Here are some suggestions to encourage the flow of ideas. Encourage Creativity Encouraging creativity helps keep staff happy. If they think something is important and has the potential to create a financial payoff for the company, let them follow their idea. People perform best when they are driven by inspiration and encouraged to push their boundaries and think outside the box. But employees cannot do this when they are being micromanaged. Employees need to feel independent enough to own their innovative thinking and to pursue the ideas they are passionate about. In fact, if management effectively fosters a creative and open environment, innovation will happen naturally. Encourage Participation Teamwork enhances people’s strengths and mitigates their individual weaknesses. Effective teamwork also promotes the awareness that it is in everyone’s best interests to keep the business growing and improving. Creating a participation-based environment means creating smart teams, encouraging open dialogue, and minimizing authority. Criticism is productive and should be encouraged, but it must be used constructively. Provide Recognition and Rewards One of the most powerful tools for promoting employee creativity and innovation is recognition. People want to be recognized and rewarded for their ideas and initiatives, and it is a practice that can have tremendous payoff for the organization. Sometimes the recognition required may be as simple as mentioning a person’s effort in a newsletter. If a staff member comes up with a really creative idea, mention them in the company newsletter or on the news board even if their idea can’t be implemented immediately. Make it clear that compensation and promotions are tied to innovative thinking. Enable Employee Innovation You may have an innovative culture in your organization, but you also need to familiarize staff with some of the hallmarks of continuing innovation. For example, you could educate employees at regular training sessions on topics such as creativity, entrepreneurship, and teamwork. Each session might conclude with the assignment of an exercise to be performed over the next few working weeks that will consolidate lessons learned. Your aim here is to give employees a taste of innovation so they will embrace the process. Other Motivators • Profit-sharing and bonuses • Days off • Extra vacation time Encourage employees to take advantage of coffee breaks, lunch breaks, and taxi rides. Often great ideas that can lead to innovation will happen outside the places where we expect them to happen. If it’s hard to get staff together for common informal breaks, consider taking them out for an informal meal where you can encourage creative discussion about work. Also be sure to encourage laughter at meetings because laughter is an effective measure of how comfortable people feel about expressing themselves. Technology and Innovation Technology as a Driver and Enabler of Innovation Technology is a powerful driver of both the evolution and proliferation of innovation. LEARNING OBJECTIVES Examine the role of technology as a driver of competitive advantage and innovation in the business framework KEY TAKEAWAYS Key Points • Innovation is a primary source of competitive advantage for companies in essentially all industries and environments and drives efficiency, productivity, and differentiation to fill a higher variety of needs. • Technology builds upon itself, enabling innovative approaches within the evolution of technology. • Technological hubs such as California’s Silicon Valley provide powerful resources that entrepreneurs and businesses can leverage in pursuing innovation. • Technological advances, particularly in communication and transportation, further innovation. • India, China, and the United States are all strong representations of how embracing technology leads to innovation, which in turn leads to economic growth. Key Terms • • • proliferate: To increase in number or spread rapidly. innovation: The introduction of something new; the development of an original idea. Scalable: Able to change in size or to scale up. Innovation is a primary source of competitive advantage for companies in essentially all industries and environments, and drives forward efficiency, higher productivity, and differentiation to fill a wide variety of needs. One particular perspective on economics isolates innovation as a core driving force, alongside knowledge, technology, and entrepreneurship. This theory of innovation economics notes that the neoclassical approach (monetary accumulation driving growth) overlooks the critical aspect of the appropriate knowledge and technological capabilities. Scaling Technology Technology in particular is a powerful driving force in innovative capacity, particularly as it pertains to both the evolution of innovations and the way they proliferate. Technology is innately scalable, demonstrating a consistent trend toward new innovations as a result of improving upon current ones. Product life cycles shows how economic returns go through a steep exponential growth phase and an eventual evening out, which motivates businesses to leverage technology to produce new innovations. Technology Hubs Technological Innovation Chart: This chart demonstrates the pattern of innovation over time. Note the overlapping trajectories of technologies: one product may dominate the market and grow at a high rate; the next (“emerging”) product may start low while the other product is dominant but in turn grow to dominate the market even more thoroughly than the first, as technology and production are refined and improved. The proliferation of innovation pertains to two important factors of technology driving innovation: the creation of geographic hubs for technology and empowerment of knowledge exchange through communication and transportation. Places like California’s Silicon Valleya and Baden-Wurttenberg, Germany are strong examples of the value of technological hubs. The close proximity of various resources and collaborators in each hub stimulates a higher degree of innovative capacity. Communication and cumulative knowledge in these technology hubs allows for these innovations to spread via technology to be implemented across the globe with relative immediacy. This spread of ideas can be built upon quickly and universally, creating the ability for innovation to be further expanded upon by different parties across the globe. Collaboration on a global scale as a result of technological progress has allowed for exponential levels of innovation. Correlations Between Technology, Innovation, and Growth Empirical evidence generates a positive correlation between technological innovation and economic performance. Between 1981 and 2004, India and China, developed a National Innovation System designed to invest heavily in R&D with a particular focus on patents and high-tech and service exports. During this timeframe, both countries experienced extremely high levels of GDP growth by linking the science sector with the business sector, importing technology, and creating incentives for innovation. Additionally, the Council of Foreign Relations asserted that the U.S.’ s large share of the global market in the 1970s was likely a result of its aggressive investment in new technologies. These technological innovations generated are hypothesized to be a central driving force in the steady economic expansion of the U.S., allowing it to maintain it’s place as the world’s largest economy. The Technology Life Cycle The technology life cycle describes the costs and profits of a product from technological development to market maturity to decline. LEARNING OBJECTIVES Categorize the four distinct stages in the technology life cycle and apply the five demographic consumer groups in the context of these stages KEY TAKEAWAYS Key Points • The technology life cycle seeks to predict the adoption, acceptance, and eventual decline of new technological innovations. • Understanding and effectively estimating technology life cycle allows for a more accurate reading of whether and when research and development costs will be offset by profits. • The technology life cycle has four distinct stages: research and development, ascent, maturity, and decline. • The adoption of these technologies also has a life cycle with five chronological demographics: innovators, early adopters, early majority, late majority, and laggards. • By leveraging these models, businesses and institutions can exercise some foresight in ascertaining return on investment as their technologies mature. Key Terms • • • Foresight: The ability to accurately estimate future outcomes. demographic: A characteristic used to identify people within a statistical framework. competitive advantage: Something that places a company or a person above the competition. The technology life cycle (TLC) describes the costs and profits of a product from technological development phase to market maturity to eventual decline. Research and development (R&D) costs must be offset by profits once a product comes to market. Varying product lifespans mean that businesses must understand and accurately project returns on their R&D investments based on potential product longevity in the market. Due to rapidly increasing rates of innovation, products such as electronics and pharmaceuticals in particular are vulnerable to shorter life cycles (when considered against such benchmarks as steel or paper). Thus TLC is focused primarily on the time and cost of development as it relates to the projected profits. TLC can be described as having four distinct stages: Technology life cycle chart: This chart illustrates the stages in the technological life cycle. • • • • Research and Development – During this stage, risks are taken to invest in technological innovations. By strategically directing R&D towards the most promising projects, companies and research institutions slowly work their way toward beta versions of new technologies. Ascent Phase – This phase covers the timeframe from product invention to the point at which out-of-pocket costs are fully recovered. At this junction the goal is to see to the rapid growth and distribution of the invention and leverage the competitive advantage of having the newest and most effective product. Maturity Stage – As the new innovation becomes accepted by the general population and competitors enter the market, supply begins to outstrip demand. During this stage, returns begin to slow as the concept becomes normalized. Decline (or Decay) Phase – The final phase is when the utility and potential value to be captured in producing and selling the product begins dipping. This decline eventually reaches the point of a zero-sum game, where margins are no longer procured. Product development and capitalizing on the new invention covers the business side of these R&D investments in technology. The other important consideration is the differentiation in consumer adoption of new technological innovations. These have also been distributed into phases which effectively summarize the demographic groups presented during each stage of TLC: Technology adoption life cycle: This adoption chart highlights the way in which consumers embrace new products and services. • Innovators – These are risk-oriented, leading-edge minded individuals who are extremely interested in technological developments (often within a particular industry). Innovators are a fractional segment of the overall consumer population. • Early Adopters – A larger but still relatively small demographic, these individuals are generally risk-oriented and highly adaptable to new • • • technology. Early adopters follow the innovators in embracing new products, and tend to be young and well-educated. Early Majority – Much larger and more careful than the previous two groups, the early majority are open to new ideas but generally wait to see how they are received before investing. Late Majority – Slightly conservative and risk-averse, the late majority is a large group of potential customers who need convincing before investing in something new. Laggards – Extremely frugal, conservative, and often technology-averse, laggards are a small population of usually older and uneducated individuals who avoid risks and only invest in new ideas once they are extremely wellestablished. Taking these two models into consideration, a business unit with a new product or service must consider the scale of investment in R&D, the projected life cycle the technology will likely maintain, and the way in which customers will adopt this product. By leveraging these models, businesses and institutions can exercise some foresight in ascertaining the returns on investment as their technologies mature. Assessing an Organization’s Technological Needs Assessing the internal technological assets and future needs of an organization prepares management for successful technology integration. LEARNING OBJECTIVES Apply the four strategies of information gathering and introspection that allow for effective assessment of technology needs in an organization KEY TAKEAWAYS Key Points • Companies must prioritize their ability to assess their technological needs, particularly