Human Resource Planning and Organizational Strategy
In a four- to five-page paper (excluding the title and references pages), discuss the relationship between human resource planning activities and the organization’s strategic development and implementation. Describe the eight elements of the staffing process. Examine the relationship between the eight elements of the staffing process and the four activities related to human resource planning.
Based on the information presented in Figure 10.5, review the human resource planning process and the previous readings from Chapters 4 and 8. Explain the relationship between the four activities of human resource planning and the organization’s strategic planning, development, and implementation.
Your paper should include in-text citations and references for at least three scholarly sources, in addition to the text, and be formatted according to APA style as outlined in the Ashford Writing Center.
Carefully review the Grading Rubric for the criteria that will be used to evaluate your assignment.
FIGURE 10.5 Human resource planning process
Plunkett, Warren R., Gemmy Allen, Raymond Attner. Management. Cengage Learning, 01/2012. VitalBook file.
CHAPTER 4 PLANNING AND STRATEGY
After studying this chapter, you should be able to:
1 Explain the importance of planning
2 Differentiate between strategic, tactical, operational, and contingency plans
3 List and explain the steps in a basic planning process
4 Discuss various ways to make plans effective
5 Distinguish between strategic planning, strategic management, strategy formulation, and strategy implementation
6 Explain the steps involved in the strategic planning process
7 Explain the formulation of corporate-level strategy, business-level strategy, and functional-level strategy
What do you want to accomplish with your life? To be successful, you need to be proactive, look ahead, anticipate change, and analyze opportunities. In other words, you need to plan and think strategically. This will help you to determine the potential impact of your actions on other individuals. As a result you will make better decisions.
Strategic thinking involves the gathering and use of data to make significant long-term decisions that will affect future business performance. This process requires examination of the mission, core functions and current performance of a business, the industry in which it operates, and the external environment. An important step in becoming a manager is to think strategically. For each of the following statements, circle the number which indicates your level of agreement. Rate your agreement as it is, not what you think it should be. Objectivity will enable you to determine your management skill strengths and weaknesses.
I set clear goals for myself.
I know what I value.
I seek advice from others.
I view problems as opportunities.
I anticipate how my actions will affect others.
I evaluate the pluses and minuses of different courses of action.
I can see the big picture.
I stay focused on my long-term goals.
My goals are achievable.
I evaluate my results on a regular basis.
Compute your score by adding the circled numbers. The highest score is 50; the lowest score is 10. A higher score implies you are more likely to be confident about your ability to think strategically. A lower score implies a lesser degree of readiness, but it can be increased. Reading and studying this chapter will help improve your understanding of strategy.
→ Do you feel confident about your ability to set goals? Do you analyze opportunities and problems from a broad perspective? Do you understand an action’s potential impact on others? If not, where do you want to improve?
Assessment adapted from Harvard ManageMentor, “Strategic Thinking Self-Assessment,” 2005.
This chapter begins our examination of the planning function with a self assessment. After arriving at definitions of planning and planning terminology, we examine the types of plans that managers create, the process used to create plans, barriers to planning, and techniques commonly used to make planning effective. Our examination extends by analyzing the processes and techniques involved in long-term planning for both an organization and its various subsystems. Through strategic planning, managers, their organizations, and the autonomous units or divisions of the organization identify and evaluate how they intend to effectively compete in their markets.
1 Explain the importance of planning
Planning is preparing for tomorrow, today. It provides direction and a unity of purpose for organizations and their subsystems. During planning, managers have five key responsibilities:
1. Construct, review and/or rewrite their organization’s mission.
2. Identify and analyze their opportunities.
3. Establish the goals they wish to achieve.
4. Identify, analyze, and select the course or courses of action required to reach their goals.
5. Determine resources they will need to achieve their goals.1
Preparing for tomorrow, today
Vision, Mission, and Core Values
Changing an organization in any significant way is a primary responsibility of top management. Every CEO must sense the need for a change, create a clear statement as to where the organization wants to be in the future (its vision), sell that vision to organizational members, create plans to achieve it, commit organizational resources to the effort, lead the effort by removing obstacles, and make certain that the organization’s progress is monitored. Managers require more vision than ever because change is coming faster than ever. Leaders have the ability to make their vision real by engaging the minds, as well as the hearts, of others.
A clear statement on where an organization wants to be in the future
An organization’s mission explains its purpose—its primary reason(s) for existence. It affects how every employee and process will operate. When a mission is formalized in writing and communicated to all organizational members, it becomes the organization’s mission statement. This is the touchstone by which all offerings are judged. America’s largest software company, Microsoft, began in 1975 with a one-sentence mission statement: “A computer on every desk and in every home.” This mission is interesting because Microsoft makes software, not computers. In addition, in 1975, almost no one had a personal computer at work, much less at home.
A clear, concise, written declaration of an organization’s central and common purpose; its reason for existence
A formalized, written mission communicated to all organizational members
The most effective mission statements are easily recalled and provide direction and motivation for the organization. “The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.” Notice the emphasis on quality—meeting customer needs—in this statement.
Since an organization exists to accomplish something in the larger environment, its specific mission or purpose provides employees with a shared sense of opportunity, direction, significance, and achievement. An explicit mission guides employees to work independently and yet collectively toward the realization of the organization’s potential. Thus, a good mission statement gets the emotional bonding and commitment needed. It allows the individual employee to say, “I know how I should do my job differently.”
For example, many people might think that The Walt Disney Company’s mission is to run theme parks. But Disney’s mission is always moving toward an expanded view, one of providing entertainment. Also, many people might think that Revlon’s mission is to make cosmetics. Yet, Revlon provides glamour and excitement. Charles Revson, Revlon’s founder, understood the importance of mission. He is rumored to have said “In the factory, we make cosmetics; in the store, we sell hope.”
While creating a mission statement, management expert Peter Drucker stated that two questions must be answered: What is our business? What should it be?2 These questions must be raised and answered periodically, not just when forming a business. The answer to the first question is determined in part by the customers an organization currently serves. Meeting their demands and needs has made the organization what it is. The answer to the second question is determined, in part, by the customers that an organization wishes to serve. The specific needs of identified customers, along with the firm’s experience and expertise, will dictate what products and services it creates and/or sells, what processes it uses, and what their levels of quality will be.
Once Drucker’s two questions are answered, the existing mission statement must be confirmed as valid or rewritten. The challenge for management is to transform the organization’s concepts and principles into something that anchors everything it does. Keep in mind that the leadership challenge for top management is to create a mission that captures the commitment of organizational members.3
A mission statement usually includes references to an organization’s core values and serves as an operational and ethical guide. A company’s core values are the fundamental principles it will not compromise. One core value any organization should embrace is the continual search for quality and productivity improvement.
Values that should never change; “bedrock principles”
Values serve as a baseline for actions and decision making and guide employees in the organization’s intentions and interests. The values driving behavior define the organizational culture. Patagonia, a small California-based sportswear maker, has at its core a deep respect for the individual. Patagonia experienced rapid growth, which brought with it a loss of the sense of family that its owner had worked so hard to create. After significant soul-searching, its employees agreed to reduce the size of the company and refuse any new business that would harm this core value. The decision fostered greater loyalty among Patagonia’s employees.
A strong value system or clearly defined culture turns beliefs into standards such as best quality, best performance, most reliable, most durable, safest, fastest, best value for the money, least expensive, most prestigious, best designed or styled, and easiest to use. If asked, “What do we believe in?” or “List our organization’s values,” all employees in the organization should write down the same values. For example, McDonald’s values are captured in its operating philosophy of “QSC&V,” which stands for quality, service, cleanliness, and value.
When companies do not ask Drucker’s two basic questions regularly or answer them in a less-than-satisfactory manner, they usually experience rather costly results. For example, before filing one of the biggest-ever corporate bankruptcy cases, Enron had admirable value statements, which included, “We treat others as we would like to be treated ourselves.” And, “We work with customers and prospects openly, honestly, and sincerely.” In reality, Enron kept hundreds of millions of dollars in debt off the company’s books in partnerships that were paying millions of dollars in fees to the Enron executives who ran them. Obviously, these values meant little to the company’s top managers.
Goals may be long term or short term. Long-term goals require more than one year to achieve. Southwest Airlines’ managers began planning by studying the company’s mission statement and determining its expertise. They assessed Southwest’s strengths and market opportunities. Only then did they establish the long-term goal of frequent, low-cost flights. This goal capitalized on Southwest’s experience, expertise, and reputation with existing customers.
Short-term goals can be reached within one year, and many are directly connected to long-term goals. Southwest had several such goals, including expanding service by adding routes in the U.S. and internationally. They’ve earned a title no other airline in the industry can claim: The only short-haul, low-fare, high-frequency, point-to-point carrier in America. Figure 4.1 defines the characteristics that make goals effective.
A plan—the end result of the planning effort—commits individuals, departments, entire organizations, and the resources of each to specific courses of action for days, months, and years into the future. It provides specific answers to six basic questions in regard to any intended activity—what, when, where, who, how, and how much.
The end result of the planning effort; commits individuals, departments, entire organizations, and the resources of each to specific courses of action for days, months, and years into the future
FIGURE 4.1 Characteristics of effective goals and strategies
• What identifies the specific goals to be accomplished.
• When answers a question of timing: each long-term goal may have a series of short-term objectives that must be achieved before the long-term goal can be reached.
• Where concerns the place or places where the plan will be executed.
• Who identifies specific people who will perform specific tasks essential to a plan’s implementation.
• How involves the specific actions to be taken to reach the goals.
• How much is concerned with the expenditure of resources needed to reach the goals—both short- and long-term.
In setting goals, more businesses are “junking business-as-usual incremental objectives—moving a few grains of sand—and striving instead to hit gigantic, seemingly unreachable milestones called stretch targets.”4 On one hand, top managers are recognizing that achieving incremental improvements invites middleand lower-level managers as well as workers to perform the same comfortable process a little bit better each year. However, even the best-maintained equipment can become obsolete.
On the other hand, stretch goals (dubbed “Big Hairy Audacious Goals” or BHAGS [pronounced bee-hags] by management analyst James Collins) require great leaps forward on such measures as product development time, return on investment, sales growth, quality improvement, and reduction of manufacturing cycle times.5 Walter Todd, the head of operations for PepsiCo UK and Ireland as well as the vice president of sustainability for the company’s European operations, explains PepsiCo’s use of BHAGS.
Goal that requires great leaps forward on such measures as product development time, return on investment, sales growth, quality improvement, and reduction of manufacturing cycle times
One of the ways that we have triggered innovation is by setting big hairy audacious goals. This forces us to look at every area of our operations and encourages ideas to bubble up. We want to engage people about what a future possibility would look like. If you come up with a commitment, say to reduce energy by 3% next year, you will not get people engaged or any real financial engagement. But if you set an engaging vision, you can get a coalition of people excited by the possibilities. 6
Strategies and Tactics
A course of action created to achieve a long-term goal is called a strategy. Strategies may exist for an entire organization or for its autonomous units or functional areas. A course of action designed to achieve a short-term goal—an objective—is called a tactic. Mission defines strategy. Objectives must be achieved in order to reach a long-term goal. Therefore, strategies influence and often dictate the choice of tactics.
A course of action created to achieve a long-term goal
A course of action designed to achieve a short-term goal; an objective
At Southwest Airlines, creating and successfully managing the company’s growth required achieving a sequential set of objectives through a variety of tactics. A strong management team had to be built. People had to be recruited and hired to facilitate the logistics and daily operations of a successful airline. Money had to be raised to finance related activities. New customers had to be adequately served.
One additional example illustrates the connection between a strategy and tactics. An individual seeking a two- or four-year college degree has a strategy (and a goal) that requires two or more years to complete. The strategy requires a sequence of tactics that, semester after semester, will yield the short-term goals—successful completion of courses in their proper sequences—that ultimately lead to the achievement of the strategic goal—a college degree.
Determining Resource Requirements
The best-made plans will not be executed if they lack the resources required. Most plans need various resources, including people, money, facilities, equipment, supplies, and information. Among other things, companies need technology to accomplish their plans. An investment in technology can improve business processes and give companies a competitive advantage.
TYPES OF PLANS
2 Differentiate between strategic, tactical, operational, and contingency plans
For an organization to accomplish its goals at all organizational levels—top, middle, and first-line—it must develop three types of mission-based plans: strategic, tactical, and operational (as shown in Figure 4.2). Each must work in harmony with the others if the organization’s mission and long-term goals are to become reality.
FIGURE 4.2 The relationship between goals, objectives, and plans in organizational planning
Planning for Diversity at Accenture
Accenture—a global management consulting, technology services, and outsourcing company—moved women’s issues onto the company’s global agenda. As part of Accenture’s commitment to building a diverse workforce, the company participates in International Women’s Day, which honors the economic, political, and social achievements of women. The company’s Global Women’s Initiative offers programs such as mentoring and networking opportunities to ensure that Accenture’s women continue to succeed.
Working Mother magazine has named Accenture to its annual list of “100 Best Companies for Working Mothers” for years. In 2009, the magazine featured a topic “What We Love” for each company on the list. For Accenture, the magazine ‘loved’ several things, including the following.
A deeply entrenched women’s interests group with 27 chapters boasts more than 5,000 members (nearly half of all female employees), while the national women’s networking group offers a rotating slate of monthly events, including mentoring meet-andgreets, skill-refining seminars and power breakfasts for newly hired or promoted executives.
Accenture integrates its diversity initiative with its strategic planning. The company uses International Women’s Day to celebrate with employees, while increasing awareness of women’s initiatives. Employees have the opportunity to connect and learn from one another.
Like any business goal, there must be quantifiable measures to gauge the progress toward achieving it. Accenture uses geographic scorecards, global surveys, and performance appraisals to ensure that management remains accountable for the initiative’s success. Women at Accenture have advanced since the inception of the initiative. The percentage of female promotions and female “partners,” or senior-level executives, has increased.
→ Diversity includes the full range of talents, skills and experiences in a set of individuals. How does Accenture benefit from diversity?
Sources: Accenture, “Accenture International Women’s Day 2010,” March 2, 2010, http://www.accenture.com/Countries/Singapore/About_Accenture/Business_Events/Women-Day-2010.htm; “Working Mother 100 Best Companies 2009,” Working Mother, http://www.workingmother.com/BestCompanies/work-life-balance/2009/08/accenture.
A strategic plan contains the answers to who, what, when, where, how, and how much for achieving strategic goals—long-term, company-wide goals established by top management. Strategic goals focus on the changes desired in such areas as productivity, product innovation, and responsibilities to stakeholders.7 Accenture has made valuing the diversity of its employees a strategic goal and—as this chapter’s Valuing Diversity feature points out—a duty for all its managers. The strategic plan is concerned with the entire organization’s direction and purpose—how it intends to grow, compete, and meet its customers’ needs—over the next few years.
Contains the answers to who, what, when, where, how, and how much for achieving strategic goals; long-term, companywide goals established by top management
Strategic planning draws heavily on the leadership abilities of managers. A manager’s business philosophy should include three key ingredients: (1) define your mission, (2) execute, and (3) “Treat people as you would want to be treated.” Regardless of whether a company is large or small, leaders are required to see—have a vision—of where the company needs to go and to design the fabric of actions—organize, staff, lead, and control—so the future becomes a reality.
Just how far into the future a strategic plan will stretch is determined by the degree of certainty that managers have about the external environmental conditions and the availability of needed resources. Every strategic plan deals with many hard-to-predict but important future events in external environments: Will there be a recession? Will inflation continue at its current rates? How will local, state, and federal regulations change? What will the competition do? Answers to these questions are difficult to predict over a one-year period, let alone a five-year span. For this reason strategic plans must be regularly reviewed and adjusted for changes that occur in their time frame. They must be viewed as works in progress.
Just as one person’s ceiling can be another person’s floor, the completion of one manager’s plan marks the beginning of planning efforts by another. Top management’s strategic plan becomes the foundation for middle-level managers’ planning efforts that produce tactical plans. Figure 4.3 illustrates how tactical and then operational objectives evolve from strategic goals.
Developed by middle managers, a tactical plan is concerned with what each of the major organizational subsystems must do, how they must do it, when things must be done, where activities will be performed, what resources are to be utilized, and who will have the authority needed to perform each task. Tactical plans are more detailed, have shorter time frames and narrower scopes than strategic plans; they usually span one year or less.
Developed by middle managers, this plan has more details, shorter time frames, and narrower scopes than a strategic plan; it usually spans one year or less
Strategic and tactical plans are usually but not always related. Every strategy requires a series of tactical and operational plans linked to each other to achieve strategic goals; middle managers, however, do create plans to reach what are uniquely departmental, divisional, or team goals, both for the short and long term. All tactical plans are related to reaching the company’s strategic goals. Two such plans might involve the following:
• To reduce fourth quarter unit costs without sacrificing the quality of customer service
• To consolidate retail stores from nine to six in five months
FIGURE 4.3 An organization’s mission and level of goals
Following logically from the strategic goals are tactical objectives: short-term goals set by middle managers that must be achieved in order to reach top management’s strategic goals and the short- and long-term goals of middle managers. Once a company devises the tactical plan, it probably forms teams and assigns team members specific duties.
An operational plan is developed by first-line managers—supervisors, team leaders, and team facilitators—in support of tactical plans. The operational plan is the first-line manager’s tool for executing daily, weekly, and monthly activities. Operational plans fall into two major categories: single-use and standing plans.
The first-line manager’s tool for executing daily, weekly, and monthly activities. Operational plans fall into two major categories: single-use and standing plans
A one-time activity—an activity that does not recur—requires a single-use plan. Once the activity is completed, the plan is no longer needed. Two examples of single-use plans are programs and budgets. A program is a single-use plan for an operation from its beginning to its end. An example would be to gain influential reviews for a company’s new line of computers. Once the reviews were obtained, the plan would cease to be of value. In addition, an example would be a program to handle a company’s participation in an industry trade show, where it could meet the head buyers for the computer retailers.
A single-use plan for an operation from its beginning to its end
Another single-use plan is a budget. It is a plan that predicts sources and amounts of income that will be available over a fixed period of time and how those funds will be used. Most companies need several budgets, for example, one for total annual operations, another to back efforts to hire new personnel, and another to launch new routes. Budgets prepared at various levels help to control spending in an organization and in its autonomous subsystems. When the specified period for a budget ends, it becomes a historical document and often proves useful for future budgeting efforts.
A single-use plan that predicts sources and amounts of income that will be available over a fixed period of time and how those funds will be used
Unlike budgets and programs, a standing plan specifies how to handle continuing or recurring activities, such as hiring, granting credit, and maintaining equipment. Once constructed, a standing plan continues to be useful over many years but is subject to periodic review and revision. Examples of standing plans include policies, procedures, and rules.
A policy is a broad guide for organizational members to follow when dealing with important and recurring areas of decision making. They set limits and provide boundaries for decision makers. Policies are usually general statements about the ways in which managers and others should attempt to handle their routine responsibilities. Figure 4.4 presents a policy governing hiring and other human resource decisions that was created to conform to federal antidiscrimination guidelines issued by the Equal Employment Opportunity Commission. Policies are not prescriptive. They state a viewpoint the company wants its managers to adopt when conducting ongoing operations. Policies can sometimes be controversial and create ethical issues, as this chapter’s Ethical Management feature points out.
A broad guide for organizational members to follow when dealing with important and recurring areas of decision making. They set limits and provide boundaries for decision makers
Privacy at Work: Company Policy and the Law
Are workers entitled to privacy? Although some companies have clearly told their employees about monitoring and have received their consent as a condition for being hired, others have not done so. Privacy advocates worry that most state laws do not specify how information gathered by employers on employees can be used or with whom it can be shared.
Federal law allows companies to monitor their employees’ behaviors and conversations, when the communications relate to the employer’s business. Many of these laws rule out almost nothing. In response, employers are creating policies to keep a tighter rein on employees for a variety of reasons, the least of which determines how they use their time on the job. These policies tell employees that they will be, are being, or can be monitored at work and authorize a variety of monitoring techniques: listening to employees’ business-related telephone calls and voice mails, hiring private investigators to pose as workers, reading computer-to-computer messages, viewing and listening to videos with audio taken by company cameras, and tracking employees by global positioning system (GPS) and Radio Frequency Identification Devices (RFID).
Many employers monitor their employees (Hoffman, Hartman and Rowe). Electronic evidence is an increasingly important element in litigation. The Privacy Rights Clearing House (2010) summarized the findings of a recent study.
A 2007 survey by the American Management Association and the ePolicy Institute found that two-thirds of employers monitor their employees’ web site visits in order to prevent inappropriate surfing. And 65% use software to block connections to web sites deemed off limits for employees. This is a 27% increase since 2001 when the survey was first conducted. Employers are concerned about employees visiting adult sites with sexual content, as well as games, social networking, entertainment, shopping and auctions, sports, and external blogs. Of the 43% of companies that monitor e-mail, nearly three-fourths use technology to automatically monitor e-mail. And 28% of employers have fired workers for e-mail misuse.
Close to half of employers track content, keystrokes, and time spent at the keyboard. And 12% monitor blogs to see what is being written about the company. Another 10% monitor social networking sites.
Almost half of the companies use video monitoring to counter theft, violence and sabotage. Of those, only 7% state they use video surveillance to track employees’ on-the-job performance. Most employers notify employees of anti-theft video surveillance (78%) and performance-related video monitoring (89%).
→ What ethical questions are raised when companies create policies authorizing the monitoring of employees?
→ As a manager, under what circumstances would you create a policy authorizing the monitoring of employees?
Sources: Privacy Rights Clearinghouse, “Workplace Privacy and Employee Monitoring,” Revised June 2010, http://www.privacyrights.org/fs/fs7-work .htm; Hoffman, W. Michael, Laura P. Hartman and Mark Rowe, “You’ve Got Mail . . . And the Boss Knows: A Survey by the Center for Business Ethics of Companies’ Email and Internet Monitoring,” Business and Society Review, 2003 http://www.bentley.edu/cbe/documents/You’ve_Got_Mail_._._._And_The_Boss_Knows.pdf.
A procedure is a set of step-by-step directions for carrying out activities or tasks. Companies create procedures to prepare budgets, pay employees, prepare business correspondence, and hire new employees. Like policies, they help to guarantee that recurring, identical activities will be done in a uniform way regardless of who executes them. When followed, procedures give precise methods for completing a task.
A set of step-by-step directions for carrying out activities or tasks
FIGURE 4.4 Human resources policy
Managing Web 2.0
Most businesses provide employees with a computer, Web access to email, and software necessary to do their jobs. A common rule is that employees only utilize the software applications supported by the company’s information technology (IT) department. The major reason for this rule is security. Downloading software applications and sharing files makes networks vulnerable to viruses. Furthermore, companies don’t want their sensitive corporate data leaked.
Yet, this IT rule keeps employees from doing what they normally do. Today’s employees commonly use more technology than what is supported by the company. Their work lives overlap their private lives, as they use their work devices for personal matters. For example, employees are reading email and sending text messages on their iPhones or Blackberries, connecting with friends on Facebook, researching on Wikipedia, and playing video games on a console. This wide variety of self-provisioned tools can be seen in the graphic below. (Cloud-based services in the graphic are Internet-based services.)
These IT departments sometimes create barriers and ignore technology populism, defined by Forrester Research as “an adoption trend led by a technology-native workforce that self provisions collaborative tools, information sources, and human networks—requiring minimal or no ongoing support from a central IT organization” (Brown). If IT changes the rules and gives employees access to devices and software applications, employees can create contacts among themselves and with customers. This could lead to improved products and services, as well as increased customer satisfaction.
→ Which of the self-provisioned tools depicted in the graphic above do you normally use? What would you think if your employer ruled that you could not use them at work?
Source: Matthew Brown, Kyle McNabb, Rob Koplowitz and others, “ Embrace the Risks and Rewards of Technology Populism,” Forrester Research (February 22, 2008).
Consider the following six-step procedure required to process a customer’s return of merchandise at a local discount chain store:
1. Determine customer’s need: return and refund or exchange.
2. Verify that purchase (cash or charge) was made at this store.
3. Inspect merchandise for damage.
4. Consult store return policy; apply information obtained in steps 1 to 3.
5. Issue exchange, refund, or credit as applicable.
6. Deny return and explain reason(s) in line with store policy.
Only after performing each step in the proper sequence can an employee grant an exchange, refund, or credit to a customer.
A rule is an ongoing, specific guide for human behavior and conduct at work. Rules are usually “do” and “do not” statements established to promote employee safety, ensure the uniform treatment of employees, and regulate civil behavior. Unlike policies but like procedures, rules tell employees what is expected in given sets of circumstances. A rule that prohibits smoking on company premises allows for no exceptions. Many businesses insist that the users utilize only the software applications information technology (IT) supports, as discussed in Managing Web 2.0.
An ongoing, specific guide for human behavior and conduct at work. Rules are usually “do” and “do not” statements established to promote employee safety, ensure the uniform treatment of employees, and regulate civil behavior
Procedures and rules offer the advantage of standardizing behavior but restrict individual creativity and encourage blind obedience. The more both exist, the less freedom employees have to adjust to changing situations. Figure 4.5 offers additional insights into policies, programs, procedures, and rules.
Operational objectives spell out for managers, work groups, and individuals the specific results they should achieve. The Boeing first-line manager in charge of a specific assembly operation has regular daily, weekly, and monthly objectives to achieve in areas such as scheduling overtime, completing work on time and on budget, protecting and allocating various resources, and reducing waste and scrap.
Unified Hierarchy of Goals
The result of planning should generate a unified framework for the accomplishment of the organization’s purposes. The use of the traditional management pyramid as a model for the planning process results in a hierarchy of objectives in which the work of each subsystem complements that of the next; goals at each level mesh with or fit into each other. In Figure 4.6, for illustrative purposes, a single goal occupies each subunit; in reality, multiple goals are the norm. The figure shows that top management has determined the strategic goal for the entire organization. Middle management has established tactical objectives for the functional areas of marketing and manufacturing. Finally, the first-line managers within each functional area have created objectives for their work groups. The outcome is a coordinated hierarchy of objectives.
But what happens if an individual manager chooses not to plan within this framework? If a manager develops a set of objectives based on his or her own ambitions, values, or goals that oppose or contradict top management’s goals, conflicting objectives will result. In the example of the shoe company in Figure 4.6, imagine that the marketing manager has misinterpreted top management’s objective. Instead of reaching all potential sources of profitable sales, the marketing manager asks the operating sales manager to seek out all potential buyers. Thus, salespersons will call on and sell to every potential buyer, regardless of the potential size of the order or the cost that the company will incur in servicing that order. The result is bound to be sales to some small or bad-credit accounts that will cause the company losses.
FIGURE 4.5 The advantages of and requirements for policies, programs, procedures, and rules
Planning should provide the ability to adjust to rapidly changing situations. In most companies, environments change so rapidly that plans must be continually altered as they are being made; at worst, they may actually become useless before they have been totally constructed or fully implemented. To remain as flexible and open to change as possible, managers should create a contingency plan: an alternative goal and course or courses of action to reach that goal if and when circumstances and assumptions change so drastically as to make an original plan unusable.
An alternative goal and course or courses of action to reach that goal, if and when circumstances and assumptions change so drastically as to make an original plan unusable
Through contingency planning, managers recognize and prepare for emergencies and other unexpected events that have both positive and negative impacts on their organizations. Examples of contingency plans include those that deal with the need to conduct a product recall, natural and human-made disasters that disrupt normal operations, and rapidly increasing demand for products and services that can outstrip the ability of current facilities to accommodate. A manager who says, “What will I do if . . . ?” and, “If this happens, then I will . . . ” is a contingency planner.
FIGURE 4.6 Hierarchy of unified goals and objectives
BASIC PLANNING PROCESS
3 List and explain the steps in a basic planning process
When developing a plan, all managers, regardless of their organizational level, follow some kind of step-by-step process to guide their efforts. Figure 4.7 details a recommended basic planning process that can be used to create tactical and operational plans. As each step is explained, consult Figure 4.8 for applications. The latter highlights how an operating-level manager applied each step in the process to achieve the objective of keeping the office staffed during extended business hours.
FIGURE 4.7 Steps in a basic planning process
When setting objectives, middle and operating managers focus and commit the attention and energies of their respective personnel, divisions, and departments for several months into the future. The selection of objectives (and the courses of action to achieve them) is influenced in part by the organization’s mission and values; the strategic plans and goals; the standing plans; the environmental conditions; the availability of resources; and the philosophies, ethics, accumulated experience, and expertise of its managers. Before being finalized, each objective should possess the characteristics outlined in Figure 4.1.
Note the first-line manager’s objective in Figure 4.8—to ensure that the office is staffed from 8 A.M. to 9 P.M., Monday through Thursday. A date for its achievement has been established. The goal has the characteristics for effective objectives previously listed in Figure 4.1. The objective is specific, measurable, realistic, and probably challenging. It focuses on a key result area, covers a specific time period, and will likely lead to some form of reward for the manager involved.
Analyzing and Evaluating the Environment
Once objectives are established, managers must analyze their current situations and environments to determine what resources they will have available and what other limiting factors such as company policies they must consider as they evaluate possible courses of action or tactics. When assessing the internal environment, managers must consider what human, material, financial, time, and informational resources are available and the needs of internal customers. When assessing the external environment, managers must consider such elements as the strengths and weaknesses of suppliers and partners, the availability of additional labor and technology, and the needs of external customers. Choices and commitments made by managers as they plan must not jeopardize efforts to continually improve quality, productivity, or profitability.
FIGURE 4.8 A first-level manager applies the basic planning process
Returning to Figure 4.8, the supervisor has listed the results of an environmental analysis and states limits as well as resources available. The office must be staffed for at least four additional hours, four days per week. Company policies limit overtime and compensatory time and require a limited benefit package for part-time employees working 15 hours per week.