as they may relate to achieving optimal efficiency and productivity. • Companies looking to stay ahead of the competition should gather data internally and externally to facilitate forecasting and the crafting of implementation technology strategies. • In addition to noting new technological advances, the assessment process is also heavily internal and necessitates that companies isolate their technological strengths and weaknesses. Key Terms • • • introspection: Self-assessment, or an individual or company looking inward to measure certain strengths and weaknesses. forecasting: To estimate how a condition will be in the future. productivity: The rate at which products and services are produced relative to a particular workforce. Remaining competitive and remaining technologically vigilant are virtually synonymous at this point in business development. Companies must prioritize their ability to assess their technological needs, particularly as they may relate to achieving optimal efficiency and productivity. There are various concepts that are typical of this managerial technology assessment strategy: • • • • Technology Strategy – identifying the logic or role of technology within the company. Technology Forecasting – identifying applicable technologies for the company, potentially through scouting. Technology Roadmapping – ascertaining the trajectories of technological advancement and applying business or market needs to this assessment. Technology Portfolios – accumulating all technologies relevant to products or operations to determine which are ideal for internal implementation. All four of these strategies revolve both around information gathering and introspection into business operations and processes. All four can be improved upon through technological advances. Integrated planning in pursuit of optimization through new technologies keeps efficiency at or above competitive levels. This internal technology assessment also includes noting when and whether it is necessary to construct employee training programs for new technology. Technology and Market Share: As successive groups of consumers adopt new technology a bell curve emerges – this is referred to as the innovation adoption life cycle (the blue bell curve on the above graphic). The percentages on the x-axis indicate the size of the populations (relative to the entire consumer group for a given good) in each segment. By keeping pace with technological innovation, and offering products early enough to capture the majority of the market, businesses can gain competitive advantage. If a business is too late to enter a newly emerged technological market, it can be quite difficult to attain a high percentage of the market share, as represented on the y-axis (which has often been claimed by other incumbents, as the intersecting yellow line on the graph indicates). Understanding Current Trends in Technology Understanding current technologies and trends allows a company to align and synchronize operations to optimize returns on innovation. LEARNING OBJECTIVES Recognize the importance of keeping pace with current technologies and trends to retain competitive capacity and identify the four specific dimensions of business technology management (BTM) KEY TAKEAWAYS Key Points • Business technology management (BTM) provides a bridge between previously established tools and standards within a business environment and the newer, more operationally efficient tools and standards technological progress provides. • Aligning technologies with current business initiatives and strategies is the most basic way for a business to remain competitive in the current technological climate. • Companies that can improve on alignment to synchronize the technological landscape internally (often through researching and developing innovations in-house) can achieve foresight and long-term benefits through forecasting future technological necessities. • BTM has four dimensions: process, organization, information, and technology. • Effectively employing these four dimensions of BTM provides companies the potential to project technological trends, and synchronize them with their strategies. Key Terms • • • Alignment: The process of adjusting a mechanism (or business) so that its parts act in concert. Synchronization: The process of aligning all inputs to optimize output. SBUs: Strategic Business Units; separate elements of a company, organized by similarity of processes and objectives. Businesses are tasked with the ongoing responsibility of keeping up with evolving technology trends to stay competitive. Trends in technology extend out like the branches of a tree: each new innovation creates the possibility for multiple new innovations. The field of business technology management (BTM) arose to provide businesses with the best approaches for assessing and implementing these varying technological advances into their strategies. BTM Alignment BTM provides a bridge between previously established tools and standards within a business environment and newer, more operationally efficient tools and standards in technology. BTM does this by creating a set of principles and guidelines for companies to follow as they pursue alignment. Alignment, in this respect, can be defined as how an institution’s technology supports and enables technology while avoiding constraints in direct relation to company strategies, objectives, and competition. When companies accomplish this in any given technological environment, they have attained BTM maturity relative to that time frame and industry. Synchronization Alignment is only the first step: the next step is synchronization. Like alignment, synchronization enables execution, but it also helps companies develop the capacity to anticipate and adapt future business models and strategies. This is generally accomplished by investing in research and development and staying ahead of the standard technologies by anticipating or even innovating past them. This business technology leadership role is long-term oriented and very effective in maintaining competitive advantages in any given industry, but it is particularly important for industries in the tech sectors. Cycle of Research and Development: The Cycle of Research and Development moves through theorizing, to hypothesizing, to design, to implementation, to study, and back to theorizing to begin the cycle again. Companies use four specific dimensions of BTM to achieve this understanding of current technologies and trends: • • • • Process – Companies must execute a set of fluid and repeatable processes that can be consistently scaled up through evaluation. Organization – Utilizing an organized business structure or corporate framework, often through strategic business units ( SBUs ), provides substantial value in centralizing processes and assessing needs. Information – Scouting and assessing the current technological environment through extensive research teams is necessary to make the appropriate decisions (see “Sourcing Technology” and “Assessing Needs in Technology” within this Boundless segment). Technology – Finally, improving upon these processes within SBUs via leveraging the appropriate data and information will drive strategic acquisition of beneficial technological improvements based upon current trends. Taken together, these four dimensions applied to alignment and synchronization of new technology can help businesses keep up with or ever stay ahead of current technologies and trends. Companies can benefit from the intrinsic opportunities technological progress provides while offsetting the intrinsic risks of external technological development. Sourcing Technology Technology sourcing involves isolating and implementing new innovations within an existing business framework. LEARNING OBJECTIVES Illustrate the varying cost structures, licensing, and scouting procedures involved with technology sourcing KEY TAKEAWAYS Key Points • Sourcing new technology involves the scouting and researching of new technological potential and the eventual transfer of these technologies to a company. • Technology scouting is based around identifying new technologies, organizing and channeling data on these technologies, and assessing the ease and value of implementing them. • Companies capitalize on the successful scouting of a new technology by sourcing it from the appropriate party for their own use. • Tech transfer drawbacks primarily involve the cost of licensing patents and training employees to effectively use the new technology. • Some organizations, such as Sourceforge, Wikipedia, and Boundless, provide knowledge and technology for free in an open source strategy. Key Terms • • • patent: A legal right to a particular innovation, protecting it from being copied or employed by another without consent or license. Sourcing: The supply of resources needed by a particular company or individual. Scouting: The act of seeking or searching. Technology Sourcing Strategies Technology sourcing, or the pursuit of implementing new technologies within a businesses strategic framework, involves isolating and applying new technologies to current models. Technology can be developed internally or isolated through technology scouting and then implemented through technology transfer. In deciding which approach is optimal for them, organizations must consider such factors as the advantage of being first to market, research and developments costs and capabilities, and market research and data gathering costs. Therefore the strategies behind sourcing technology can be complex, varying by industry, company size, economic strength, and the availability of easily implemented technology. Technology Scouting Stages in technology development: Technology develops through a series of stages: basic technology research, research to prove feasibility, technology development, technology demonstration, system/subsystem development, and system test, launch & operations. Technology scouting is essentially forecasting technological developments through information gathering. Technology scouts can either be internal employees or external consultants specifically designated to the task of researching developments in a particular technological field. This can be loosely referred to as a three-step process: 1. Identify emerging technologies. 2. Channel and organize new technological data within an organization. 3. Provide a corporate context to support or refute the acquisition of said technology. When technology scouting isolates new developments that could potentially provide advantages for an incumbent, strategies to acquire or source this technology become a focal point. Technology transfer, and the commercialization of technological abilities, is an enormous market both in the U.S. and abroad. Though governments, universities, and open source websites (such as Sourceforge, Wikipedia, and Boundless) often provide knowledge and technological know-how free of charge, most often technology is not free. Technology Sourcing Pros and Cons In the Information Age knowledge is power, and more than ever companies are trying to protect their knowledge from competitors or freeloaders by using patents and trade secrets. Transfer of technology is therefore expensive, from licensing the patented technology to requesting training in new technological advances for staff. Despite the distinct advantages of staying ahead of the curve relative to technological capabilities, there are some drawbacks to tech transfer. One strong example of the drawbacks in technological transfer and sourcing can be illustrated by the image below. The first five levels of innovation, from basic research to technology demonstration, are often where investment begins pouring in, alongside the attempt to implement in order to stay competitive. As you may note, this is prior to the testing phases and therefore investors at this stage must accept the inherent risk of the new technology presenting significant hurdles to optimizing perceived potential or effective implementation. Early adopters and innovators suffer the risk of employing a new technology that has not been fully debugged, minimizing what should have been strong returns on investment (ROI). Technology scouts should therefore be highly circumspect and meticulous in their research processes, ensuring that new technological innovations will indeed provide what they promise. https://smallbusiness.chron.com/difference-between-organizational-cultureorganizational-structure-25206.html Week 6 Leadership Leadership is the process by which an individual mobilizes people and resources to achieve a goal. Key Points • • • Leadership is the process by which an individual motivates others and mobilizes resources to achieve a goal. Leadership is both a set of behaviors that can be learned and traits that can be nurtured. Leadership is a relationship between followers and those who inspire and provide direction for them. It involves emotional ties and commitments. Key Term • transformational leadership—a theory of leading that enhances the motivation, morale, and performance of followers through a variety of mechanisms Leadership as a Relationship Leadership is the process