Identifying the Alternatives
Courses of action available to a manager to reach a goal represent alternate paths to a destination. When developing alternatives, a manager should try to create as many roads to each objective as possible. These alternatives may be entirely separate ways to reach a goal, as well as variations of one or more separate alternatives. When listing alternatives, managers usually invite people with relevant knowledge and experience to contribute suggestions. Allowing those who will have to execute a chosen alternative to be part of the process helps to ensure a commitment on their part to make the alternative work.
Notice that in Figure 4.8 the manager has listed four potential alternatives from which to choose. Each alternative represents a possible way to achieve the staffing objective. Which alternative is best, given the situation as outlined, is determined in the next step and should not be determined until then. Attempting to analyze courses of action in this step will only inhibit a free flow of alternatives and thus result in an incomplete listing of possible alternatives.
Evaluating the Alternatives
Each alternative must be evaluated to determine which one or which combination is most likely to achieve the objective effectively and efficiently. Most managers begin their evaluation by constructing a list of advantages (benefits) and disadvantages (costs) for each alternative. Managers then return to the second step to make certain that each alternative fits with the resources available and within the identified limits.
Managers need to know the kind and amount of resources, including time, which each alternative will require. They must create an estimate of the costs for each course of action and relate these to the dollar value of the benefits expected. If, for example, $1,000 will be spent to gain an objective valued at a lesser amount, the alternative is inefficient and an unlikely choice.
In addition to financial factors, managers consider the effects each alternative is likely to have on organizational members, the organizational unit, and others outside the area of operations in which the planning is taking place. Possibly, certain side effects, both good and bad, will result from the implementation of an alternative. Managers should determine these effects before they finalize the plan.
Notice the evaluation of each alternative in Figure 4.8. All alternatives have positives and negatives. The manager should choose the one with the greatest number of positives and the fewest or least serious negatives.
Selecting the Best Solution
The analysis of each alternative’s benefits and costs should result in determining one course of action that appears better than the others. If no single alternative emerges as a clear winner—the one with the most advantages and the fewest serious disadvantages—managers should consider combining two or more, either in part or in their entirety. The alternatives not selected may be considered as possible fallback positions—as choices for a contingency plan.
The supervisor in Figure 4.8 decided on alternative 4. The unanswered question is whether available funds will attract the needed two part-timers. If not, the supervisor should choose one of the other alternatives to achieve the staffing objective.
Implementing the Plan
After they have completed the tactical or operational plan, their creators need to develop an action plan to implement it. Among the issues to be resolved are the following: Who will do what? By what date will each task be initiated and completed? What resources will each person have to perform the tasks? In Figure 4.8, the supervisor has listed a time frame by which all necessary activities must be initiated or completed. He or she will do many of the activities with the assistance of the organization’s human resources manager, if the latter exists.
Controlling and Evaluating the Results
Once the plan is implemented, managers must monitor the progress being made and be prepared to make necessary modifications. Since environmental conditions are constantly changing, plans must often be modified. Modifications may also be required because of problems with a plan’s implementation. In Figure 4.8, the manager has developed monitoring duties to provide for control and evaluation of the plan. The manager has another alternative ready if the first choice does not work.
MAKING PLANS EFFECTIVE
4 Discuss various ways to make plans effective
All planning is based on assumptions (what planners believe to be true and real) and forecasts (predictions about the probable state of relevant conditions over the span of time covered in their plans). All assumptions and forecasts appear to be reasonable and valid at the time planners make the plans. Managers examine available current data and historical records, consult with others as appropriate, and generate required information they may need to make their assumptions and forecasts. Contingency planning requires the same managers to plan for the “what if?” The assumption behind contingency planning is that circumstances can and are likely to change, and organizations must be ready for the changes.
Managers make assumptions and forecasts. They provide the leadership to grow the business by looking for opportunities that will capitalize on the company’s reputation and expertise. Through continual research and the help of knowledgeable outsiders, the manager can successfully predict the future for its products and create most of the company’s long-term goals and strategies to become a major player in its market. The top manager must create and execute several additional strategic and tactical plans related to marketing, finance, production, and human resources management as he or she gains wisdom and insights through experience.
When done properly, planning should enable managers to avoid making mistakes, wasting resources, and experiencing surprises. However, all risks and threats may not be foreseen. The airlines did not expect the terrorist attacks on 9/11 (September 11, 2001).
There are two obvious approaches to making planning more effective: Improve the quality of both assumptions and forecasts. After briefly examining these approaches, two planning tools are discussed. Chapter 6 examines several additional tools as they relate to both planning and decision making.
Improving the Quality of Assumptions and Forecasts
Managers increase the probability of success in planning by beginning the process with quality information. To do so, they must acquire facts and information that are as current and reliable as possible. They must also develop multiple sources for acquiring or generating needed information. By acquiring information internally from various departments and externally from industry research groups, government reports, trade journals, customers, and suppliers, managers can include multiple viewpoints in a plan and thus improve the quality of assumptions and forecasts. Information from marketing, sales, and customer service can be integrated into a database to estimate (or calculate) the value of each customer.
Forecasting Leads Mercedes to Alabama
What led giant Mercedes-Benz to build its first U.S. manufacturing facility in Alabama? The answer lies, in part, with its economic and business forecasts for the U.S. market for all-purpose utility vehicles (APUVs), such as the Jeep Cherokee and Ford Explorer. Mercedes planners saw the United States as the largest and fastest growing market for APUVs. Auto analysts predicted the market was too crowded, but Mercedes planners believed that the company name, its selling price, and its quality reputation would be more than adequate to gain the foothold it sought in the United States and to build on it.
Based on their own assumptions and forecasts, several major Mercedes suppliers built factories nearby or geared up to produce greater supply amounts, as did Dunlop Tire in Huntsville, Alabama. All this activity occurred even though the production version of the vehicle had not been finalized!
Original projections were for 65,000 M-Class Sport Utility Vehicles to be built each year. Over the years, based on demand, the factory has almost doubled in size and production has increased to 80,000 vehicles, including M-Class, R-Class, and GL-Class. In addition, the plant is Alabama’s largest exporter.
→ What internal information and outside resources do you think the Mercedes-Benz planners used to develop the forecast for the M-Class?
Sources: Mercedes-Benz U.S. International History, 2010, <http://www.mbusi.com/pages/corporate_history.asp>; Sara Lamb and Sherri Chunn, “Mercedes Rolls in with New Age,” Chicago Tribune, December 3, 1995, sec. 12, p. 7.
In forecasting, the organization’s managers concentrate on developing predictions about the future. Along with internally generated budgets, managers must develop forecasts that will predict with some degree of certainty the conditions likely to exist in all areas of the internal and external environments.
A planning technique used by an organization’s managers to concentrate on developing predictions about the future
In developing forecasts, managers rely on both internal information and outside resources. This chapter’s Global Applications feature, which illustrates both, speaks to the assumptions and forecasts behind the expansion of Mercedes-Benz into the U.S. market.
Managers can also improve the quality of their planning by applying a variety of planning tools and techniques. Two that apply to tactical and operational planning are management by objectives and linear programming.
Management by Objectives One of the most effective aids to help managers set objectives originated with management expert Peter Drucker.8 Management by objectives (MBO) is a technique that emphasizes collaborative objective setting by managers and their subordinates. The idea behind MBO is that the manager and the subordinate jointly determine objectives for the subordinate. The subordinate proposes objectives to be reached over some agreed-on time period. The manager gives his or her approval or recommends modifications and additional objectives. MBO usually results in employees who are more committed to the achievement of the objectives than they might be if they were not involved in setting them.
management by objectives (MBO)
A technique that emphasizes collaborative setting by managers and their subordinates
Hoshin Planning and MBO
Peter Drucker introduced management by objectives (MBO) in his 1954 classic book The Practice of Management. Over the years, quality managers have enhanced MBO with Hoshin planning, sometimes referred to as hoshin kanri, strategy deployment, or policy deployment. Hoshin is Japanese for setting an objective or direction. Kanri is Japanese for management.
Hoshin kanri is depicted by a ship’s compass, which gives the ship clear direction toward the North Star, especially during a storm. The North Star represents the plan, the compass represents direction, and the ship represents the company. Management can measure progress on the plan. When the company gets off plan, clear direction of top management’s vision helps it to get back on plan.
Hoshin planning targets work improvement, especially quality, productivity, and customer relationships. Thus, strategy is expressed as key challenges, such as defect-free products and individual problem solving. Managers lead and guide employees as they improve and solve their own problems. Thus, planning is integrated throughout the whole organization.
Hoshin planning is depicted in the graphic below. It provides focus on the vital few strategic priorities: alignment with annual planning, integration with daily management, and review by business analysis. Hoshin planning overlaps the Plan-Do-Check-Act (PDCA) cycle, discussed in the Quality Management feature of Chapter 3, which included the following steps: Plan the work—establish the objectives and processes to achieve the desired results; Do the work—implement the processes; Check the work—monitor and measure what actually happens against the plan and report the current status to make it visible to all; Act—adjust results to accomplish the plan; continually improve the processes and performance.
→ It is the manager’s job to make sure employees succeed at their jobs. Hoshin planning requires managers to engage employees and guide them to deeper knowledge and experience. Employees recognize their own problems and solve them jointly. How does this process help develop people so they can achieve the organization’s objectives?
Some of the objectives chosen by subordinates are directly linked to those of the manager—that is, the accomplishment of the objectives will assist the manager in reaching his or her goals. Other objectives set by subordinates are for their own growth and development. A set of verifiable, written objectives for the subordinate to achieve should be created, along with priorities and timetables for each.
Although employees are working toward the accomplishment of their objectives, managers should hold periodic review sessions. A supervisor may authorize modifications to the objectives or their timetables as circumstances dictate. At the end of the agreed-on time period, the manager and subordinate hold a final review session to evaluate the results and repeat the process. The subordinate is evaluated on the basis of whether the objectives were accomplished, how effectively and efficiently they were achieved, and what was learned in the process. Rewards are usually linked to each of these elements. Hoshin Planning is used by quality managers to enhance MBO, as discussed in this chapter’s Quality Management.
Linear Programming Linear programming is a planning tool that can be used to determine the optimum combination of resources and activities. Consider the situation faced by many small manufacturers such as Armco Products, a producer of patio chairs, loungers, and footstools. Although these products share some basic components (metal framing, fabric webbing, and plastic feet) and manufacturing processes, they each deliver different costs and profit margins and sell in different quantities. Due to facilities limitations, small companies like Armco usually produce only one product line at any given time (chairs, loungers, and so on). Determining just how much to manufacture can be complex, and making the transition from the production of one product line to another is costly and time consuming. Such factories use software programs to help with linear programming and other types of planning. The programs factor in the effects of dozens of variables and provide a limitless number of optimum solutions for a variety of market conditions.
Barriers to Planning
All managers want their plans to be effective and efficient—to yield the desired results with a minimum of resources. They must be aware of the potential barriers to successful planning and work to avoid or overcome them.
• Inability to Plan—People are rarely born with the ability to plan. Until they gain experience, their planning efforts usually require improvements. Most people, however, can improve their planning efforts with training and practice.
• Lack of Commitment to the Planning Process—Another barrier to effective planning is the lack of commitment to planning. Some managers prefer to react to situations, rather than trying to anticipate events through planning. Another possible reason for a lack of commitment can be fear of failure. This outcome can result if the organizational environment discourages innovation and punishes failures.
• Inferior Information—Out-of-date or inaccurate information can have devastating effects on plans. An effective information management system can help prevent such deficiencies (see Chapter 15). The ability to identify and track key variables—indicators that predict “coming business conditions”—is a characteristic of many good management planners.9
• Lack of Focus on the Long Term—Failure to consider the long term because of emphasis on short-term problems and results will lead to trouble. Too much emphasis on the current year’s sales and profits can turn the manager’s attention away from long-range goals needed to guarantee survival and future profits. The remedy lies, in part, with evaluating how well managers engage in long-term planning as a portion of their regular performance evaluations. Unless the emphasis on planning long term comes from the top, however, strategic planning will be ignored in favor of tactical planning.
• Overreliance on the Planning Department—Many large organizations have planning departments to help managers plan and provide more professional presentations of plans to higher levels. Although these departments may use the latest tools and techniques to conduct studies, build models, and generate forecasts, they may ignore the managers they exist to serve. The value of the vast experience acquired by managers outside the planning department is often ignored. Planning departments may assume that the more sophisticated the planning tools and methods, the more reliable the plans. Planning can become, in such cases, an end in itself rather than a means to an end—goal achievement.
• Overemphasis on Controllable Variables—Managers may find themselves concentrating on the things and events within their control and failing to adequately consider factors beyond their control. They may see little value in attempting to devise a plan that includes such variables as future technologies, economic forecasts, and possible moves by competitors, because these variables are too difficult to accurately predict. Managers who ignore future developments in these areas, however, risk being surprised and pushed into a reactive planning mode. Managers must make educated guesses about the future, remain flexible by reviewing their plans at regular intervals, and make adjustments to the plans as needed.
NATURE OF STRATEGIC PLANNING AND STRATEGIC MANAGEMENT
5 Distinguish between strategic planning, strategic management, strategy formulation, and strategy implementation
All companies engage in strategic planning as an element of strategic management. Strategic management is top management’s responsibility; it defines the firm’s position, formulates strategies, and guides the execution of long- term organizational functions and processes. The ultimate purpose of strategic planning and strategic management is to help position the organization to achieve a superior competitive fit in its environment in order to achieve its goals.10
A responsibility of top management, it defines the firm’s position, formulates strategies, and guides the execution of longterm organizational functions and processes
Companies both large and small undertake strategic planning to respond to competitors, cope with rapidly changing environments, and effectively manage their resources—all within the context of their missions.11 With a sharp strategic focus, a company can accomplish all of its goals, a point recognized by Southwest Airlines. Low-fare air service is Southwest’s easily articulated strategy.
Elements of Strategic Planning
Strategic planning is designed to help managers answer critical questions in a business:
• What is the organization’s position in the marketplace?
• What does the organization want its position to be?
• What trends and changes are occurring in the marketplace?
• What are the best alternatives to help the organization achieve its goals?
The processes involved in strategic planning provide the answers through the development of a strategic plan, which provides the course of action (strategy) required to reach a strategic goal and identifies the resources required to do so. The strategy developed should contain four elements: scope, resource deployment, distinctive competitive advantage, and synergy.12
Scope The scope of a strategy specifies the position or size (number one in the world or $6 million in profits) the firm wants to achieve, given its environments. It includes the geographical markets it wants to compete in as well as the products and services it will sell.
Resource Deployment Resource deployment defines how the company intends to allocate its resources—material, financial, and human—to achieve its strategic goals.
Distinctive Competitive Advantage As discussed in Chapter 3, a firm’s core competencies—what it knows and what it does best—give it a distinctive competitive advantage, a unique position in relationship to its competition.
Customer-driven companies find out what customers value, align it with their core competencies, and thrive on it; others don’t. For example:
• Why does it take only a few minutes and no paperwork to pick up or drop off a rental car at Hertz but three times as long and several forms to check into some hotels?
• Why can FedEx “absolutely, positively” deliver a package overnight but several major airlines can’t take off or land on schedule?