by which an individual mobilizes people and resources to achieve a goal. It requires both a set of skills that can be learned as well as specific attributes that can be nurtured. Leaders inspire, challenge, and encourage others. They can persuade and influence, and they show resilience and persistence. All aspects of society have leaders. The concept of leader may call to mind a CEO, a prime minister, a general, a sports team captain, or a school principal; examples of leadership exist across a variety of organizations Leaders motivate others: They help others aspire to achieve. Focusing on the big picture, leaders have a vision of what is possible and they move others to share that vision, bringing substantive changes in their teams, organizations, and societies. Leadership is a relationship between followers and those who inspire them, and provide direction for their efforts and commitments. It affects how people think and feel about their work, and how it contributes to a larger whole. Effective leaders can mean the difference between increasing a team’s ability to perform or diminishing its performance, between keeping efforts on track or encountering disaster, and even between success or failure. Characteristics of Leadership Leadership is one of the most important concepts in management. Many researchers have proposed theories and frameworks for understanding it. Some have distinguished among types of leadership such as charismatic, heroic, and transformational leadership. Others discuss the distinctions between managers and leaders. Still others address the personality and cognitive factors most likely to predict a successful leader. The many dimensions of leadership indicate its complexity as well as how difficult effective leadership can be. Abraham Lincoln, 1860 The sixteenth president is considered a model of leadership. Leadership vs. Management Though they have traits in common, leadership and management both have unique responsibilities that do not necessarily overlap. Key Points • • • Many view leaders as those who direct the organization through vision and inspiration, whereas managers are results-oriented and more focused on task organization and efficiency. Managers sustain current systems and processes for accomplishing work, while leaders challenge the status quo and make change happen. Such distinctions may create a negative concept of managers. Leader brings to mind heroic figures rallying people together for a cause, while manager suggests less charismatic individuals focusing solely on efficiency. Key Terms • • leadership—a process of social influence in which one person enlists the aid and support of others in accomplishing a common task management—the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively Tasks vs. Vision The terms management and leadership have been used interchangeably, yet there are clear similarities and differences between them. Both terms suggest directing the activities of others. In one definition, managers do so by focusing on the organization and performance of tasks, and by aiming at efficiency, while leaders engage others by inspiring a shared vision and effectiveness. Managerial work tends to be more transactional, emphasizing processes, coordination, and motivation, while leadership has an emotional appeal, is based on relationships with followers, and seeks to transform. One traditional way of understanding the differences between managers and leaders is that people manage things but lead other people. More concretely, managers administer and maintain the systems and processes by which work gets done. This includes planning, organizing, staffing, leading, directing, and controlling the activities of individuals, teams, or organizations to accomplish a goal. Basically, managers are results-oriented problem-solvers responsible for day-to-day functions. They focus on the immediate, short-term needs of an organization. In contrast, leaders take the long-term view and are responsible for where a team or organization is heading and what it achieves. They challenge the status quo, make change happen, and work to develop the capabilities of people to contribute to achieving their shared goals. Additionally, leaders act as figureheads for their teams and organizations by representing their vision and values to outsiders. This definition of leadership may create a negative bias against managers as less noble or less important: Leadersuggests a heroic figure, rallying people to unite under a common cause, while manager calls to mind less charismatic individuals who are focused solely on getting things done. Sources of Power Power is the ability to influence the behavior of others with or without resistance by using a variety of tactics to push or prompt action. Key Points • • • • Power is the ability to get things done, sometimes over the resistance of others. Leaders have a number of sources of power, including legitimate power, referent power, expert power, reward power, coercive power, and informational power. All of these sources of power can be used in combination, and people often have access to more than one. Power tactics fall along three dimensions: behavioral, rational, and structural. Key Terms • • • power—the ability to influence the behavior of others, with or without resistance upward power—influence of subordinates on the decisions of the leader downward power—influence of a superior over subordinates Power in Business Power is the ability to get things done. Those with power are able to influence the behavior of others to achieve a goal or objective. Sometimes people resist attempts to make them do certain things, but an effective leader is able to overcome that resistance. Although people sometimes regard power as evil or corrupt, power is a fact of organizational life: Power is inherently neither good nor bad. Leaders can use power to benefit others or to constrain them, to serve the organization’s goals or undermine them. Another way to view power is as a resource that people use in relationships. When a leader influences subordinates, it is downward power. We can also think of this as someone having power over someone else. On the other hand, subordinates can exercise upward power by influencing the decisions of their leader. Indeed, leaders depend on their teams to get things done and in that way are subject to the power of team members. Six Types of Power Power comes from several sources, each of which has different effects on the targets of that power. Some derive from individual characteristics; others draw on aspects of an organization’s structure. Six types of power—legitimate, referent, expert, reward, coercive, and informational—are explained below. Legitimate Power Also called positional power, this is the power individuals have from their role and status within an organization. Legitimate power usually involves formal authority delegated to a position holder. Referent Power Referent power comes from the ability of individuals to attract others and build their loyalty. It is based on the personality and interpersonal skills of the power holder. A person may be admired because of a specific personal trait, such as charisma or likability, and these positive feelings become the basis for interpersonal influence. Expert Power Expert power draws from a person’s skills and knowledge, and is especially potent when an organization has a high need for them. Narrower than most sources of power, the power of an expert typically applies only in the specific area of the person’s expertise and credibility. Reward Power Reward power comes from the ability to confer valued material rewards or create other positive incentives. It refers to the degree to which the individual can provide external motivation to others through benefits or gifts. In an organization, this motivation may include promotions, increases in pay, or extra time off. The ability to reward employees with cash and other incentives is a source of organizational power. Coercive Power Coercive power is the threat and application of sanctions and other negative consequences. These can include direct punishment or the withholding of desired resources or rewards. Coercive power relies on fear to induce compliance. Informational Power Informational power comes from access to facts and knowledge that others find useful or valuable. The access can indicate relationships with other power holders and convey status that creates a positive impression. Informational power offers advantages in building credibility and rational persuasion. It may also serve as the basis for beneficial exchanges with others who seek that information. All of these sources and uses of power can be combined to achieve a single aim, and individuals can often draw on more than one. In fact, the more sources of power a person has access to, the greater his or her overall po wer and ability to get things done. Power Tactics People use a variety of power tactics to push or prompt others into action. We can group these tactics into three categories: behavioral, rational, and structural. Behavioral tactics can be soft or hard. Soft tactics employ relationships. These tactics are more direct and interpersonal, and can involve collaboration or other social interaction. Conversely, hard tactics are harsh, forceful, and direct, relying on concrete outcomes. However, they are not necessarily more powerful than soft tactics. In many circumstances, fear of social exclusion can be a much stronger motivator than physical punishment. Rational tactics of influence make use of reasoning, logic, and objective judgment, whereas nonrational tactics rely on emotionalism and subjectivity. Examples of each include bargaining and persuasion (rational), and evasion and put-downs (nonrational). Structural tactics exploit aspects of the relationships between individual roles and positions. Bilateral tactics, such as collaboration and negotiation, involve reciprocity on the parts of both the person influencing and the target. Unilateral tactics, on the other hand, are enacted without any participation on the part of the target. These tactics include disengagement and fait accompli. Political approaches, such as playing two against one, are yet another approach to exert influence. People’s use of power tactics varies, with different types of people opting for different tactics. For instance, interpersonally oriented people tend to use soft tactics, while extroverts employ a greater variety of power tactics than do introverts. Studies have shown that men tend to use bilateral and direct tactics, whereas women tend to use unilateral and indirect tactics. People will also choose different tactics based on the group situation and who they are trying to influence. In the face of resistance, people are more likely to shift from soft to hard tactics to achieve their aims. Influence and Leadership Leaders use social influence to maintain support and order among their subordinates. Key Points • Influence occurs when other people affect an individual’s emotions, opinions, or behaviors. Leaders use influence to create the behaviors needed to achieve their goal and vision. • • • • Harvard psychologist Herbert Kelman identified three broad varieties of social influence: compliance, identification, and internalization. Compliance is people behaving as others expect. Identification happens when people are influenced by someone who is well-liked and respected, such as a celebrity. Internalization of values leads to those beliefs being reflected in behavior. Key Terms • • social influence—when an individual’s emotions, opinions, or behaviors are affected by others socialization—the process of inheriting and disseminating norms and customs of behavior along with ideologies and other beliefs Three Types of Social Influence Influence occurs when a person’s emotions, opinions, or behaviors are affected by others. It is an important component of a leader’s ability to use power and maintain respect in an organization. Influence is apparent in the form of peer pressure, socialization, conformity, obedience, and persuasion. The ability to influence is an important asset for leaders, and an important skill for those in sales, marketing, politics, and law. Kelman (1958) identified three broad varieties of social influence: compliance, identification, and internalization. Compliance involves people behaving the way others expect them to whether they agree or not. Obeying the instructions of a crossing guard or other authority figure is an example of compliance. Identification is when people behave according to what they think is valued by those who are well-liked and respected, such as a celebrity. Status is a key aspect of identification: When people purchase something highly coveted by many others, such as the latest smartphone, they are under the influence of identification. Internalization is when people accept, either explicitly or privately, a belief or set of values that leads to behavior that reflects those values. An example is following religious tenets. Politicians often use identification to gain support. How Leaders Use Influence In an organization, a leader can use these three types