• Why does Lands’ End remember your last order and your family members’ sizes but after ten years of membership you are still being solicited for membership by your credit-card company?13
Instead of trying to be all things to all people, successful companies focus on their competitive edge.
Synergy As discussed in Chapter 2, synergy is the increased effectiveness that results from combined action or cooperation. It is sometimes described as the 2 + 2 = 5 effect, because the result of a synergistic partnership actually exceeds the sum of the production each partner can achieve when acting alone. Synergy occurs when the parts of a single organization or two separate organizations interact, draw on each other’s strengths, and produce a joint effort greater than the sum of the parts acting alone can achieve. With synergy, companies can achieve a special advantage in the areas of market share, technology application, cost reduction, or management skill.14
Responsibility for Strategic Planning
The people responsible for strategic planning vary depending on the organization. As mentioned previously, some companies, like General Motors, hire strategic planning experts and have strategic planning departments. Most often, however, the responsibility for strategic planning belongs to those members of top management who lead the organization’s product divisions and regions.
The core group of strategic planners usually includes the senior executives—chief executive officer, division chiefs, and chief financial officer. Increasingly, though, large organizations, such as the pharmaceutical maker GlaxoSmithKline, Xerox, the insurer USAA, and PepsiCo, want their middle- and lower-level line managers to think and act strategically.15 They encourage managers at all levels to take the long-term view about where their organizational units are going, what major changes will likely occur, and which major decisions will have to be made now to achieve their organization’s long-term goals. By encouraging lower-level managers to think and act strategically (it is made a significant part of their evaluations), the company not only develops a unified plan but develops its managers.16
Strategy Formulation Versus Strategy Implementation
Another important element in understanding the nature of strategic planning is recognizing the difference between strategy formulation and implementation. Strategy formulation includes the planning and decision making that goes into developing the company’s strategic goals and plans. It includes assessing the environments, analyzing core competencies, and creating goals and plans. On the other hand, strategy implementation refers to means associated with executing the strategic plan. These include creating teams, adapting new technologies, focusing on processes rather than functions, facilitating communications, offering incentives, and making structural changes.17 Both of these concepts are discussed in more detail later in this chapter.
The planning and decision making that goes into developing the company’s strategic goals and plans, including assessing the environments, analyzing core competencies, and creating goals and plans
The means associated with executing the strategic plan. These include creating teams, adapting new technologies, focusing on processes rather than functions, facilitating communications, offering incentives, and making structural changes
Levels of Strategy
A final aspect concerned with the nature of strategic planning involves the levels of strategy. As highlighted in Figure 4.9, managers think in terms of three strategy levels: corporate, business, and functional.
Corporate-Level Strategy The purpose of corporate-level strategy is to answer two questions posed earlier: “What business are we in?” and “What business should we be in?” The answers help to chart a long-term course for the entire organization.
Answers the questions: “What business are we in?” and “What business should we be in?”
FIGURE 4.9 Corporate-level strategy
Both small and large companies face the same questions. Veda International was an Alexandria, Virginia, maker of flight simulators, focusing its energies on serving commercial customers—American Airlines, Southwest, and so on. In exploring the question, “What business should we be in?”, Veda International decided to branch into the consumer market by developing a flight simulator that could be sold to amusement parks, resulting in tremendous growth potential. Veda merged with Calspan to become Veridan, which was acquired by General Dynamics.
Business-Level Strategy A business-level strategy answers the question, “How do we compete?” It focuses on how each product line or business unit within an organization competes for customers. The decisions at this level determine how much will be spent on such activities as advertising and product research and development, what equipment and facilities will be needed and how they will be used, and whether to expand or contract existing product lines.
business-level strategy Answers the question, “How do we compete?” It focuses on how each product line or business unit within an organization competes for customers
Functional-Level Strategy The strategy concern for major functional departments is “How can we best support the business-level strategy?” Functional-level strategy focuses on the major activities of the company: human resource management, research and development, marketing, finance, and production.
Focuses on the major activities of the company: human resources management, research and development, marketing, finance, and production
To compete successfully with frequent-flyer programs at other airlines, Southwest Airlines’ functional-level marketing strategy called for a pricing incentive for consumers. In addition to a frequent-flyer program, Southwest created Friends Fly Free. For each round-trip ticket purchased at regular full fare at least one day before departure, a ticket holder’s friend flies free.18
STRATEGIC PLANNING PROCESS
6 Explain the steps involved in the strategic planning process
At all levels in an organization, the strategic planning process can be divided into several steps, as shown in Figure 4.10. For new ventures, strategic planning begins with the creation of a mission statement and goals. This is the first step (1) shown in Figure 4.10. For ongoing ventures, strategic planning requires managers to continually (2) analyze the internal and external environments by assessing strengths, weaknesses, opportunities, and threats; (3) reassess the organization’s mission statement, goals, and strategies for continued relevance, making adjustments as necessary; (4) formulate a strategic plan containing goals, strategies, and resources; (5) implement the strategy or strategies; and (6) monitor and evaluate the results.
• The first step for a new enterprise or one considering a total redefinition of itself is to create a mission statement and strategic goals, as discussed previously.
• In executing the second step—analyzing the internal and external environments—strategic planners in established companies scan their internal and external environments (the subjects of Chapter 3). They perform a situation analysis—a search for strengths and weaknesses (primarily the result of the internal environment) and opportunities and threats (primarily due to factors in the external environment). This process is often called a SWOT (strengths, weaknesses, opportunities, and threats) analysis. Strengths and weaknesses are internal; opportunities and threats are external. Planners can use the results obtained to reassess the company’s mission statement for its continued relevancy and to develop a strategic plan.
situation analysis (SWOT)
A search for strengths, weaknesses, opportunities, and threats
FIGURE 4.10 Strategic planning process
Planners can gather external information about threats and opportunities from customers, suppliers, partners, government reports, consultants, trade and professional journals, and industry associations. Planners can gather information about internal strengths and weaknesses through financial statements and analyses, employee surveys, progress reports on ongoing operations, and statistical analyses of data on such areas as employee turnover and safety. Often by regularly interacting with and observing others, strategic planners can build an adequate assessment of their organization’s strengths and weaknesses. Managers often use the expertise of outside consultants to help them obtain as well as analyze the information gathered from both environments.
An organization’s internal strengths—its core competencies and intellectual capital—are factors the company can build on to reach its goals. Weaknesses inhibit performance capabilities; they are gaps in managers’ or organizations’ experience and expertise and the unavailability of needed resources. Plans should be designed to compensate for them if they cannot be eliminated. In determining strengths and weaknesses, a company’s strategic planners should consider the following:
• Management factors—management structure and managers’ philosophies and capabilities
• Marketing factors—distribution channels, market share, competitive challenges, and levels of customer service and satisfaction
• Production factors—manufacturing efficiency, levels of obsolescence for equipment and technology, production capacity, and quality control
• Research factors—research and development capabilities, new product development, consumer and market research, and the prospects for technological innovation
• Human resource factors—the quality and depth of employee talent and expertise, degrees of employee job satisfaction and morale, turnover rate, and union status
• Financial factors—profit margin, return on investment and various financial ratios
Management’s external assessment focuses on identifying both threats and opportunities. Threats are factors that can prevent the organization from achieving its goals. Opportunities are the opposite; they can help the organization achieve its goals. The following factors should be assessed:
• The threat of new competitors entering the marketplace
• The threat of substitute products
• The opportunity resulting from entering new marketplaces
• The threat or opportunity created by strategy changes of major competitors
• The threat or opportunity resulting from the potential actions and profitability of customers
• The threat or opportunity created by the actions of suppliers
• The threat or opportunity resulting from new (or abandoned) government regulations
• The threat or opportunity created by new technology
• The threat or opportunity from changes in the state of the economy
In reassessing the mission statement and goals step, management leadership is critical. As noted by management consultant Warren Bennis, “The indispensable first quality of leadership is a strongly defined purpose. When people are aligned behind that purpose, you get a powerful organization.”19 The analysis of the external opportunities and threats and the internal strengths and weaknesses can produce one of two outcomes: to reaffirm the current mission statement, goals, and strategies or to lead to the formulation of new ones. Once the mission statement is reaffirmed or rewritten, goals and strategies at the corporate, business, and functional levels can be formulated. When a new strategy is formulated, it must be implemented. Strategy formulation and strategy implementation are two distinct tasks. If either or both are handled incorrectly, a strategic plan will fail or at least create problems.
Figure 4.10 lists the elements in the “Implement Strategies” step as leadership, structure, human resources, and information and control systems.20
• Leadership—When implementing strategy, the leadership challenge involves the ability to influence others in the organization to embrace the new strategy and adopt the behaviors needed to put it into action. All managers continually face the challenge of convincing people to accept new goals and strategies. To accomplish this, strategic planners create teams and involve lower-level managers and workers in the strategy-formulation process, thus building coalitions that will support change.
• Organizational Structure—Implementation can be assisted by change in the structure of the organization as reflected in its organizational chart. Managers can greatly facilitate the implementation of new strategies by changing reporting relationships, creating new departments or business units, and providing the opportunity for autonomous decision making.
• Human Resources—People are the key to implementing any decision, strategy, or plan. Howard Schultz, CEO for Seattle-based Starbucks Coffee Company, has a simple philosophy about the role of human resources in implementing his plans for the gourmet coffee purveyor’s expansion both at home and abroad: “I believe in the adage: ‘Hire people smarter than you are and get out of their way.’”21 To manage his company-owned outlets, Schultz recruits experienced fast-food managers from such outlets as Taco Bell and Burger King. These store managers in turn receive and give their staffs—recruited from colleges and community groups, not high schools—“24 hours of training in coffee making and lore—key to creating the hip image and quality service that build customer loyalty.”22
• Information and Control Systems—Management needs to create a proper blend of information and control systems that make use of policies, procedures, rules, incentives, budget, and other financial statements to support the implementation phase. Organizational members must be rewarded for adhering to the new system and making it successful.23
Once the strategy is implemented, performance must be monitored and evaluated, and modifications must be made as necessary.
Having examined the strategic planning process, let us take an in-depth look at strategy formulation at all three levels of a traditional organization.
FORMULATING CORPORATE-LEVEL STRATEGY
7 Explain the formulation of corporate-level strategy, business-level strategy and functional-level strategy
As discussed earlier, corporate-level strategy involves determining in what business or businesses the firm expects to compete. For companies with a single market or a few closely related markets, the corporate-level strategy involves developing an overall strategy. However, most large corporations have complicated organizational structures with stand-alone, often unrelated, business units or divisions, each with different products, markets, and competitors. The corporate- level strategy then involves making decisions on whether to add divisions and product lines—to manage the corporation’s portfolio of businesses. A discussion of both types of corporate-level strategy follows.
A grand strategy is the overall framework or plan of action developed at the corporate level to achieve an organization’s objectives. There are five basic grand strategies—growth, integration, diversification, retrenchment, and stability.
The overall framework or plan of action developed at the corporate level to achieve an organization’s objectives. There are five basic grand strategies—growth, integration, diversification, retrenchment, and stability
• A growth strategy is adopted when the organization wants to create high levels of growth in one or more of its areas of operations or business units. Growth can be achieved internally by investing or externally by acquiring additional business units.
• An integration strategy is adopted when the business sees a need (1) to stabilize its supply lines or reduce costs, or (2) to consolidate competition. In the first situation the company creates a strategy of vertical integration—gaining ownership of resources, suppliers, or distribution systems that relate to a company’s business. The world’s largest pork processor and hog producer, Smithfield Foods, has a vertical integration strategy. The company participates in both the hog production and meat processing of the business. Horizontal integration, on the other hand, is a strategy to consolidate competition by acquiring similar products or services. Kraft’s purchase of Cadbury Schweppes is an example of this strategy. (Previous to this, Cadbury Schweppes had purchased Dr. Pepper/7-Up and A&W Root Beer.)
• A diversification strategy is adopted if the company wants to move into new products or markets. This strategy is normally achieved through the acquisition of other businesses and their brands. Altria Group (previously known as Philip Morris) diversified through the purchase of food companies.
• A retrenchment strategy is used to reduce the size or scope of a firm’s activities by cutting back in some areas or eliminating entire businesses. Xerox and Sears have recently pursued retrenchment strategies. Xerox chose to divest itself of its real estate business ventures and focus on its core competencies. Since the early 1990s, Sears has systematically eliminated virtually all nonretail business from its corporate family.
• When the organization wants to remain the same, it adopts a stability strategy. Sometimes the reason is to have the organization grow slowly; other times such a strategy is adopted to recover immediately after a period of sharp growth or retrenchment. After a growth period that saw expansion into Texas and acquisition of banks in Florida and Ohio, Bank of America, formerly NationsBank and North Carolina National Bank, adopted a strategy of stability.
Once the managers of a large, diversified organization decide on a grand strategy, they develop a portfolio strategy. A portfolio strategy determines the mix of business units and product lines that will provide a maximum competitive advantage. Developing a portfolio begins by identifying strategic business units (SBUs), autonomous businesses with their own identities but operating within the framework of one organization. The SBU concept originated at General Electric in the 1970s to provide managers with a framework for directing GE’s many diverse businesses. Typically, an SBU has its own product lines, markets, and competitors.
Determines the mix of business units and product lines that will provide a maximum competitive advantage
strategic business units (SBUs)
Autonomous businesses with their own identities but operating within the framework of one organization
Fortune Brands serves as a case in point. Growing from its roots as the American Tobacco Company, Fortune Brands is now a collection of several companies—autonomous divisions totally unrelated to its original business. Some of these companies include Jim Beam bourbon, Moen faucets, DeKuyper cordials, Titleist golf equipment, and Master Lock’s family of security devices.
Managing a portfolio of business units is like managing a portfolio of unrelated investments, such as stocks, bonds, and real estate. Each SBU must be continually evaluated on its performance and relevance to the overall grand strategy. Xerox sold its China operations, Xerox Engineering Systems, and portions of Fuji Xerox, but kept its famed Palo Alto Research Center, home of such historic innovations as the personal computer and the mouse.
A technique often employed by organizations to help them evaluate their portfolios is the Boston Consulting Group (BCG) Growth-Share Matrix. The matrix combines growth rates and market share dimensions to identify four types of strategic business units, depicted in Figure 4.11 below.
FIGURE 4.11 BCG Growth-Share Matrix
1. Stars. A star is a high-growth market leader. It has a large market share in a rapidly growing industry. The star is important because it has potential to grow and it will generate profits.
2. Cash cows. The cash cow is a principal source of net cash generated. It has a large market share in a stable, slow-growth industry. Because the industry is in slow growth, the business unit can maintain its position with little or no investment. It is in a position to generate cash for the expansion or acquisition of additional SBUs.
3. Question marks. The question mark has a small share of the market in rapidly expanding industry. Question marks are risky. A business in this category could become a star, but it could also fail.
4. Dogs. The dog is a business with small market share in a low-growth or declining industry.
The BCG Growth-Share Matrix provides a valuable tool for corporate-level strategists. It indicates where expansion should and can take place. It also indicates which business units should be sold off.