of influence to motivate people and achieve objectives. For example, compliance is a means of maintaining order in the workplace, such as when employees are expected to follow the rules set by their supervisors. Similarly, identification happens when people seek to imitate and follow the actions of people they look up to and respect, for example a more experienced coworker or trusted supervisor. Internalization results when employees embrace the vision and values of a leader, and develop a commitment to fulfilling them. Leaders use these different types of influence to motivate the behaviors and actions needed to accomplish tasks and achieve goals. Individuals differ in how susceptible they are to each type of influence. Some workers may care a great deal about what others think of them and thus be more amenable to identifying the cues for how to behave. Other individuals may want to believe strongly in what they do, so they seek to internalize a set of values to guide them. In organizations and in most parts of life, sources of influence are all around us. As a result, our behavior can be shaped by how others communicate with us and how we see them. The Role of Vision A clear and well-communicated vision is essential for a leader to gain support and for followers to understand a leader’s goals. Key Points • • • Vision is defined as a clear, distinctive, and specific view of the future that is usually connected with strategic decisions for the organization. A thriving organization will have a vision that is succinct, understandable, and indicative of the direction that the company wants to head in the future. Leaders are essential for communicating the vision of the organization and promoting it through the decisions they make and the strategies they pursue. Key Term • vision—a clear, distinctive, and specific view of the future that is usually connected with a leader’s strategic advances for the organization A vision is defined as a clear, distinctive, and specific view of the future, and is usually connected with strategic advances for the organization. Effective leaders clearly define a vision and communicate it in a way that fosters enthusiasm and commitment throughout the organization. This ability to express a vision and use it to inspire others differentiates a leader from a manager. Many researchers believe that vision is an essential quality of effective leaders—as important as the abilities to communicate and to build trust. Effective leaders clearly communicate their vision of the organization. Their decisions and strategies reflect their view of what an enterprise can be rather than what it currently is. A strong leader builds trust in the vision by acting in ways that are consistent with it and by demonstrating to others what it takes to make the vision a reality. Vision is an essential component of an organization’s success. A thriving organization will have a vision that is succinct, indicates the direction the company is heading, and widely understood throughout all levels of the organization. The more employees are aware of, understand, and believe in the vision, the more useful it is in directing their daily behavior. Vision and mission are sometimes used interchangeably, but there is a useful distinction between the two. A vision describes an organization’s direction, while its mission defines its purpose. By focusing on the value an organization creates, the mission helps prioritize activities and provides a framework for decision-making. Vision also plays a significant role in a leader’s strategy for the organization. By setting the direction, a vision underscores the necessity of all areas of a business working toward the same goal. This unity of purpose often involves changing what is done and how, and aligning the activities and behavior of people. A vision reduces ambiguity and provides focus—two benefits that are especially valuable in turbulent or rapidly changing times. Leadership Traits Traits of effective leaders are conditionally dependent and have been debated for years, but researchers have identified some commonalities. Key Points • • • Early findings regarding trait theory show that there is a relationship between leadership and individual traits like intelligence, adjustment, extroversion, conscientiousness, openness to experience, and general self-efficacy. Stephen Zaccaro, a researcher of trait theories, argues that effective leadership is derived from an integrated set of cognitive abilities, social capabilities, and dispositional tendencies, with each set of traits adding to the influence of the other. Zaccaro’s model points to extroversion, agreeableness, conscientiousness, openness, neuroticism, honesty and integrity, charisma, intelligence, creativity, achievement motivation, need for power, oral and written communication, interpersonal skills, general problem-solving, and decision making. Key Terms • • proximal—close to a reference point distal—far from a reference point Researchers have debated the traits of a leader for many decades. Early trait theory proposed that merely a few personality traits have the ability to determine the success of a leader. Researchers have since distanced themselves from this idea. Researchers now attest that while trait theory may still apply, individuals can and do emerge as leaders across a variety of situations and tasks. Research findings show that significant relationships exist between leadership and a number of individual traits, among them intelligence, adjustment, extroversion, conscientiousness, openness to experience, and general self-efficacy. A number of models show the interplay of the environmental and personality characteristics that make a good leader. These models rests on two basic premises about leadership traits. First, leadership emerges from the combined influence of multiple traits, as opposed to coming from various independent traits. In other words, effective leadership is derived from an integrated set of cognitive abilities, social capabilities, and personal tendencies, with each set of traits adding to the influence of the other. The second premise suggests that leadership traits differ in their proximal (direct) influence on leadership. In this multistage model, certain distal or remote attributes (such as personal attributes, cognitive abilities, and motives and values) serve as precursors for the development of personal characteristics that more directly shape a leader (Zaccaro, Kemp, & Bader, 2004). Inherent leadership traits include extroversion, agreeableness, conscientiousness, openness, neuroticism, honesty and integrity, charisma, intelligence, creativity, achievement motivation, need for power, oral and written communication, interpersonal skills, general problem solving, decision making, technical knowledge, and management skills. Although these characteristics may resemble a laundry list, researchers have shown that they are all predictors of a successful leader (Zaccaro et al, 2004). Trait Leadership This diagram shows one contemporary theory of the essential traits of a leader. It illustrates all of the attributes that make up the traits of a leader, including environmental, internal (personality), and cognitive abilities. Leadership Styles Leaders may adopt several styles according to what is most appropriate in a given situation. Key Points • • • • • • There are five primary leadership styles: engaging, authoritative, laissez-faire, participative, and transformational. All five styles can be effectively used in the appropriate circumstances. An engaging style of leadership involves reaching out to employees and understanding their concerns and working situations. Under the autocratic leadership style, all decision-making powers are centralized in the leader. Leaders do not entertain any suggestions or initiatives from subordinates. A person using a laissez-faire style of leadership does not provide direction, instead leaving the group to fend for itself. Subordinates are given a free hand in deciding their own policies and methods. A participative or democratic style of leadership involves the leader’s sharing decision-making authority with group members, while also promoting the interests of group members and practicing social equality. Transformational leadership motivates and inspires people to change their behaviors in service of a greater good. Key Terms • laissez-faire—French term literally meaning “let [them] do,”; it broadly implies “let it be,” “let them do as they will,” or “leave it alone.” Choosing Styles of Leadership A leader can take a number of different approaches to leading and managing an organization. A leader’s style of providing direction, setting strategy, and motivating people is the result of his or her personality, values, training, and experience. For example, a leader with a laid-back personality may lead with a less formal style that encourages autonomy and creativity. Engaging Leadership An engaging style of leadership involves reaching out to employees and understanding their concerns and work situations. The engaging leadership style communicates relevant information to employees and involves them in important decisions (Cohen, 2009). This leadership style can help retain employees for the long term. Leaders applying an engaging style reach out to constituents and are involved in their successes and struggles. Autocratic Leadership Under the autocratic or authoritarian leadership style, decision-making power is centralized in the leader. The authoritarian leader does not entertain any suggestions or initiatives from subordinates. Autocratic management is effective for quick decision making but is generally not successful in fostering employee engagement or maintaining worker satisfaction. Laissez-Faire Leadership A person may be in a leadership position without providing clear direction, leaving the group to choose its own path in achieving aims. Subordinates are given a free hand in deciding their own policies and methods. Laissez-faire or “free-rein” leadership is most effective when workers have the skills to work independently, are self-motivated, and will be held accountable for results. Participative Leadership A participative or democratic style of leadership shares decision-making authority with group members. This approach values the perspectives and interests of individual group members while also contributing to team cohesion. Participative leadership can help employees feel more invested in decision outcomes and more committed to the choices because they have a say. Transformational Leadership The transformational leadership style emphasizes motivation and morale to inspire followers to change their behavior in service of a greater good. The concept was initially introduced by James MacGregor Burns. According to Burns, transformational leadership is when “leaders and followers make each other advance to a higher level of morality and motivation.” Researcher Bernard M. Bass used Burns’s ideas to develop his own theory of transformational leadership. Bass clarified the definition to emphasize that transformational leadership is distinguished by the effect it has on followers. When to Use Different Styles Different situations call for particular leadership styles. Under intense time constraints, when there is little room to engage in long discussions that seek consensus, a more directive, top-down style may be appropriate. For a highly motivated and cohesive team with a homogeneous level of expertise, a democratic leadership style may be more effective. Similarly, a participative leadership style may be most appropriate for decisions that will require changes in behavior from a large group of people. Each style of leadership can be effective if matched with the needs of the situation and used by a skilled leader who can adopt a deft approach. The most effective leaders are adept at several styles and able to choose the one most likely to help the organization achieve its objectives. Four Theories of Leadership Theories of effective leadership include the trait, contingency, behavioral, and full-range theories. Key Points • • • • Modern trait theory proposes that individuals emerge as leaders across a variety of situations and tasks. Significant individual leadership traits include intelligence, adjustment, extroversion, conscientiousness, openness to experience, and general self-efficacy. Behavioral theory suggests that leadership requires a strong personality with a well-developed positive ego; self-confidence is essential. Contingency theory assumes that different situations call for different characteristics, and no single optimal psychological profile of a leader exists. According to full-range theory of leadership, four qualities are essential for leaders: individualized consideration, intellectual stimulation, inspirational motivation, and idealized influence. Key Term • contingency—something likely to happen in connection with or as a consequence of something else For a number of years, researchers have examined leadership to discover how successful leaders are created. Experts have proposed several theories, including the trait, behavioral, contingency, and