Formulating Business-Level Strategy
A business-level strategy is the strategy managers formulate for each SBU (or for the firm itself if it is a single-product business), defining how it intends to compete. The many possible strategies available can be grouped as either adaptive strategies or competitive strategies.
The philosophy behind the adaptive strategies developed by Raymond Miles and Charles Snow is that a business’s strategy should be a fit between the internal characteristics of the company—its core competencies—and the external environment. 24 The four adaptive strategies include prospector, defender, analyzer, and reactor.
• The prospector strategy is one based on innovation, taking risks, seeking out opportunities, and expansion. This strategy is appropriate in a dynamic and fast-growing climate, if the organization is flexible, innovative, and creative. The prospector strategy has been a good one for 3M Company, maker of Scotch brand products. It has led to cutting-edge products, new applications of technology, and market leadership.
• The defender strategy is based on holding current market share or even retrenching. It is almost the exact opposite of the prospector strategy. The defender strategy is appropriate in a stable environment if the organization is concerned with internal efficiency to produce reliable products for regular customers. ExxonMobil and Royal Dutch/Shell use the defender strategy.
• With the analyzer strategy an organization attempts to maintain the current market share while innovating in some markets. It asks managers to perform a kind of balancing act: maintaining the organization in some markets while being aggressive in others. This strategy is appropriate in an environment in which growth is possible, and the organization is both efficient and creative. Examples of analyzers include Frito-Lay and Anheuser-Busch. Each has a reliable product base yet innovatively brings new products to the market.
• An organization adopting the reactor strategy could be said to have no strategy. Rather than formulating a strategy to fit a specific environment, reactors respond to environmental threats as they occur. With no clear sense of internal direction, a reactor is doomed until it changes strategies—it simply flails away. Many companies fail because they follow a reactor strategy. Without a strategy, companies fall victim to their competitors and to market changes. They cling to past practices too long, believing that those that worked well in the past will continue to do so. They fail to regularly analyze their environments and reassess their missions, goals, and strategies, until changing customer demands overwhelm them. Northwest Airlines got into financial trouble because it was constantly reacting to its competitors’ strategies and had none of its own.
The second set of business-level strategies an organization can initiate—the competitive strategies—were developed by author and management professor Michael Porter.25 Whereas adaptive strategies are based on a fit between the organization and its environment, competitive strategies are dictated by how the organization can best compete based on its core competencies—internal skills, resources, and philosophies. Porter refers to these strategies as generic, as depicted in Figure 4.12, because they can be applied to a firm in any industry. The three potential strategies are differentiation, cost-leadership, and focus.26
• With a differentiation strategy an organization attempts to set its products or services apart from those of other companies. To accomplish this, an organization focuses on basic, core business processes, such as customer service, product design and development, total quality control, and order processing. Lexus and Rolex focus on quality; FedEx and McDonald’s focus on service.
• A cost-leadership strategy is one focused on keeping costs as low as possible through efficient operations and tight controls. In turn, the company can compete by charging lower prices. Target and Walmart apply this strategy in the growing discount business. Southwest Airlines and JetBlue focus on this strategy in the airline industry.
• When the managers of a firm target a specific market—a particular region or group of potential customers—they are applying a focus strategy. It can be either a cost leadership or differentiation strategy aimed toward a narrow, focused market. One example might be a specialty hospital, such as a heart hospital or a children’s hospital. Some companies manufacture products for certain buyers. Pro-Line Corporation produces health and beauty aids for African American markets.
Formulating Functional-Level Strategy
The final level of strategy in the organization is the strategy developed by the major functional departments. These action plans support the accomplishment of the business-level strategies. The major functions include marketing, production, human resources, finance, and research and development.
• Marketing strategy involves satisfying the customer with decisions on pricing, promotion, distribution, and products/services of the organization. When taken together, the decisions in each area become a firm’s marketing strategy. Nike has committed itself to promote the Lance Armstrong-endorsed LIVESTRONG shoes, clothing, and gear for men. Frito-Lay’s Doritos can be purchased in several flavors, such as ranch, nacho cheese, barbecue, or regular. Celestial Seasonings has multiple distribution channels—through grocery-store chains, wholesalers, and health food stores. Walmart has built its inventories around the fastest-moving merchandise in major consumer goods categories. In the area of marketing services, CVS/pharmacy is offering Internet and telephone ordering, as well as home delivery. Supercuts has a low price to attract volume. Banks have placed ATMs on college campuses to better serve their young customers.
FIGURE 4.12 Porter’s generic strategies
• Functional-level strategy for production involves manufacturing goods and providing services. Decisions in this area influence how the organization will compete. Such decisions include choices about plant location, inventory control methods, use of robotics and computer-aided manufacturing techniques, commitments to quality and productivity improvement, and the selection and use of outside suppliers.
• For many businesses, such as hotels, restaurants, health care, and professional sports, the human resources strategy is the fundamental key to survival. These businesses need a specific strategy to execute nearly every employment decision area, such as recruiting, training, and developing human resources. Recruiting must result in attracting people who adequately reflect a firm’s customer base and the community’s workforce. Once acquired, human resources must be trained and developed in order to take advantage of the potentials they have to offer.
• The financial strategy of a firm involves decisions about the actions to be taken with profits (distribution to stockholders or retention for future investments), how funds will be spent or invested, and how any additional funds will be raised (through borrowing or by attracting new investor capital).
• The functional-level strategy for research and development involves the invention and development of new technologies, or new applications for existing technologies, that lead to new products and services. For example, IBM’s emphasis is on research.
I.B.M. has laboratories around the world, spends $6 billion a year on research and development, and generates more patents a year than any other company. Five I.B.M. scientists have won Nobel prizes; the company’s researchers attend scientific conferences, publish papers and have made fundamental advances in computing, materials science and mathematics. 27
• Each year companies invest millions of dollars in R&D projects, many of which lead to few if any breakthroughs. Investment for the future, however, is critical so that there will be a future for the enterprise. R&D has led to such breakthroughs in the auto industry as side-mounted airbags, four-wheel antilock brakes, and dent- and chip-resistant body panels. All R&D results from strategic management and strategic planning.
REVIEW WHAT YOU’VE LEARNED
1 Explain the importance of planning. Planning helps managers avoid errors, waste, and delays. It provides direction and a common sense of purpose for the organization. Planning sets goals and objectives and selects the means to reach them. It is part of every other management function. Planning allows managers the opportunity of adjusting to, rather than reacting to, expected changes in both their internal and external environments. The planning process for all organizations is built on a framework of an organization’s mission, with its accompanying values and principles. An organization’s mission statement explains why it exists—what its primary purpose is. Once the mission is defined, all planning efforts must be governed by the mission and should not contradict or oppose it in any way. It becomes an anchor for everything a company does or plans to do.
2 Differentiate between strategic, tactical, operational, and contingency plans. Plans—the end result of planning—provide answers to the six basic questions: what, when, where, who, how, and how much. Strategic plans establish the steps by which an organization achieves its strategic objectives. They are concerned with the entire organization’s direction and the primary responsibility of top management.
Tactical plans are concerned with what the major subsystems within each organization must do, how they must do it, and who will have the responsibility for doing it. As the primary responsibility of middle managers, tactical plans develop the shorter-term activities and goals needed to achieve a strategy.
First-line supervisors develop operational plans as a means to achieve operational objectives in support of tactical as well as strategic plans.
Contingency plans are developed to cope with events that, if they occur, will render primary plans ineffective or obsolete. By planning for changes that have both positive and negative impacts, managers will remain able to deal with worst-case situations and events.
3 List and explain the steps in a basic planning process.
• Setting objectives. Establishing targets for the short- or long-range future.
• Analyzing and evaluating the environments. Analyzing the current position, analyzing the internal and external environments, and determining the kind of resources that will be available to evaluate courses of action and implement plans.
• Identifying the alternatives. Constructing a list of possible courses of action that will lead to goal achievement.
• Evaluating the alternatives. Listing and considering the advantages (benefits) and disadvantages (costs) of each possible course of action.
• Selecting the best solution. Selecting the course or combination of courses of action that possesses the most advantages and the fewest serious disadvantages.
• Implementing the plan. Determining who will be involved, what resources will be assigned, how the plan will be evaluated, and what the reporting structure will be.
• Controlling and evaluating the results. Ensuring that the plan is proceeding according to expectations and making necessary adjustments.
4 Discuss various ways to make plans effective. Aids to effective planning include improving the quality of assumptions and forecasts through the following:
• Effective communication. Managers establishing their objectives and beginning to flesh out their strategic, tactical, and operational plans to achieve them require constant communication and exchange of information, ideas, and feedback.
• Quality of information. A manager increases the probability of success by beginning planning with current, factual, and verifiable information.
• Involvement of others. Opening the planning process to others can result in better plans, a higher level of commitment to the plan, and the longrange development of employees who understand planning is a way of life.
Two planning tools can also improve planning efforts:
• Management by objectives (MBO). Mutuallyagreed- on objectives are set through planning sessions involving a manager and a subordinate. Whether the objectives are achieved, how they are achieved, and what the subordinate learns through his or her achievement efforts become the foundation for evaluating the subordinate’s work and for developing the subordinate’s skills.
• Linear programming. Mathematics, equations, and formulas that factor in the effects of many variables help managers determine an optimum course of action and the best combinations of resources.
There are several major barriers to effective planning:
• Inability to plan. Some managers lack experience or do not have the skills. These deficiencies can be overcome by training and practice.
• Lack of commitment to the planning process. Some managers claim they do not have time to plan; others fear failure. One way to overcome this is to make the attempt. Experience helps.
• Inferior information. Information that is out-of- date, of poor quality, or insufficient can be a major barrier to planning. Having an effective organizational management information system as well as prioritizing and promoting the importance of providing reliable information can help to overcome this barrier.
• Lack of focus on the long term. Failure to consider the long term because of emphasis on short-term problems can lead to troubles in coordinating plans and preparing for the future. A remedy can be found by including long-term planning as an element of a manager’s performance appraisal.
• Overreliance on the planning department. Planning specialists often focus on process and lose contact with reality and with line managers. Emphasis needs to be placed on translating the planning department’s output into programs for achieving specific goals at defined times.
• Overemphasis on controllable variables. Managers can find themselves concentrating on factors within their control and failing to consider outside factors. Variables such as future technology, economic forecasts, and expectations about government restrictions must be considered.
5 Distinguish between strategic planning, strategic management, strategy formulation, and strategy implementation. Strategic planning is the decision making and planning processes that chart an organization’s long-term course of action. All companies engage in strategic planning as an element of strategic management. Strategic management is top-level management’s responsibility for defining the firm’s position, formulating strategies, and guiding longterm organizational activities. The ultimate purpose of strategic planning and strategic management is to help position the organization to achieve a superior fit in the environment in order to achieve its objectives.
Strategy formulation includes the planning and decision making that goes into developing the company’s strategic goals and strategic plans. It includes assessing the environment—analyzing the internal and external situation—and creating goals and plans. Strategy implementation refers to the processes associated with executing the strategic plan. These processes may include communication, incentives, structural changes, or new technology.
6 Explain the steps involved in the strategic planning process. The strategic planning process involves six steps:
1. Create mission statement, goals, and strategies. For new enterprises and those desiring to totally redefine themselves, all planning begins with the creation of a mission statement. It is the anchor for every strategy.
2. Analyze the environments. Internal and external environments must be assessed and analyzed. In completing this phase, managers perform a situational analysis and search for internal strengths and weaknesses as well as external opportunities and threats.
3. Reassess mission statement and goals. The analysis of the external opportunities and threats and the internal strengths and weaknesses can produce two outcomes: to reestablish the current mission, goals, and strategies or to define a new mission and supporting goals.
4. Formulate strategies. Once the mission and goals are reestablished or redefined, strategies at the corporate, business, and functional levels can be formulated.
5. Implement strategies. Once strategies are formulated, they must be implemented. Implementation involves the use of four elements: leadership, structure, people, and information.
6. Monitor and evaluate results. Once the strategy is implemented, performance must be monitored and evaluated, and modifications must be made, if necessary.
The assessment of the internal and external environments identifies factors that shape the development of the strategic plan. The analysis (SWOT) of the external opportunities and threats and the internal strengths and weaknesses can produce two outcomes: to reestablish the current mission, goals, and strategies, or to define a new mission and supporting goals.
In the strategic planning process, managers must have information from external as well as internal sources. External information about opportunities and threats can be gained from customers, suppliers, government reports, consultants, professional journals, and meetings. Internal information about strengths and weaknesses may come from profit and loss statements, ratio analysis, employee morale surveys, and budget printouts.
The implementation of a strategy will depend to a great extent on having a good fit between the organizational strategy and culture. The implementation may require changes in the organization’s behavior and culture. It achieves implementation through the collaboration of four key elements: leadership, organizational structure, human resources, and information and control systems.
7 Explain the formulation of corporate-level strategy, business-level strategy, and functional-level strategy.”
• Corporate-level strategy. For companies with a single market or a few closely related markets, the corporate-level strategy involves developing a grand strategy. A grand strategy is the overall framework for the organization. Grand strategies include five types: growth, integration, diversification, retrenchment, and stability. Large companies that have complicated organizational structures with unique business divisions or that have strategic business units, each with different products, markets, and competitors, need a portfolio strategy. After the grand strategy is developed, the portfolio strategy involves determining the power mix of business units and product lines to provide a maximum competitive advantage for the strategic business unit.
• Business-level strategy. A business-level strategy is the strategy managers formulate within each SBU (or within the firm itself if it is a single- product business) defining how to compete. Many possible strategies can be chosen; they can be grouped as either adaptive strategies or competitive strategies. Adaptive strategies—prospective, defender, analyzer, and reactor—try to match organizational assets to the external environment. Competitive strategies—differentiation, cost leadership, and focus—are dictated by how the organization can best compete based on its core competencies—internal skills, resources, and philosophies.
• Functional-level strategy. Functional-level strategies are the action plans developed by the major functional departments to support the accomplishment of business-level strategies. The major functions include marketing, production, human resources, finance, and research and development.
budget, p. 95
business-level strategy, p. 111
contingency plan, p. 99
core values, p. 89
corporate-level strategy, p. 110
forecasting, p. 105
functional-level strategy, p. 111
grand strategy, p. 115
management by objectives (MBO), p. 105
mission, p. 88
mission statement, p. 88
operational plan, p. 95
plan, p. 90
planning, p. 88
policy, p. 95
portfolio strategy, p. 116
procedure, p. 96
program, p. 95
rule, p. 98
situation analysis (SWOT), p. 111
strategic business units (SBUs), p. 116
strategic management, p. 108
strategic plan, p. 93
strategy, p. 91
strategy formulation, p. 110
strategy implementation, p. 110
stretch goals, p. 91
tactic, p. 91
tactical plan, p. 94
vision, p. 88
1. How does planning affect the success of a business?
2. How are mission statements, goals, objectives, and plans related?
3. What are the purposes of strategic, tactical, operational, and contingency planning? In what situation would an organization use each?