full-range models of leadership. The Trait Theory of Leadership The search for the characteristics or traits of effective leaders has been central to the study of leadership. Underlying this research is the assumption that leadership capabilities are rooted in characteristics possessed by individuals. Research in the field of trait theory has shown significant positive relationships between effective leadership and personality traits such as intelligence, extroversion, conscientiousness, self-efficacy, and openness to experience. These findings also show that individuals emerge as leaders across a variety of situations and tasks. The Contingency Theory of Leadership Stogdill (1948) and Mann (1959) found that while some traits were common across a number of studies, the overall evidence suggested that people who are leaders in one situation may not necessarily be leaders in other situations. According to this approach, called contingency theory, no single psychological profile or set of enduring traits links directly to effective leadership. Instead, the interaction of individual traits with prevailing conditions is what creates effective leadership. In other words, contingency theory proposes that effective leadership is contingent on factors independent of an individual leader. The theory predicts that effective leaders are those whose personal traits match the needs of the situation in which they find themselves. Fiedler’s (1967) contingency model of leadership focuses on the interaction of leadership style and the situation (later called situational control). He identified three relevant aspects of the situation: the quality of the leader’s relationships with others, how well structured their tasks were, and the leader’s amount of formal authority. The Behavioral Theory of Leadership In response to early criticisms of the trait approach, theorists began to research leadership as a set of behaviors. They evaluated what successful leaders did, developed a taxonomy of actions, and identified broad patterns that indicated different leadership styles. Behavioral theory also incorporates B. F. Skinner’s theory of behavior modification, which takes into account the effect of reward and punishment on changing behavior. An example of this theory in action is a manager or leader who motivates desired behavior by scolding employees who arrive late to meetings and showing appreciation when they are early or on time. B. F. Skinner The father of behavioral theory showed how rewards and punishments were connected to behaviors. The Full-Range Theory of Leadership The full-range theory of leadership is a component of transformational leadership, which enhances motivation and morale by connecting the employee’s sense of identity to a project and the collective identity of the organization. The four major components of the theory, which cover the full range of essential qualities of a good leader, are • • • • individualized consideration—the degree to which the leader attends to each follower’s concerns and needs, and acts as a mentor or coach intellectual stimulation—the degree to which the leader challenges assumptions, takes risks, and solicits followers’ ideas inspirational motivation—the degree to which the leader articulates a vision that is appealing and inspiring to followers idealized influence—the degree to which the leader provides a role model for high ethical behavior, instills pride, and gains respect and trust Motivating an Organization The Importance of Motivation Motivating employees can lead to increased productivity and allow an organization to achieve higher levels of output Key Points • • • • • Motivation is generally what energizes, maintains, and controls behavior. Theoretically, the role of motivation in the workplace is straightforward, but this is difficult to measure. Salary is often enough motivation to keep employees working for an organization, but it’s not always enough to push them to fulfill their potential. Motivated employees will retain a high level of innovation while producing higher-quality work efficiently. The opportunity cost in motivating employees is essentially zero. Key Terms • • productivity—the rate at which products and services are generated relative to a particular workforce opportunity cost—the value of investing in the next best alternative; the value forfeited by taking a particular route • innovation—the introduction of something new; the development of an original idea Motivation in the Workplace Generally speaking, motivation is what energizes, maintains, and controls behavior. This is why it plays such an important role in the workplace. But empirically measuring motivation and its effects is another matter. It is challenging to capture an individual’s drive in quantitative metrics to ascertain the degree to which higher motivation is responsible for higher productivity. However, it is widely accepted that motivated employees generate higher value and lead to more substantial levels of achievement. Managing motivation, therefore, is a critical element of success in any business. By increasing productivity, an organization can achieve higher levels of output. Research has shown that motivated employees will • • • look for a better way to complete a task be more quality-oriented work with higher productivity and efficiency In summary, motivated employees will retain a high level of innovation while producing higher-quality work more efficiently. There is no downside; the opportunity cost of motivating employees is essentially zero, assuming it does not require additional capital to coach managers to act as effective motivators. Internal and External Motivation Salary is often enough to keep employees working for an organization, but it’s not always enough to push them to fulfill their potential. Herzberg’s theory emphasizes that while salary is enough to avoid dissatisfaction, it is not necessarily enough to propel employees to increase their productivity and achievement. In fact, the output of employees whose motivation comes solely from salary and benefits tends to decline over time. To increase employees’ efficiency and work quality, managers must turn to understanding and responding to individuals’ internal and external motivations. External motives include work environment (e.g., cramped cubicle vs. airy, open office); internal motivations include thoughts and emotions (e.g., boredom with performing the same task over and over vs. excitement at being given a wide variety of project assignments). There are four sources of motivation. The three internal motives are needs, cognitions, and emotions. The fourth source consists of external motives. Perspectives on Motivation Motivation in the workplace is primarily concerned with improving employees’ focus through the use of incentives. Key Points • • • Generally, motivation in the workplace can be thought of through one of four specific theoretical frameworks: needs-oriented, cognition-oriented, behavior-oriented, and job-oriented. In needs-oriented theories, motivation is achieved through fulfilling a particular employee’s needs—from salary to a sense of fulfillment. In cognition-oriented theories, motivation is achieved through fulfilling employees’ rational expectation that they will be compensated based on the value they provide. • • In behavior-oriented theories, motivation is achieved through conditioning (reinforcement and punishment). Conditioning is the implementation of positive incentives to promote desirable behaviors and negative consequences to discourage undesirable behaviors. In job-oriented theories, motivation is achieved when employees feel fulfilled and interested in their work. Financial compensation is only enough to avoid dissatisfaction. Key Terms • • conditioning—developed by B. F. Skinner, a technique of behavior modification that uses positive and negative reinforcement, along with punishment, to alter behavior incentive—a reward used to motivate employees to perform better From a managerial perspective, very few ideas are more important than the dynamics of motivation. Understanding what moves employees toward efficiency and fulfillment is at the core of a manager’s responsibilities. Motivation in the workplace is primarily concerned with improving employees’ focus, often through pursuing positive incentives and avoiding negative ones. Theories of motivation are rooted in psychology. An individual must direct attention toward a task and generate the necessary effort to complete it— following through with persistence despite any distractions. Various theories have attempted to identify the factors that contribute to effective employee motivation, most of which fall into four broad categories: • • • • needs-oriented theories cognition-oriented theories behavior-oriented theories job-oriented theories Needs-Oriented Theories Motivation can be defined as the fulfillment of various human needs. These needs encompass a range of human desires, from basic, or survival, needs to complex emotional needs surrounding an individual’s psychological well-being. Hierarchy of Needs The most well-known example of a needs-oriented theory of motivation is Abraham Maslow’s Hierarchy of Needs. The pyramid below illustrates this hierarchy, with food, water, and shelter at the bottom, and intangible needs like fulfillment, self-esteem, and a sense of belonging in the upper three tiers. While this framework makes a certain amount of logical sense, critics have noted that there have been minimal data that suggest employees strive to satisfy needs in the workplace in accordance with this hierarchical framework. The fundamental idea behind Maslow’s model is that individuals have various tangible and intangible desires that can be leveraged using incentives. Maslow’s Hierarchy of Needs Maslow’s Hierarchy of Needs postulates that need must be fulfilled in a hierarchical order, from basic needs such as food and water to less tangible needs such as self-esteem and a sense of belonging. Need for Achievement Theory The need for achievement theory highlights three particular needs in the context of the workplace: achievement, authority, and affiliation. Every individual has a need for all three of these intangible segments of fulfillment, but most individuals lean more toward one. A salesman with a quota to fulfill would be best paired with an achievement-oriented manager, because a goaloriented approach toward a specific number of sales, for example, would be highly motivating (McClelland, 1961; Atkinson, 1974). Cognition-Oriented Theories Cognition-oriented theories generally revolve around expectations and deriving equitable compensation for a given effort or outcome. There are two main cognition-oriented theories: equity theory and expectancy theory. Equity Theory Equity theory is based on the basic concept of exchange. It values the culmination of employee experience, skills, and performance against their respective compensation and advancement opportunities. Expectancy Theory Expectancy theory is about instrumentality, or the belief that a level of performance will result in a level of outcome. Valence is the value of that outcome. Essentially, expectation theory and equity theory demonstrate the value of rewarding an employee’s investment of time and effort with appropriate compensation. Behavior-Oriented Theories The underlying concept of behavioral approaches to motivation is rooted in theories of “conditioning,” particularly the work of psychologist B. F. Skinner. Behaviorism stipulates that an employer should promote positive behavior and deter negative behavior, generally through a basic rewards system. Variable compensation, as found in many sales jobs, is a prime example of this concept. When an employee makes a sale, the employer provides a portion of income to the employee responsible for the sale. This positive reinforcement serves as a behavioral incentive, motivating the employee to repeat this behavior and make more sales. Job-Oriented Theories Job-oriented theories adhere to the view that employees are motivated to complete tasks effectively because of an innate desire to be fulfilled or to contribute, and that compensation and other forms of incentives are less important to them. Two-Factor Theory Frederick Herzberg’s two-factor theory is the most well known of the joboriented theories, despite the fact that it has not been supported by empirical evidence. Herzberg states that salary, benefits, status, and other tangible benefits for employees can only reduce dissatisfaction and that intangibles— such as autonomy, natural interest, recognition, and the responsibility of the work itself—are the true basis of motivation. Work Engagement Theory Other theories, such as work engagement theory, similarly propose that intellectually fulfilling and emotionally immersive work is the foundation of a motivated workforce. Clearly, our understanding of workplace motivation could benefit from further research and empirical analysis. But the variety of theories also highlights the fact that people can be motivated by different things in different circumstances. Effective organizational management requires an understanding of these theories as