4. How can managers make planning efforts more effective?
5. What are the six barriers to effective planning? How does each interfere with effective planning?
6. What is the purpose of strategic planning?
7. Why is it important to assess the internal and external environments in strategic planning? What four factors are assessed?
8. What is the difference between corporate-level strategies for growth, retrenchment, and stability? What is the purpose of the BCG Growth- Share Matrix in the development of business-level plans? What are three of the five functional-level areas of planning? What needs to be considered in each area?
DISCUSSION QUESTIONS FOR CRITICAL THINKING
1. What specific examples can you give that demonstrate the importance of a mission statement to the success of a business and a not-for-profit organization?
2. In what ways can you apply strategic, tactical, and operational objectives and plans to your mission of gaining a college education?
3. What evidence can you cite from your experience to prove the value of contingency planning in today’s organizations?
4. Would you like to work in an organization that uses management by objectives? Why or why not?
5. Which of the barriers to successful planning have you encountered while making your plans? What was their impact on your plans?
6. What specific examples can you give that demonstrate grand strategies? Competitive strategies? Functional-level strategies?
7. How can you apply a SWOT analysis to your strategic plan for gaining a college education?
8. What specific examples can you cite of organizations capitalizing on their distinctive competitive advantage?
APPLY WHAT YOU KNOW
WEB 2.0 EXERCISES
Links are provided for all Internet Exercises at www.cengagebrain.com.
1. “Nuts About Southwest” is a leading corporate blog where Southwest Airlines employees share their stories and communicate directly with customers. The blog includes videos, pictures, podcasts, and other social media tools. Customers and employees are encouraged to comment.
• Read the Buzz Binn interview with Southwest’s Brian Lusk. How did customer comments on the blog help Southwest change strategic direction on assigned seating and advanced scheduling? http://www.livingstonbuzz.com/2007/05/08/nuts-about-southwest-demonstrates-truesocial-interaction/.
• Visit the blog and read “About.” Why is the blog moderated? What are the guidelines for posting? http://www.blogsouthwest.com; http://www.blogsouthwest.com/about.
2. Many corporations resist starting a blog on their own websites because someone might say something negative about the company or brand. Moderation of blog posts by the company is acceptable because it cuts down on inflammatory, offensive, derogatory, or obscene comments. But, what if the company has a blog and deliberately withholds comments that do not qualify as inflammatory, offensive, derogatory, or obscene?
• Why would a company withhold comments?
• Do you think a company withholding comments will be seen as dishonest? Explain.
3. Intel has social media guidelines published online, including moderation guidelines. Read “Intel Social Media Guidelines” at http://www.intel.com/sites/sitewide/en_us/social-media.htm.
• What’s included as social media?
• Why should negat ive cont ent not be moderated?
• When should negative content be moderated?
• Prepare a list of Do’s and Don’ts for employees using social media.
Turnaround at IBM
How can one of the most successful companies in the world almost go out of business? It happened to IBM. Competitors and environmental changes threatened IBM. The company was known as a computer maker, especially for its mainframes. Computer prices were falling and IBM’s sales were declining. “In 1993, when Louis V. Gerstner Jr. became chairman and chief executive, the question asked about IBM was whether it would survive. And in choosing him, the IBM board had taken a historic gamble on a professional manager with no experience in the computer industry” (Lohr).
Mr. Gerstner was not a technologist, but he was an unabashed champion of the new technology. He traveled all over the world to meet with customers, believing that IBM decisions should be market driven. He found that IBM had two distinct competencies: research and integrated computer solutions (hardware, software, consulting, and maintenance) to solve business problems (like manufacturing, purchasing or marketing) for companies. In 1994, based on feedback from customers, Mr. Gerstner decided that IBM would adopt open systems so that standard software protocols would allow different hardware and software products to talk to each other. IBM had a “networked world” model of computing and embraced the Internet. By 1995, it formed an Internet division, “which was not a product group, but more a corporate SWAT team to make sure the entire company was marching toward the Internet. Then, it carved out its niche, trumpeted in a massive advertising and marketing campaign, beginning in 1997, to push e-business” (Lohr).
Under Gerstner’s leadership, from 1993 until 2002, IBM went from “the fallen icon of American technology” to an industry leader. The new strategy relied less on hardware and more on technology services and software. Recurring revenue would come from service contracts and software licenses. The company survived and quickly returned to profitability.
IBM under CEO Samuel Palmisano shed its PC business in 2004 and has focused on technology for corporations. Among other things, the company has moved more aggressively into offering combinations of business software and technology services that help companies and governments solve knotty problems, such as catching welfare fraud (Wire Reports).
Today, IBM helps its customers, who are organizations, to do business.
• Work with another student to answer the following questions. What strategy changes did Gerstner use to solve IBM’s situation? Develop your answer by selecting specific strategies relating to corporate, business, and functional strategy options.
• IBM was one of the first companies to publish a social policy document, “IBM Social Computing Guidelines,” as well as a video. How does the “Add Value” section motivate employees to create thoughtful content? http://www.ibm.com/blogs/zz/en/guidelines.html.
• Employees’ use of social networking can cause problems for businesses. Security issues arise when employees communicate, unregulated, with people outside the organization. Reputation management is a challenge when employees post inappropriate comments on blogs, Twitter, and other sites. Work with another student(s) to develop a list of social media “Do’s and Don’ts” for employees developing content.
Sources: Wire Reports, “Apple, IBM: Two paths to profit,” The Dallas Morning News, October 19, 2010, Section D, p. 8; Steve Lohr. “He Loves to Win. At I.B.M., He Did.” The New York Times, March 10, 2002; IBM: Louis V. Gerstner Jr., http://www.ibm.com/lvg/.
ON THE JOB VIDEO CASE
Video: Preserve by Recycline: Strategy
At Preserve by Recycline, “green” is only half the story. The company utilizes many other smart business strategies as well. For example, Preserve products are known for their innovative, contemporary designs that are safe, competitively priced, and long-lasting. Preserve products are available at thousands of retail locations in the United States, Canada, and the United Kingdom, including Target stores, Trader Joe’s, and Whole Foods Market.
Relationship to Chapter
The video shows how Recycline initiates the planning process at the top level through an executive committee (using the firm’s objectives) to develop strategic plans that become the basis for departmental tactical plans. The corporate strategy focuses on growth that is a result of a competitive business level strategy. The functional strategy that is stressed involves marketing. Relationships with retailers are key to determining what will be desired in quality and price. Successful attainment of what is desired through design and production is the firm’s means of assuring profitability.
1. The video mentions that the firm uses SWOT in developing strategy. In considering the firm’s marketing strategy, list an example for each element of SWOT.
2. In view of the firm’s product line, what would you suggest that Recycline should do in regards to contingency planning?
3. What might someday cause a need to shift to an adaptive strategy?
Source: www.preserveproducts.com, accessed July 22, 2010. (Plunkett 86)
Plunkett, Warren R., Gemmy Allen, Raymond Attner. Management. Cengage Learning, 01/2012. VitalBook file.
CHAPTER 8 ORGANIZATIONAL DESIGN, CULTURE, AND CHANGE
After studying this chapter, you should be able to:
1 Define organizational design and describe its four objectives
2 Distinguish between mechanistic and organic organizational structures
3 Discuss the influence that contingency factors—organizational strategy, environment, size, age, and technology—have on organizational design
4 Describe the characteristics, advantages, and disadvantages of functional, divisional, matrix, team, and network structural designs
5 Define organizational culture and describe the ways that culture is manifested
6 Explain the role of managers and employees in creating culture and making a culture effective
7 Define change and identify the kinds of change that can occur in an organization
8 Explain the steps managers can follow to implement planned change
9 Identify the organizational qualities that promote change
10 Explain why people resist change and what managers can do to overcome that resistance
11 Explain why change efforts fail
12 Explain the purpose of an organizational development program
An organization’s culture is similar to an individual’s personality. Each has unique behaviors. Organizational culture was defined in Chapter 3 as a dynamic system of shared values, beliefs, philosophies, experiences, customs, and norms of behavior that give an organization its distinctive character.
Most people prefer one type of organizational culture over others. Where would you prefer to work? A personal place where the people seem like extended family? An entrepreneurial organization with people who like to take risks? A results-oriented organization with competitive people? A controlled and structured organization with formal rules?
For each of the following statements, circle the letter next to the description with which you most agree.
1. A leader should be:
A. Mentoring, facilitating, nurturing
B. Entrepreneurial, innovative, risk-taking
C. No-nonsense, aggressive, results-oriented
D. Coordinating, organizing, ensuring efficiency
2. Management of employees should include:
A. Teamwork, consensus, participation
B. Individual risk taking, innovation, consensus, and participation
C. Hard-driving competitiveness, high demands, and achievement
D. Security of employment, conformity, predictability, stability in relationships
3. People in organizations need:
A. Loyalty and mutual trust
B. Commitment to innovation, being on the cutting edge
C. Emphasis on achievement and goal accomplishment
D. Formal rules and policies, maintaining smooth running operations
4. Strategic emphasis should be:
A. High trust, openness, participation
B. Acquiring new resources and creating new challenges
C. Trying new things and prospecting for opportunities
D. Permanence and stability, efficiency, control and smooth operations
5. Criteria of success should be:
A. Human resources, teamwork, employee commitment, concern for people
B. Most unique or newest products, product leader and innovator
C. Winning in the marketplace and outpacing the competition, competitive market leadership
D. Efficiency, dependable delivery, smooth scheduling, and low-cost production are critical
Note the statements that you circled. If you circled mostly As, you prefer to work in a personal place where the people seem like extended family. The most important requirement for employees in this culture is to fit into the group. Cohesion, a humane working environment, group commitment, and loyalty are valued. If you circled mostly Bs, you prefer to work in an entrepreneurial organization with people who like to take risks. The culture is fast-paced and high risk. New opportunities to develop new products, new services, and new relationships are valued. If you circled mostly Cs, you prefer to work in a results-oriented organization with competitive people. Results are more important than process. The organization values competitiveness and productivity through emphasis on partnerships and positioning. If you circled mostly Ds, you prefer to work in a controlled and structured organization with formal rules. The culture offers a stable environment. Standardization, control, and a well-defined structure for authority and decision making are valued.
Managers frequently must rethink and reorganize to pursue their mission and strategic goals. As companies focus or refocus their attention on the customer—whether in manufacturing, marketing a product, or providing a service—it becomes necessary to modify structures or drastically overhaul the organization.
Chapter 7 identified and examined the concepts and process of organizing. This chapter will focus on organizational structure as a tool. It will examine how managers integrate departmentalization, decentralization and span of control into an organizational design to achieve specific objectives. Initially the chapter will examine the nature of organizational design and its objectives and then introduce potential design outcomes. The organizational structure options available to a designer are discussed. Then, the nature of organizational culture, manifestations of culture, and how culture is created are explored. The chapter will conclude with a discussion of the nature of change—sources of change, types of change, rates of change, and how to successfully manage and implement change.
DESIGNING ORGANIZATIONAL STRUCTURES
1 Define organizational design and describe the four objectives of organizational design
Organizational Design Defined
What is organizational design? Quite simply, when managers create or change an organization’s structure, they engage in organizational design.1 They develop the overall layout of the positions and departments as well as the interrelationships of the departments. Most importantly, these managers create the means to implement plans, achieve goals and objectives, and ultimately accomplish the organization’s mission—to satisfy the customer. Designers make decisions critical to success. As management consultant Frank Ostroff rightly noted, “The right organizational structure can take you from 100 horsepower to 500 horsepower.”2
organizational design The creation of or change to an organization’s structure
For organizational designers, organizational design is like putting together a giant jigsaw puzzle, with two differences. Unlike a jigsaw puzzle, an organization offers no picture to tell the designer what the final outcome should look like, and putting the correct pieces together can be extremely expensive.
OBJECTIVES OF ORGANIZATIONAL DESIGN
Organizations have certain common elements: they operate with authority, they have departments, and they use line and staff positions. As alike as they might seem, however, no two organizations are exactly the same. Some, like Starbucks, rely on functional departmentalization; others, like Verizon, organize based on product groups. Some, like Sears, centralize decision making; others, like Honda, decentralize. In some companies, like Matsushita, organizations cover narrow spans of control; others, like American Airlines, have developed wide spans. The decisions made by managers on the various elements determine the organizational design, and organizations continually evolve to suit their operational requirements.
Regardless of whether managers are responsible for organizational design work for ExxonMobil or Campbell’s Soup, they have the same objectives: respond to change, integrate new elements, coordinate the components, and encourage flexibility.
Profits and Layoffs
Pittsburgh, Pennsylvania-based Alcoa, the aluminum manufacturer, reorganized after demand for aluminum fell to its lowest point in 20 years. Alcoa concluded that it could save money by moving assembly jobs used in manufacturing to India. By 2009, the mammoth restructuring shaved 13 percent of the company’s global workforce and shuttered plants to maintain profitability (Pittsburgh News). Furthermore, the reorganization resulted in numerous job cuts by Alcoa’s subcontractors. “Those layoffs netted Alcoa $325 million in cash savings,” said Alcoa Chief Financial Officer Charles D. McLane Jr.” (Steverman).
Even in an industry plagued by massive cutbacks, Alcoa’s downsizing appeared drastic. The Alcoa layoffs created a reverse multiplier effect. When a company takes away jobs, the reverse multiplier effect removes additional support and service jobs throughout the community, and economic developers are concerned. Manufacturing companies such as Alcoa pay higher wages than a retailer, and thus pump more money into communities where they operate.
→ Are layoffs used as a management tool a matter of ethical concern?
→ Does Alcoa’s management owe a greater duty to its stockholders than to its employees?
→ What ethical guidelines would you recommend to Alcoa’s management to use when determining which operations, offices, and jobs to eliminate?
Sources: Pittsburgh News, “Alcoa’s 13,500 Layoffs Could Taint Pittsburgh’s Corp. Image,” WTAE The Pittsburgh Channel, January 7, 2009, http://www.thepittsburghchannel.com/r/18426681/detail.html; Ben Steverman, “Layoffs: Short-Term Profits, Long-Term Problems,” Bloomberg Businessweek, January 13, 2010, http://www.businessweek.com/investor/content/jan2010/pi20100113_133780.htm.
Responding to Change “Nothing lasts forever” could be the slogan of organizational designers. For a firm to stay competitive, it must respond to changes in the environment—competition, technology, the global economy, and consumer needs—as well as to changes that emerge from the company’s evolutionary development. To remain static in the face of warning signals could eventually result in making change an arduous process. A company that needed to trim down to be competitive in a changing environment was Alcoa. Sometimes meeting the objective, however, creates consequences for employers, as this chapter’s Ethical Management feature illustrates.
Integrating New Elements As organizations grow, evolve, and respond to changes, they add new positions and new departments to deal with factors in the external environment or with new strategic needs. The objective of organizational design is seamlessness—that is, integrating these new elements into the overall fabric of the organization. Accomplishing this objective may mean adding a department to a level in the organization or virtually restructuring the company, as at Nokia, the subject of this chapter’s Global Applications feature. There, the strategic need to provide quality customer service required the dismantling of functional departments, creating teams, and redelegating authority.
Coordinating the Components Simply placing a department in a structure is not enough. Managers need to find a way to tie all the departments together to ensure coordination and collaboration across the departments. If this objective is not accomplished, the departments might not work together. Whether through reporting relationships, teams, or task forces, departments must collaborate to avoid conflict and problems and to meet customer needs.
Nokia: Reorganized Business
More people gain access to the Internet through mobile devices than with personal computers. Yet, Nokia, a world leader in mobile communications, has struggled to develop an operating system for high-end smartphones. Nokia reorganized to strengthen its position. Former Nokia CEO Olli-Pekka Kallasvuo said, “We are decisively moving to respond faster to growth opportunities we expect in smartphones and mobile computers. Nokia’s new organizational structure is designed to speed up execution and accelerate innovation” (Wireless Watch).
The restructured company has three business units: Mobile Solutions, Mobile Phones, and Markets. The Mobile Solutions unit concentrates on the company’s high-end mobile computers and smartphones, integrated with Nokia’s Internet services. The Mobile Phones unit focuses on the features of the mobile phone market. The Markets unit is responsible for sales and marketing, management of supply chains and sourcing operations. Nokia’s organization structure changes to accelerate the development of new phones and services desired by its customers.
Yet, Nokia hasn’t always reorganized to take advantage of opportunities. In 1992, Nokia, a Helsinki, Finland-based company, was one of Europe’s also-rans. It racked up $40 million in losses, selling everything from television tubes to toilet paper; but when Jorma Ollila took over as CEO, Nokia’s fortunes began to change. Ollila made a number of critical decisions that enabled Nokia to grab markets from the giants.
Initially, Ollila decided to sell off dozens of product lines and focus in on Nokia’s core strength—mobile phone technology. He was convinced that the company had the expertise to become a major player if it continued to make the right decisions, and Nokia did. It made investments in research and development, streamlined corporate functions, and developed cost-effective manufacturing. As a result, Nokia was the first to achieve error-free cellular data transmission. Based on these successes, Nokia decided to go global. When the world market for digital phones took off, Nokia was ready.
→ Management at Nokia is team oriented. Here is how it is explained on their website in their (FAQs) Frequently Asked Questions. “[The] Nokia way of working is about flat, networked organization as well as speed and flexibility in decision-making.” What characteristics of teams does Nokia exhibit?
Sources: Wireless Watch, “Nokia reorganizes for the second time in six months,” The Register, May 12, 2010, http://www.theregister.co.uk/2010/05/12/nokia_reorganisation; www.nokia.com; Gail Edmonson, “Grabbing Markets from the Giants,” BusinessWeek, January 9, 1995, p. 156.
Encouraging Flexibility The final objective of organizational designers is flexibility. Designers want to build into the organization—with all its authority, chains of command, and bases of departmentalization—flexibility for decision making, for responding and redirecting energies, and for spotlighting people’s talents. Flexibility for decision making differs from the aim of responding to change.
Range of Organizational Design Outcomes
Remember that the organizational designer creates a structure to accomplish the company’s objectives and mission. The elements that a designer has to work with—chain of command, centralization/decentralization, formal authority, types of departments, and span of control—fit together to form an overall structural approach. Depending on the balance of the elements, the design outcome can be very different. Some organizations see the need to use the formal, vertical hierarchy as a means of control and coordination. Other organizations decentralize decision making, create teams, and provide managers with loosely structured jobs. The range of options can be described as tight (mechanistic) structures or loose (organic) structures.
MECHANISTIC ORGANIZATIONAL STRUCTURES
2 Distinguish between mechanistic and organic organizational structures
A tight, or mechanistic, structure is characterized by rigidly defined tasks, formalization, many rules and regulations, and centralized decision making (Figure 8.1 shows the characteristics of a mechanistic structure.) In an organization with a mechanistic structure, the vertical structure is very tight, with emphasis on control from top levels down. Tasks are broken down into rigidly defined, routine jobs. Many rules exist, and the hierarchy of authority is the major form of control. Decision making is centralized, and communication is vertical—it follows the chain of command.3 The most vivid example of a mechanistic structure is the military. In the private sector, Sears with its tight controls, rigidly defined tasks, and numerous rules and regulations is mechanistic.
A tight organizational structure characterized by rigidly defined tasks, formalization, many rules and regulations, and centralized decision making
FIGURE 8.1 Mechanistic structures versus organic structures
Organic Organizational Structures
A flexible, or organic, structure is free flowing, has few rules and regulations, and decentralizes decision making right down to the employees performing the job. Often referred to as the horizontal structure, the organic structure is a highly adaptive form that is as loose and workable as the mechanistic organization structure is rigid and stable. Rather than having standardized jobs and regulations, the organic structure allows changes to be made rapidly as the needs require. Organic structures have a division of labor, but the jobs people do are not standardized. Organizations with organic structures frequently redefine tasks to fit employee and environmental needs.4 They have few rules, and base authority on expertise rather than on the hierarchical position of the person. Decision making is decentralized and communication is horizontal, rather than being vertical up and down the chain of command. They empower employees to make decisions. Figure 8.1 contrasts the characteristics of organic organizations with those of mechanistic structures.
A flexible, free-flowing organizational structure that has few rules and regulations and decentralizes decision making right down to the employees performing the job
Although the companies we have identified represent mechanistic and organic organizations, it is difficult to categorize an organization as purely mechanistic or organic. In actuality, organizations favor one or the other, depending on how designers have integrated contingency factors—the topic of our next section.
CONTINGENCY FACTORS AFFECTING ORGANIZATIONAL DESIGN
3 Discuss the influence that contingency factors—organizational strategy, environment, size, age and technology—have on organizational design
The dilemma facing managers charged with the responsibility for organizational design is to determine how mechanistic or organic the structure should be, for either could be successful. Studying the contingency factors that affect organizational design provides the solution: strategy, environment, size of the organization, age of the organization, and technology. The manager designs a structure to fit these contingency factors. If the organization structure is incorrect, problems occur.5
Managers build organizational structures to achieve objectives. Logically then, structure follows strategy; and when strategy changes, structure must change. Ford serves as an example. At the corporate level, the foundation for strategy is the mission and strategic goals. Ford CEO Alan Mulally defines “a simple but powerful mission for employees to rally around: building high-quality, safer, more fuelefficient cars.”6 For Ford, the strategy is “One Ford,” highlighted in Chapter 5.
That meant selling off the sexy, high profile brands Land Rover, Jaguar, Aston Martin, and Volvo. It meant bringing back the Taurus—a once hugely successful car that the company had abandoned—and completely redesigning it. It meant shifting emphasis away from bigger trucks to more fuel-efficient cars.7
To carry out strategic goals, a company develops a business-level strategy. Chapter 4 introduced different business-level strategies that companies can adopt to achieve their goals. For example, if Dell Inc. chooses to pursue a prospector strategy, it must innovate, seek new markets, grow, and take risks. An organic structure providing for flexibility and decentralization matches best with this strategy.8 In contrast, if a top manager at ExxonMobil adopts a defender strategy—holding on to its current market and protecting its turf—a mechanistic structure providing for tight control, stability, efficiency, and centralization would be the best fit.9
Firms can also select differentiation or cost-leadership strategies.10 With a differentiation strategy, the company attempts to develop new products for the market. Internally, it requires coordination, flexibility, and communication. The proper fit is an organic structure, like the one at Johnson & Johnson. A strategy of cost leadership, in contrast, focuses on internal efficiency. A mechanistic structure is appropriate to achieve these objectives because it provides structured organization and responsibilities. Figure 8.2 provides a comparison of strategy-structure alternatives.
Chapter 6 showed the impact of environment on decision making—specifically, the difficulty of making decisions in an uncertain or unpredictable environment. As in decision making, the organizational environment provides a major influence on the design of organizational structure. The stability and predictability of the environment have a direct bearing on the ability of the organization to function effectively. An unstable environment that changes rapidly and is less predictable raises two requirements:
1. The organization must be able to adapt to change. It needs to be flexible and responsive.
2. The organization needs greater coordination between departments. The individual departments cannot become isolated, creating their own goals and ignoring each other. In fact, departments tend to work more autonomously during periods of instability, which creates barriers.
FIGURE 8.2 Influence of strategy on structure
To succeed, the organizational structure must fit the environment, as seen in Figure 8.3. In a stable and predictable environment, the organization should have a mechanistic structure. Centralized decision making, wide spans of control, and specialization “fit” in such an atmosphere. An uncertain environment calls for an organic structure that emphasizes flexibility, coordination, and less formal procedures.11
Size of the Organization
The size of an organization is normally measured by the number of employees. Research has found that large organizations differ structurally from small ones. Small organizations—for example, De Mar Plumbing and Tony’s Café—have little division of labor, few rules and regulations, and informal performance appraisals and budget development procedures. These characteristics describe an organic system. Large organizations, with tens of thousands of employees—for example, ExxonMobil and American Airlines—are mechanistic. They have a greater division of labor, more rules and regulations, and more elaborate internal systems to control performance appraisals, rewards, and creativity.12 These large organizations—including Ford Customer Service Division and DuPont—have, however, begun to recognize the limitations of mechanistic structures and are moving toward more organic structures. In some cases they accomplish change by shifting structures, but more often, by downsizing, defined in Chapter 7. Although downsizing normally results in helping the organization in the long run, it does cost employees their jobs.
Age of the Organization
The longer an organization operates, the more formalized it is likely to become. With age comes standardized systems, procedures, and regulations. Therefore, older companies take on characteristics of mechanistic structures.
FIGURE 8.3 Relationship between environment and structure
Organizations, like people, evolve through stages of a life cycle. Within this organizational life cycle, businesses follow observable and predictable patterns. Figure 8.4 presents the four stages: birth, youth, midlife, and maturity. Each stage involves changes in the overall structure.13
organizational life cycle
The stages an organization goes through: birth, youth, midlife, and maturity, where each stage involves changes in overall structure
Birth Stage In the birth stage, an entrepreneur creates the organization. The informal organization has no professional staff, no rules, and no regulations. Decision making is centralized with the owner, and tasks are not specialized. Frito-Lay was in the birth stage when Elmer Doolin, making corn chips with his family in his mother’s kitchen from a Mexican proprietor’s recipe, began to sell to the neighborhood grocery store.
Youth Stage In the youth stage, the organization is growing—its product succeeds and it hires more employees. A division of labor begins to emerge, as do a few formal rules and policies. Decision making is still centralized with the owner, although it is shared with an inner circle. Frito-Lay was in the youth stage when Elmer Doolin began a partnership with Herman W. Lay. They combined their resources, opened two plants and began regional distribution.
Midlife Stage In the midlife stage, the company has done well and grown quite large. It now has an extensive set of rules, regulations, policies, and systems to guide specialized employees. Control systems are put in place. Professional and clerical staff are hired to undertake specialized support activities. Top management decentralizes many tasks and assigns authority to functional departments, but in the process, it loses flexibility and innovation. Frito-Lay moved into this stage when it was purchased by PepsiCo and became one of its SBUs. PepsiCo, in turn, provided professional management to expand the product line, perk up promotions, and expand national distribution.
FIGURE 8.4 Relationship between organizational life cycle and structural characteristics
Maturity Stage In the maturity stage, the organization is large and mechanistic. The vertical control structure becomes overwhelming. Rules, regulations, specialized staffs, budgets, a refined division of labor, and control systems are in place. The company—as happened with General Motors (GM) and DuPont—faces stagnation. Innovation and aggressiveness can only come with moves to decentralize and increase flexibility through reorganization. When Frito-Lay entered the maturity stage, it had layers of management and specialists and was not responding to competitors. The company underwent a major downsizing and restructuring, which reshaped its fortunes and competitiveness.
The critical point of these discussions is for managers to shape and adjust the structure to minimize or eliminate the mechanistic outcome of the maturity stage. As we have seen, Frito-Lay reached this stage but was able to restructure to gain flexibility and responsiveness.
Every organization uses some form of technology to convert its resources into outcomes. Technology includes the knowledge, machinery, work procedures, and materials that transform the inputs into outputs.14 The technology required by ExxonMobil to produce oil differs from the technology employed by Revlon to produce cosmetics, but both use some kind of technology. Production technology directly influences organizational structure. The structure must fit the technology, as well as work with an organization’s strategy, external environment, age, and size.
The knowledge, machinery, work procedures, and materials that transform the inputs into outputs
British industrial sociologist Joan Woodward related the three basic types of work flow technology to elements of structure (small batch, mass production, or continuous process).15 Firms that produce goods in small quantities to customer specifications use small batch technology or unit production technology. Human labor plays a large part in small batch technology. Examples of this technology include making custom clothing or space satellites or doing the work of a small print shop.
small batch technology or unit production technology
A type of technology that produces goods in small quantities designed to customer specifications
When a company produces a large volume of standardized products, it employs large batch technology or mass production technology. Such technology makes greater use of machines than does small batch production. Some automakers’ assembly lines use mass production. In continuous-process production, as at an ExxonMobil refinery or Coors brewery, the entire conversion process is completed through a series of mechanical or chemical processes. Employees’ primary roles are to fix equipment and oversee the process.
large batch technology or mass production technology
A type of technology that produces a large volume of standardized products
A technology in which the entire conversion process is completed through a series of mechanical or chemical processes
In general, the form of organizational design appropriate for a company depends on its dominant technology. As shown in Figure 8.5, organizations that rely on small batch or unit production should employ an organic structure. A large batch or mass production system works more effectively with a mechanistic structure, where centralized decision making and well-defined rules exist. A continuous-process production calls for organic structure because it needs flexibility to oversee the complex technology.16
Since Woodward conducted her studies, manufacturing technology has changed significantly. Computer systems allow for the automating and integrating of manufacturing elements such as product design, production equipment, robotics, and performance analysis. These systems, known as flexible manufacturing systems (FMS) (discussed in detail in this text’s Appendix A, Operations Management), are revolutionizing the traditional perception of mass assembly line operations and small batch production—both can now be done simultaneously in the same facility.
flexible manufacturing system (FMS)
The automating and integrating of manufacturing elements such as product design, production, equipment, robotics, and performance analysis
FIGURE 8.5 Relationship between production technology and organizational structure
The MEP Lean Network defines Lean as “a systematic approach to identifying and eliminating waste (non-value added activities) through continuous improvement by flowing the product at the pull of the customer in pursuit of perfection.”
We’ve all heard, “Time is money.” This is especially true in manufacturing. Companies need customers and customers need products. In the preceding definition of Lean, “pull of the customer” means that the customer places an order. Thus, pull means that the production process reacts to customer demand. Once a customer orders a product, the company doesn’t get paid until the product is delivered. So, if the production time of the product can be shortened, the company will get its money sooner.
The Lean manufacturing system is designed to “flow the product” through the production process in as short a time as possible. The production process begins with the raw materials and ends with the finished product. Flow, producing, or moving one item at a time, is accomplished by the physical layout in product cells. All of the machines and employees needed to create a product are in one prescribed space. To flow (make one, move one), the product must stay busy and move through the system until it is finished and ready to be delivered.
Production time can be reduced by eliminating or minimizing waste or non-value added activities. Wastes can be remembered by the acronym “DOWN TIME.”