well as their possible limitations. Decision Making in Management Decision making is a fascinating science incorporating organizational behavior, psychology, sociology, neurology, strategy, management, philosophy, and logic. Decision making is the mental process of selecting a course of action from alternatives. Why Decision Making Matters The ability to make effective decisions that are rational, informed, and collaborative can greatly reduce opportunity costs while building a strong organizational focus. Effective decision making is a central skill necessary for managerial success. It requires the capacity to weigh various paths and determine the optimal trajectory of action. Key Points • • • Decision making is a process of choosing between alternatives. Problem solving and decision making are distinct but related activities. Time pressure and personal emotions can affect the quality of decisionmaking outcomes. Key Term • analysis—detailed examination as a basis for discussion or interpretation Decision making is the mental process of choosing from a set of alternatives. Every decision-making process produces an outcome that might be an action, a recommendation, or an opinion. Since doing nothing is usually among the options, it is also a decision. Problem Analysis vs. Decision Making While they are related, problem analysis and decision making are distinct activities. Decisions are commonly focused on a problem or challenge. Decision makers must gather and consider data before making a choice. Problem analysis involves framing an issue by defining its boundaries, establishing criteria for selecting alternatives, and developing conclusions based on available information. Analyzing a problem may not result in a decision, although analysis is an important ingredient in all decision making. Steps in Decision Making Decision making comprises a series of sequential activities that together structure the process and facilitate its conclusion. These steps are • • • • • • • establishing objectives classifying and prioritizing objectives developing selection criteria identifying alternatives evaluating alternatives against the selection criteria choosing the alternative that best satisfies the selection criteria implementing the decision Analysis of Alternatives Choices can interfere with decision making A major part of decision making involves the analysis of a defined set of alternatives against selection criteria. These criteria usually include costs and benefits, advantages and disadvantages, and alignment with preferences. For example, when choosing a place to establish a new business, the criteria might include rental costs, availability of skilled labor, access to transportation and means of distribution, and proximity to customers. Based on the relative importance of these factors, a business owner makes a decision that best meets the criteria. The decision maker may face a problem when trying to evaluate alternatives in terms of their strengths and weaknesses. This can be especially challenging when there are many factors to consider. Time limits and personal emotions also play a role choosing among alternatives. Greater deliberation and information gathering take time, but decisions often must be made before the decision makers feel fully prepared. In addition, the more that is at stake the more that emotions are likely to come into play, and this can distort judgment. Styles of Decision Making Decisions are driven by psychological, cognitive, and normative styles, each of which takes into account varying influences on the final decision. Key Points • • • • • The ability to make effective decisions that are rational, informed, and collaborative can greatly reduce opportunity costs while building a strong organizational focus. A psychological style of decision making favors individual values, desires, and needs to determine the best course of action. A cognitive style of decision making is heavily influenced by external factors and repercussions, such as how a given course of action will impact the broader environment in which the organization functions. Normative decision making relies on logic and communicative rationality, aligning people based upon a logical progression from premises to conclusion. Regardless of the style or perspective, managers and leaders must create organizational alignment in decision making through building consensus. Key Term • communicative rationality—a theory or set of theories that describe human rationality as a necessary outcome of successful communication Three Decision-Making Styles There are countless perspectives on, and tactics for, effective decision making. However, there are a few key points in decision-making theory that are central to understanding how different styles may impact organizational trajectories. Decision-making styles can be divided into three broad categories: • • • Psychological. This type of decision making is centered on the individual who is deciding. Decisions derive from his or her needs, desires, preferences, and values. Cognitive. This is an integrated feedback system between the individual or organization making a decision, and the broader environment. The decision-making process involves iterative cycles and constant assessment of the reactions to, and impacts of, the decision. Normative. In many ways, decision making (particularly in groups, such as within an organization) is about communicative rationality. Decisions are derived from the ability to communicate and share logic, using firms’ premises and conclusions to drive behavior. Cognitive Theories While the above styles give a general sense of the logic that drives choices, it is more useful to recognize that each of these three styles can play a role in any individual’s decision-making process. From the cognitive perspective, there are a few specific stylistic models that are useful to keep in mind: Optimizing vs. Satisficing Decision making is limited to the finite amount of information an individual has access to. With limitations on information, true objectivity is impossible. Decisions are therefore intrinsically flawed. A satisficer will recognize this necessary imperfection, and prefer faster but less-perfect decisions while a maximizer will take longer—trying to find the optimal choice. This can be viewed as a spectrum, and each decision (depending on the risk of a mistake) can be viewed with varying levels of perfection. Intuitive vs. Rational Kahneman (2011) explains that two mental processes compete for influence as people make decisions. One way to describe this is a conscious and a subconscious perspective. The subconscious mind (referred to as System 1) is automatic and intuitive, rapidly consolidating data and producing a decision almost immediately. The conscious mind (referred to as System 2) requires more effort and input, using logic and rationale to make an explicit choice. Combinatorial vs. Positional Aron Katsenelinboigen explains combinatorial and positional decision making based on how the game of chess is played, and an individual’s relationship with uncertainty. A combinatorial player has a final outcome, making a series of decisions that try to link the initial position with the final outcome in a firm, narrow, and concrete way (i.e., certainty). The positional decision-making approach is looser, so to speak. It considers an uncertain future as opposed to pursuing a concrete object. Each move from the positional type of player would maximize options as opposed to pursuing an outcome. Consensus Decision Making Regardless of perspective or style, all leaders must make decisions that create consensus. This model underlines how a manager or leader can discuss various options within a group setting, make proposals for action, and iterate until agreement is reached. Types of Decisions Three approaches to decision making are avoiding, problem solving, and problem seeking. Key Points • • • One approach to decision making is to not make a choice—that is, to avoid making a decision altogether. Identifying and selecting a solution to a problem is a frequent type of decision outcome. Sometimes decision making results in the need to restate the purpose and subject of the choice; this is known as problem seeking. Key Terms • problem seeking—the process of clarifying, understanding, and restating the problem • problem solving—using generic or ad hoc methods in an orderly manner to find solutions to specific problems Every decision-making process reaches a conclusion, which can be a choice to act or not to act, a decision on what course of action to take and how, or even an opinion or recommendation. Sometimes decision making leads to redefining the issue or challenge. Accordingly, three decision-making processes are known as avoiding, problem solving, and problem seeking. Avoiding One decision-making option is to make no choice at all. There are several reasons why a decision maker might do this: • • • • There is insufficient information to make a reasoned choice between alternatives. The potential negative consequences of selecting any alternative outweigh the benefits of selecting one. No pressing need for a choice exists, and the status quo can continue without harm. The person considering the alternatives does not have the authority to make a decision. One example of avoiding a decision occurs routinely at the US Supreme Court (as well as other appellate courts). The Supreme Court will decline to hear a case because, in its judgment, the issues have not been sufficiently considered in lower courts. Problem Solving Most decisions consist of problem-solving activities that end when a satisfactory solution is reached. In psychology, problem solving refers to the desire to reach a definite goal from a present condition. Problem solving requires problem definition, information analysis and evaluation, and alternative selection. Problem Seeking On occasion, the process of problem solving brings the focus or scope of the problem itself into question. It may be found to be poorly defined, of too large or small a scope, or missing a key dimension. Decision makers must then step back and reconsider the information and analysis they have brought to bear so far. We can regard this activity as problem seeking, because decision makers must return to the starting point and respecify the issue or problem they want to address. Improving Communication Effectiveness Communication and leadership go hand in hand. Effective communication includes both verbal and nonverbal messages. Developing listening skills is an important part of becoming an effective communicator. Key Points • • • The ability to communicate clearly orally and in writing is among the most valuable professional skills. Communicating effectively relies on credibility. Grammar and spelling mistakes, incompleteness, and errors in logic can undermine credibility. When sending a message, the communicator must keep in mind the target audience. Key Terms • • clarity—the state of being clear in thought; lucidity brevity—the quality of being brief; conciseness The ability to communicate effectively in speech and in writing is one of the most valuable professional skills. Sending messages and information so they are understood as intended and produce the desired effect demands technical competencies and interpersonal skills. Fortunately, these can be learned and honed through practice. Communicating effectively relies on credibility. Mistakes in grammar and spelling, incompleteness, and errors in logic can negatively impact the audience’s perception of the sender’s credibility. As a result, the communicator’s ability to persuade or influence the recipient is diminished. Effective ways to learn precise, professional oral and written communication skills include: • • • having others, such as a supervisor, provide feedback on strengths and weaknesses as a communicator analyzing the strengths and techniques of excellent communicators imitating strong communicators Communicating in the Workplace When sending a message, communicators must think of the target audience, being sure to use terms and phrases that readers or listeners will understand. For example, texts or emails should avoid using abbreviations that the receiver may not recognize. To respect others’ time, communication should aim for brevity and concision without sacrificing clarity and completeness. Using email effectively poses particular challenges. Often, messages are poorly structured, missing specific subject lines, slow in getting to the point, or too long. It can be challenging to strike the right tone or avoid the wrong one in electronic communication. The absence of nonverbal cues like tone of voice and body language means that written communication can be more easily misinterpreted and even be offensive. Therefore, important communications may warrant review by someone who can assess the tone and content and provide feedback. Without nonverbal cues, texting sometimes relies on emojis for meaning. Artur Debat/Getty Images Learning to Listen Using active and reflective listening skills can help improve the effectiveness of oral communication. Key Points • • • Communication is an activity that involves both a sender and an audience, or receiver. While the sender must focus on making sure the message is clear, the receiver has to show that the message is received and understood. Active listening is a process of attending carefully to what is being said as well as how the speaker says it. Reflective listening focuses on personal elements of communication rather than the abstract ideas. It deals with the emotional content of communication. Key Terms • • • interpretation—explaining what is obscure active listening—the process of attending carefully to what a speaker is saying, and using techniques such as paraphrasing the speaker’s message to ensure understanding receiver—a person who receives a signal Both the sender and the receiver of a message are responsible for effective oral communication. While the sender must focus on making sure the message is clear, the receiver has to show that the message was received and understood. For the sender, content, channel choice, and understanding the audience matter most. For the recipient, listening skills are paramount. Listening is an interaction between speaker and listener. The listener’s use of active and reflective listening skills can help improve communication effectiveness. Active Listening Active listening is a way to attend carefully to what is being said. It involves the listener observing the speaker’s behavior and body language, as well as demonstrating engagement with the speaker without interrupting him or her. One way to demonstrate active listening is by paraphrasing what the speaker has said. Paraphrasing can confirm the accuracy of the listener’s interpretation or identify the need for clarification. When you show disinterest or distraction when someone is speaking, it can frustrate, annoy, and even anger the speaker. Body language is important for both the speaker and the listener. Reflective Listening Reflective listening focuses on personal elements of communication rather than on the abstract ideas. Reflective listening is feeling-oriented and responsive. The listener should show empathy and concern for the person communicating. A good reflective listener concentrates on the discussion at hand while allowing the speaker to lead the communication. Verbal response is essential for reflective listening. Listeners should make statements that paraphrase what is said, clarify what appears to be implicit, and reflect the emotion or feeling they sense from the speaker. Being able to understand and articulate the meaning behind the words helps receivers better interpret the information and messages they hear. Learning to Communicate Nonverbally Nonverbal communication is the process of conveying meaning through sending and receiving wordless cues. Key Points • • • Oral and written communications contain nonverbal elements that can reinforce or contradict what is being expressed verbally. Nonverbal communication represents two-thirds of all communication. For this reason, learning to identify and read nonverbal cues is an important communication skill. Nonverbal communication can enhance a spoken message through gestures, eye contact, and posture. Key Term • nonverbal—a form of communication other than written or spoken words, like gestures, facial expressions, or body language Nonverbal communication is the process of sending and receiving wordless (mostly visual) messages between people. Oral and written communication has nonverbal elements that can reinforce or contradict verbal expression. Messages can be communicated through gestures and touch, by body language or posture, or by facial expression and eye contact. Speech also contains nonverbal elements, known as paralanguage, which includes voice quality, rate, pitch, volume, and speaking style. Prosodic features of speech include rhythm, intonation, and stress. Likewise, written texts have nonverbal elements, such as handwriting style, spatial arrangement of words, or the physical layout of a page. The study of nonverbal communication has focused mostly on face-to-face interaction, in which nonverbal cues are classified into three principal areas: environmental conditions (where communication takes place); physical characteristics of the communicators; and behaviors of communicators during interaction. Symbol Array for Nonverbal Patients Nonverbal communication can enhance a spoken message through body signals. Body language includes a person’s physical features (both changeable and unchangeable); gestures and signals (both conscious and unconscious); and spatial relations. The listener might perceive an unintended message if the speaker’s body language does not match the verbal message. Nonverbal communication is an important component of a first impression with a new acquaintance or business contact. Body language, stance, inflection, and tone can have a stronger impact than the content of communication. Nonverbal communication represents two-thirds of all communication. For this reason, learning to identify and read nonverbal cues is an important skill. While listening, try to observe the speaker’s posture, clothing, gestures, and eye contact. These convey information about the speaker as well as his or her message. Posture Posture can communicate a variety of messages. Postures include slouching, towering, a wide or narrow stance, jaw thrust, shoulders forward, and crossed arms. These nonverbal behaviors can indicate feelings and attitudes toward another person. Posture can be used to determine a participant’s degree of attention or involvement; the difference in status between communicators; and the level of fondness a person has for the other communicator, depending on body openness. For instance, a person who displays a forward lean or decreases a backward lean signifies positive sentiment toward others. Clothing Clothing is one of the most common forms of nonverbal communication. The study of clothing and other objects as a means of nonverbal communication is known as artifact or object. These studies indicate that the clothing an individual wears conveys nonverbal clues about personality, background and financial status, and affects how others will respond. An individual’s clothing style can demonstrate confidence, cultural origin or preference, interests, age, level of authority, and values and beliefs. Gestures Gestures include hands, arms, or body, and also include movements of the head, face, and eyes, such as winking, nodding, or eye-rolling. Facial expressions, more than anything, serve as a practical means of communication. With all of the muscles that precisely control mouth, lips, eyes, nose, forehead, and jaw, human faces are believed capable of more than 10,000 different expressions. This versatility means facial expression can convey meaning distinct from words. Many emotions conveyed nonverbally, including happiness, sadness, anger, fear, surprise, disgust, shame, anguish, and interest are universally recognized. Eye Contact Eye contact is the primary nonverbal way to indicate engagement, interest, attention, and involvement. Studies have found that people use their eyes to indicate interest. This includes frequently recognized actions of winking and movements of the eyebrows. When a person avoids eye contact in a social setting, it is noticeable and may be perceived as a lack of interest. Generally speaking, the longer the established eye contact between two people, the greater the intimacy levels. Delivering Constructive Feedback Constructive feedback, both positive and negative, can help individuals learn and improve their performance. Key Points • • • • Positive and negative feedback can be constructive when it addresses factors directly related to performance that the recipient can control. Constructive feedback serves as motivation for many people in the workplace. A performance appraisal or performance evaluation is a systematic, periodic process that assesses an individual employee’s job performance and productivity in relation to established criteria and organizational objectives. In human resources or industrial psychology, 360-degree feedback, also known as multi-rater feedback, and multi-source feedback or assessment, is feedback from members of an employee’s immediate work circle. Key Terms • • feedback—transmission of evaluative or corrective information about an action, event, or process to a controlling source constructive—carefully considered and meant to be helpful Critical assessments are essential to learning and performance improvement. People often rely on external measures, such as exams or feedback from others, to determine their strengths and weaknesses. Praise and compliments are welcome reassurance of a person’s abilities. On the other hand, negative assessments should be clearly supported by observations and thoughtfully delivered. Whether it’s positive or negative, feedback can be constructive in addressing factors directly related to performance that a person can control. Knowing how to deliver constructive feedback is an important leadership skill for a manager. Constructive feedback can motivate workers to change their behavior, study new things, or adopt new attitudes. After receiving constructive feedback, an individual can decide whether or how to use it. Joseph Folkman, an expert in 360-degree feedback, says that those who want to achieve maximum success should learn how to accept any kind of feedback, analyze it in the most positive manner possible, and use it to influence future choices. Feedback in Organizations In work settings, people receive feedback through various mechanisms. Some are informal, like when a colleague offers a compliment or critique after hearing a presentation or reading a report. Other means are more formal and part of a formal performance assessment process. Performance Appraisal A performance appraisal (PA) or performance evaluation is a systematic and periodic process that assesses an employee’s job performance and productivity in relation to established criteria and organizational objectives. Other aspects of employee performance are considered as well, such as organizational citizenship behavior, accomplishments, potential for future improvement, strengths and weaknesses, etc. While performance appraisals are documented in writing, usually a manager will meet to provide and discuss feedback with an employee. Using specific examples of each behavior to support each assessment is helpful in indicating what someone needs to improve or do differently. 360-Degree Feedback In human resources, 360-degree feedback, also known as multi-rater feedback, multi-source feedback, or multi-source assessment, is feedback that comes from members of an employee’s immediate work circle. Most often, 360-degree feedback will include opinions from an employee’s subordinates, peers, and supervisor(s), as well as a self-evaluation. In some cases, it can also include feedback from external sources, such as customers and suppliers, or other interested stakeholders. The 360-degree assessment may be contrasted with “upward feedback,” where managers receive feedback only from their direct reports, and with traditional performance appraisal, in which managers give, rather than receive, feedback from subordinates. After-Action Reviews At the end of a project, team members benefit from reviewing how they worked together, how well they met project objectives, and whether they achieved the planned outcome. This after-action review entails a candid analysis of work product, communication practices, individual effort, coordination and planning, and other key aspects related to the project. The goal of this form of feedback is to apply lessons learned from one project to subsequent ones. Constructive feedback in this context is best delivered by focusing on actions and outcomes rather than blaming individuals when things do not go as planned. The Impact of the Office Environment on Employee Communication The main purpose of an office environment is to support its occupants in performing their jobs at minimum cost and with maximum satisfaction. Key Points • Effective communication among team members and others requires a physical environment that facilitates interaction. • • There are three types of office spaces, each with distinct purposes and functions: work spaces, meeting spaces, and support spaces. Decisions about the physical environment shape information flow, work processes, and social interactions. Key Term • accommodate—to render suitable; to adapt; to conform The main purpose of an office environment is to support its occupants in performing their jobs, preferably at minimum cost and with maximum satisfaction. In most organizations, work is accomplished by teams. Effective communication among team members and others requires a physical environment that facilitates interaction so individuals can coordinate activities, discuss and plan tasks, and manage interpersonal relationships effectively and efficiently. For this reason, the design of work spaces can be an important element in organizational performance. A more open physical space with few barriers can encourage casual communication. Creating clear lines of sight and easy access makes it easier for individuals to know who is present and available for interaction and to engage with them as needed. On the other hand, more private spaces, such as offices with doors, can create a more formal climate that distinguishes between roles and status. Highly desirable corner offices occupied by an executive are an example. Individual offices can also preserve confidentiality and discretion as needed, which is especially useful for meetings between managers and their team members or discussing personnel matters. Workplaces are typically divided into three physical areas: work spaces, meeting spaces, and support spaces. Each has it distinct function and purpose. The design of an organization’s physical environment requires a series of decisions about how the spaces will be used, by whom, and under what circumstances. Together, these choices can shape the flow of information, work processes, and interpersonal relationships. Organizing physical space according to the functional needs of the work can improve employee communication and satisfaction. Work Spaces Work spaces reflect company culture, the business or industry, and specific activities. Cubicles and private offices support individual activities, like reading, writing, and computer work; and private conversations, like performance reviews. Common types of group work spaces include include open, team, and shared office spaces. Work lounges may be available for informal conversations, and various sizes of conference rooms for formal meetings. Besides private offices and cubicles, study booths and touch-down spaces can also support individual work. Support spaces, like filing and storage areas, places for printers and copiers, mailrooms, pantries, break and reception areas, locker rooms, libraries, and even game rooms may be part of modern office design. Organizational Transparency Transparency in organizations is the extent to which its actions are observable by those inside and external to it. Key Points • • • Being transparent means operating in such a way that an organization‘s actions are visible. An organization’s communication norms and practices determine its degree of transparency. Transparency has three primary dimensions: information disclosure, clarity, and accuracy. Key Term • transparency—openness and accessibility Transparency in organizations is the extent to which its actions are observable by people externally, as well as by those within the organization. It is a consequence of regulation, social expectations, and explicit policies that establish the degree of openness to employees, shareholders, other stakeholders, and the general public. Transparency is an essential part of accountability since it allows for judgments about whether an organization is achieving its objectives, living up to its obligations, and operating consistent with its espoused values. Because transparency is the perceived quality of intentionally shared information, an organization’s communication practices and norms play an important role in shaping the visibility of its actions. Transparency has three primary dimensions: information disclosure, clarity, and accuracy. Information Disclosure Information disclosure includes choices about what type of information is shared and with whom, and the content and timing of communication. For example, managers who voluntarily share with environmental activists information related to a company’s ecological impact are practicing disclosure. Information can be a source of power, so people may hoard it to increase their influence over others; this tactic reduces transparency. Some information, such as personnel matters, is private; some, like strategic business plans, is commercially sensitive. Norms and policies about disclosure focus on criteria such as relevance and appropriateness to determine who has access to what information. Clarity Clarity refers to how easy it is to comprehend the information that is shared. Managers who limit technical terminology, fine print, or complicated mathematical notations in their correspondence with suppliers and customers are employing clarity. Communication practices that value quality of expression, attention to the needs of different audiences, and sensitivity to cultural and other differences, can help make an organization more transparent. Accuracy Accuracy means that available information has integrity, is truthful, and faithfully represents organizational decisions, policies, and practices. Where there is transparency, managers do not bias, embellish, or otherwise distort facts with the aim of misleading or misrepresenting reality. Organizations that value honesty, trust, and ethical practices encourage accuracy, thereby increasing transparency. Examples of Corporate Transparency Examples of decisions to increase corporate transparency include a firm voluntarily sharing information about its ecological impact with environmental activists; actively limiting the use of technical terminology, fine print, or complicated mathematical notations in correspondence with suppliers and customers; and avoiding bias, embellishment, or other distortions of known facts in the firm’s communications with investors. Wage disclosure is an example of corporate transparency. For example, in the United Kingdom, employees outside the boardroom are granted anonymity regarding pay levels. In 2009, a city minister proposed that the pay and identity of up to 20 of the highest-paid employees at British companies be disclosed; he also called for employees’ salary ranges to be disclosed. Following these guidelines would increase transparency: The public would have access to compensation information that is now kept from public view. Similar proposals have become increasingly common as high executive pay levels come under increasing scrutiny from shareholders and the public. Using Technology to Communicate Communication technology supports many types of messaging and information sharing in organizations. Key Points • • • Business communication often relies on technology to connect and facilitate the flow of information among individuals, groups, and organizations. Technology can enable real-time interaction or delayed response. The latter; that is, asynchronous communication, has gaps between when a sender transmits a message and when the recipient processes it. Communication technologies can support unidirectional information sharing, or more interactive and collaborate work. Key Terms • • • delayed response—the opposite of real-time response, such as a conversation unidirectional—communication designed to provide information or data that does not require a response real-time—instantaneous communication that requires an immediate response or engagement, like a conference call, or online or live meeting Business communication often relies on technology to connect and facilitate the flow of information among individuals, groups, and organizations. Email, messaging, video conferencing, and document sharing are fully integrated into work and how people interact in the workplace. Communication Technology Some technologies support simultaneous real-time interaction among individuals at more than one location. Examples include teleconferences and web chats. Other communication tools are asynchronous, meaning messages may be transmitted by senders and processed by recipients at different times. Email and digital documents, such as spreadsheets and presentations, are examples of asynchronous tools. Responses from recipients may be delayed, which means the sender must wait for confirmation that the message has been interpreted as intended and resulted in the desired action. Many mobile apps used on tablets and smartphones allow for both real-time and asynchronous communication. Communication mediated by technology can be unidirectional, flowing from a sender to one or more individuals, groups, or organizations. Unidirectional communication is typical when the sender primarily seeks to inform or influence the recipient(s). Electronic memos that are e-mailed or documents shared via computer servers are examples. Alternatively, communication can be intended as reciprocal and interactive. A collaboration tool such as Google Docs is an example. Organizations use communication technology to support and drive their business activities. Examples of technology used for business communication include • • • • • • • Email among employees, management, and customers Social media sites used to communicate with customers Video conferencing for meetings with remote workers SMS (texting) among employees Internet marketing and advertising Mobile marketing that targets consumers based on their location Mobile applications like QR codes and Shazam that provide information The predominance of communication technology in organizational life requires that employees have the skills to use them. Many organizations make training available, but increasingly employers expect prospective employees to be experienced users of desktop and even mobile technologies. Sensitivity and Etiquette in Business Communication Following professional norms, using proper etiquette, and being aware of and respecting cultural differences are all important to get a message across effectively. Key Points • Etiquette includes manners, courtesy, and politeness. • • Etiquette is culture-dependent. The etiquette in one culture may be shocking behavior in another culture. Failure to understand, be sensitive to, and adjust to different expectations of etiquette can impede successful communication. Key Term • etiquette—norms required by society or prescribed by authority that are observed in social or official life; convention, decorum; a ceremonial code Etiquette is part of interactions with coworkers, other business colleagues, customers, suppliers, and other stakeholders in enterprise. These norms are typically unwritten rules learned through socialization and experience, although some organizations have explicit written rules about conduct that involve etiquette. Practicing etiquette demonstrates respect, so effective communication requires that messages are sent and received in ways that are consistent with these norms. Business etiquette can vary significantly by country and geographic area. Etiquette is a core aspect of the culture and values that guide how people live and interact. Differences in etiquette can create challenges for cross-cultural communication in business. What is excellent etiquette in one society may be shocking in another. For example, in China, a person who takes the last item of food from a common plate or bowl without first offering it to others at the table may be viewed as a glutton who is insulting the host’s generosity. Traditionally, guests who do not have leftover food in front of them at the end of a meal in China have dishonored their host. Conversely, in the United States, when a guest eats all of the food they are served, it can be thought of as a compliment to the quality of the cooking. However, there too it is considered polite to offer food from a common plate or bowl to others first. If both parties are aware of and sensitive to differences in etiquette, they can avoid misinterpreting behavior or giving the wrong impression. Bowing is an important part of etiquette in Japan. Failing to understand, be sensitive to, and adjust to different etiquette expectations can impede successful communication. Credibility is essential in the ability to persuade, and perceived displays of disrespect can make it difficult to influence others. Etiquette reflects shared expectations of behavior and, thus, is an important basis for the good interpersonal relationships that facilitate effective communication. Proper etiquette is an important quality of professionalism; it is therefore vital for employees to learn the norms and practices of etiquette in the organizations and cultures in which they work.

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Robert__F
School: Cornell University

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organizing human capital
by HAL Lab

Submission date: 27-Feb-2019 11:07AM (UT C-0800)
Submission ID: 1084883575
File name: zing_Human_Capital_Business_Strategy_Analysis.edited.edited.docx (55.85K)
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Character count: 5841

organizing human capital
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Running Head: ORGANIZING HUMAN CAPITAL BUSINESS STRATEGY ANALYSIS

Organizing Human Capital Business Strategy Analysis
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ORGANIZING HUMAN CAPITAL BUSINESS STRATEGY ANALYSIS

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Organizing Human Capital Business Strategy Analysis
As mentioned in the previous section, Biotech stands out as a successful company in the
industry. The success of the company comes from multiple factors and aspects that help to push
its performance higher (Biotech Company Profile, n.d.). After addressing the concepts related to
the organizational culture and the ultimate communication plan, this paper looks at the human
resource planning that the company wi...

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