Lean = Eliminating Wastes
• Non-Value Added Processing
• Employees Underutilized (Knowledge, Skills, Abilities)
Quality is at the source of reducing the time the product spends in production. The proximity of machines in a product cell cuts down on waste that comes from having to transport materials from one department to another and offers employees an opportunity to be cross-trained on a variety of machines. Production costs decline as quality improves. Eliminating waste creates more value for customers. Lean shrinks the time from order placement to receipt of cash.
→ “Less is more.” This statement applies to Lean manufacturing. But what if you aren’t in manufacturing? How does the definition of Lean apply to other types of businesses?
The technology associated with flexible manufacturing places this system in a higher position of complexity than any of the three technologies Woodward studied. Because of this complexity, the approach associated with it focuses on low formal control, high decentralization of decision making, a very narrow span of control, and an organic structure.17 An example of this would be Lean manufacturing, the subject of this chapter’s Quality Management.
A systematic approach to identifying and eliminating waste (non-value added activities) through continuous improvement by flowing the product at the pull of the customer in pursuit of perfection (The MEP Lean Network)
STRUCTURAL OPTIONS IN ORGANIZATIONAL DESIGN
4 Describe the characteristics, advantages, and disadvantages of functional, divisional, matrix, and network structural designs
Because no single organizational design suits all circumstances, managers must carefully consider their company’s situation—strategy, environment, age, size, and technology—before designing a structure for it. When the contingency factors favor a more mechanistic design, there are options from which to choose. If the need is for an organic design, there are other viable choices.
Before discussing the options, we must make one other point. Some options are more clearly mechanistic or organic in practice, but the majority of them are not purely one way or the other. Figure 8.6 arranges the five options—functional, divisional, matrix, team, and network—on a continuum from mechanistic to organic. As you can see, most fall in the middle rather than reflecting either extreme.
FIGURE 8.6 Structural options on the mechanistic-organic continuum
FIGURE 8.7 Functional organizational structure
The functional structure groups positions into departments based on similar skills, expertise, and resources. Functional structure is an expanded version of functional departmentalization, introduced in Chapter 7. In an organization with functional structure, activities are grouped under headings common to nearly every business—headings such as finance, production, marketing, and human resources. The entire organization is then divided into areas such as shown in Figure 8.7.
An organizational design that groups positions into departments based on similar skills, expertise, and resources
Advantages of the Functional Structure Putting specialties together results in economies of scale and minimizes duplication of personnel and equipment. Employees tend to feel comfortable in a functional structure because it gives them the opportunity to talk the same language with their peers. Because the structure acknowledges occupational specialization, it also simplifies training.
Organizationally, the functional structure offers a way to centralize decision making and provide unified direction from the top. Within each department, communication and coordination are excellent. Finally, the functional structure increases the quality of technical problem solving because it gives workers quick access to those with technical expertise.
Disadvantages of the Functional Structure The functional structure also has inherent disadvantages. Because functions are separate from one another, employees may have little understanding of and concern for the specialty areas outside their own functional area. This narrowness can lead to barriers in communication, cooperation, and coordination. Departments may develop their own focus rather than a company focus. Also, because a functional structure has rigid and separate chains of command, response time to changes in the environment may be slow.
Managers in a functional structure also become focused on their functional area, both long and short range. Problems are seen from one perspective, and individuals become isolated. In addition, this narrowness carries over to long-range development. The specialization does not give managers a broad perspective on the company or other functional areas. This lack of a broad general perspective minimizes the training for future chief executives.
An alternative to the functional structure is the divisional structure, which groups departments based on organizational outputs. As shown in Figure 8.8, divisions are self-contained strategic business units that produce a single product. As we noted in Chapter 4, each SBU or division is responsible for the management of a given product or product family. Within each division, diverse departments—for example, production and marketing—are brought together to accomplish the division’s objective.
An organizational design that groups departments based on organizational outputs; these divisions are self-contained strategic business units that produce a single product
The divisional structure creates a set of autonomous minicompanies. In a large company such as PepsiCo, each division has its own market, competitors, and technologies. At PepsiCo, the divisions include Frito-Lay, Pepsi-Cola, Quaker, Gatorade, and Tropicana. In addition to organizing by product, a company can organize divisions by customer or geography.
A customer divisional structure is called for when customers are distinct enough in their demands, preferences, and needs to justify it. For large customers—say, state and federal governments—as well as for commercial accounts with a certain line of products, the company can group all the skills necessary and establish divisions to serve those customers full time. The structure provides a company focus for the employees. To better serve the distinct customer groups, three divisions were established at Johnson & Johnson: consumer, medical devices and diagnostics, and pharmaceutical. The first focuses on final consumers, a second on professionals, and the third on pharmaceutical buyers.18
FIGURE 8.8 Divisional organizational structure
Managers create geographic divisions when a company needs to group functional skills for a specific region—international, national, or regional. This structure tries to capitalize on situations in which the geography dictates differences in factors such as laws, currencies, languages, and taxation. Some department stores, such as J. C. Penney and Sears, have created regional divisions. On an international scale, McDonald’s has structured geographically based on continent—European, North American, and Asian divisions.
Advantages of the Divisional Structure The divisional structure focuses the attention of employees and managers on results for the product, the customer, or the geographical area. Divisional structure is flexible and responsive to change, because each unit focuses on its own environment. Coordination among different functions within the division benefits from singleness of purpose. Because each division is a self-contained unit, responsibility and accountability for performance are easier to target. The divisional structure is also an excellent vehicle for developing senior executives. Division managers gain a broad range of experience in running their autonomous units, which are, in essence, companies. An organization that has a large number of divisions is developing a number of generalists for the company’s top positions.
Disadvantages of the Divisional Structure The major disadvantage of divisional structure is duplication of activities and resources. Instead of a single marketing or research department, each division maintains its own. The structure loses efficiency and economies of scale, and a lack of technical specialization, expertise, and training can result. Interdivisional coordination may suffer, and employees in different divisions may feel they are competing with one another—a mixed blessing.
Historically, General Motors (GM) has operated with a divisional product structure, and its inherent limitations. Each automobile division—Buick, Chevrolet—has a separate marketing, manufacturing, and research area. The duplicate activities reduce overall corporate efficiency. Divisions compete with each other with almost identical car designs.
The matrix structure combines the advantages of functional specialization with the focus and accountability of the divisional structure. A matrix utilizes functional and divisional chains of command simultaneously in the same part of the organization.19 To achieve this combination, the matrix structure employs dual lines of authority. As Figure 8.9 shows, the functional hierarchy of authority runs vertically from the functional departments—production, materials purchasing, human resources, and so on—and project authority runs laterally from group to group. This combination of function and project authority creates a grid or matrix. As a result each employee has two bosses, with a dual chain of command based on both the department and individual projects.20
An organizational design that utilizes functional and divisional chains of command simultaneously in the same part of the organization
FIGURE 8.9 Matrix organizational structure
A matrix structure can be created when any division established for a specific product, program, or project is combined with a functional structure. In general, a matrix design will most likely be used in one of two situations.21 First, it is used when a firm offers a diverse set of products, has a complex environment, and requires functional expertise. With a matrix, the company can bring important functional skills to bear on each product while simultaneously responding to the changing environment.
Second, the matrix organization is used when managers want to maximize economies of scale and shared resources. Resource duplication is minimized by having employees work for more than one division or by transferring employees among divisions as requirements change. The manager in charge of the engineering department shown in Figure 8.9 can assign engineers as the needs of each project demand.
Advantages of the Matrix Structure Monsanto, Dow Chemical, and Asea- Brown Boveri (ABB) have used the matrix structure successfully. It has proven to be flexible; teams can be created, changed, and dissolved without a major problem. Communication and coordination are increased. Lars Ramquist was so impressed with the advantages of the matrix structure that his first move as CEO of Sweden’s L. M. Ericsson Corporation was to solve organizational problems by installing a matrix structure.
The matrix structure increases the motivation of individual employees. The achievement of goals can bring a sense of commitment and satisfaction. The structure also provides training in functional and general management skills. People within functional departments receive technical training, and team coordination provides the opportunity to develop a general perspective.
Disadvantages of the Matrix Structure The most obvious disadvantage is the potential conflict, confusion, and frustration created by the dual chain of command. Employees have two bosses—the functional manager and the project manager. Also, the matrix often pits divisional objectives against functional objectives, creating conflict. Another disadvantage directly relates to the previous one: the productive time lost to meetings and discussions to resolve this conflict. The structure places a premium on interpersonal skills and human relations training—conflict management, working with two bosses, and open communication. Finally, the matrix structure may create a problem with a balance of power between the functional and divisional sides of the matrix. If one side has more power, the advantages of the matrix—coordination and cooperation—will be lost.
The newest and most potentially powerful approach to organizational structure has been the attempt by organizations to implement a team structure. The team structure—organizing separate functions or processes into a group based on one overall objective—takes direct aim at the traditional organization hierarchy, whether functional, divisional, or matrix and flattens it. Although the vertical chain of command is a powerful control device, it requires passing decisions up the hierarchy and takes too much time. Such an approach also keeps responsibility at the top. Companies adopting the team structure are pushing authority down to lower levels through empowerment and holding the team accountable. The concept of empowerment was introduced in Chapter 5.
An organizational design that places separate functions or processes into a group according to one overall objective
Rather than departments being structured by functional specialty, team departments are created. Team members representing different functions or processes are grouped together: a number of such teams report to the same supervisor. Although variations of the team concept occur—occasionally some teams are responsible for a product, others for a process—the result is the same. The traditional functions are reorganized, layers of management are removed, and the company becomes decentralized. Figure 8.10 illustrates the reorganization of a vertical functional structure to a horizontal team product structure. Teams were introduced in Chapter 5 and will be discussed in detail in Chapter 14.
Successful teams discuss products and processes and share information. Most people agree that face-to-face meetings are important for business. Yet it is difficult to achieve. Many coworkers are too busy to meet on a regular basis. They talk on the phone, but they cannot see each other’s facial expressions, nor can they share work documents. Email allows discussions and sharing documents, but not in real time. Social media, depicted in this chapter’s Managing Web 2.0 feature, allow employees to post messages, share files, and schedule meetings.
FIGURE 8.10 Development of a team structure
Advantages of the Team Structure The team concept breaks down barriers across departments because people who know one another are more likely to compromise than would strangers. The team structure also speeds up decision making and response time. Decisions no longer need to go to the top of a hierarchy for approval. Employees are strongly motivated. They take responsibility for a project rather than for a narrowly defined task, and the result is enthusiasm and commitment. Decentralization of authority is accompanied by the elimination of levels of managers, which results in lower administrative costs. Finally, team structure is an improvement over the matrix structure in that it does not involve the problem of double reporting. Each worker believes he or she is part of a team rather than an individual who performs a designated function.
Disadvantages of the Team Structure The team structure depends on employees who learn and train for success. If the company won’t provide training, performance suffers. Also, more time might be required for team meetings, thus increasing coordination time.
Managing Web 2.0
Social media refer to online platforms that facilitate discussions and sharing of content. It is a very convenient way for teams to collaborate. Technologies include blogs (Blogger), wikis (Wikipedia), microblogging (Twitter), social networking (Facebook), professional networking (LinkedIn), videos (YouTube), slides (Slideshare), pictures (Flikr), and many more. Each employee working on a particular project can access content, read the documents posted, and make changes to these documents. Other features might include a bulletin board, a group calendar, personal calendars, virtual meeting rooms for real-time chat, and private messaging.
A set of online technologies enabling a community of participants to collaborate
“The Conversation Prism” by Brian Solis and JESS3, depicted here, is a view of the social media universe, categorized and organized by how people use each network.
Social Media Universe: The Conversation Prism v. 3 by Brian Solis and JESS3
→ After studying “The Conversation Prism,” identify the networks you think would be most useful to teams. Explain your answer.
The final approach to structure is known as the dynamic network organization. In the network structure a small central organization relies on other organizations to perform manufacturing, marketing, engineering, or other critical functions on a contract basis.22 In other words, rather than these functions being performed under one roof, they are really free-standing services. Nike and Esprit Apparel, both of which are booming even though they own no manufacturing facilities, use the network structure concept (see Figure 8.11). Rather than create the functions internally, they connect independent designers, manufacturers, and sales representatives to perform needed functions on a contract basis.23
An organizational design option in which a small central organization relies on other organizations to perform manufacturing, marketing, engineering, or other critical functions on a contract basis
Advantages of the Network Structure The network structure provides flexibility because a company purchases only the specific services needed. Administrative overhead remains low because large teams of staff specialists and other administrative personnel are not needed.
Disadvantages of the Network Structure The major shortcoming of this type of structure is lack of control. The management core must rely on contractors. This limitation can be minimized if management is willing and able to work closely with the suppliers. The reliability of supply, however, is less predictable than it would be if the company owned the means of supply. If a supplier fails to deliver, goes out of business, or suffers a plant breakdown, the central hub of the network is endangered. Also, if an organization relies on contract work, central managers may lack technical expertise to resolve problems effectively.
FIGURE 8.11 Network organizational structure
5 Define organizational culture and describe the ways that culture is manifested
Organizational Culture Defined
The discussion in Chapter 3 of the manager’s environments introduced a critical concept in the successful management of a company—organizational culture. Organizational culture is a dynamic system of shared values, beliefs, philosophies, experiences, habits, expectations, norms, and behaviors that give an organization its distinctive character. More importantly, that system—the organizational culture—defines what is important to the organization, the way decisions are made, the methods of communication, the degree of structure, the freedom to function independently, how people should behave, how they should interact with each other, and for what they should be striving. Sharing these beliefs, values, and norms helps employees develop a sense of group identity and pride—both valuable contributors to organizational effectiveness. The norms for behavior develop around a set of values and create an invisible hand—a consensus and driving force for goal accomplishment.
Because each organization has its own beliefs, values, and norms, each has a unique culture. At Nordstrom, the department store chain, the organizational culture makes a crusade of providing customer service. Procter & Gamble’s culture stresses quality and competitive marketing. Although organizational culture might seem suspiciously like a company’s mission, there is more to it than that. “At Southwest, culture is purposeful, not accidental. It’s something people work hard at every day.”24 The organizational culture provides a means through which each employee can translate the core values of the mission into his or her own guiding passion.
Management writers Tom Peters and Robert Waterman related the words of a business executive who had worked at McDonald’s as a 17-year-old. In describing his experience at McDonald’s, the executive pointed out the importance of the company credo of quality: “If French fries were overdone, we threw them out.” Though they were young, inexperienced workers on the burger assembly line, he and his coworkers had fully absorbed the company’s chief value—quality—and the norms for defect handling.25
The young workers absorbed those values and norms because McDonald’s has a strong culture. The more a culture’s values are intensely held and widely shared throughout the organization, the stronger the culture. McDonald’s culture is also highly functional. The factors that influence culture are all consistent with and supportive of the organization’s strategy.
Factors Shaping Culture
Although each company’s special blend of elements develops a unique culture, a comparison of many organizations identifies seven culture-shaping factors:
• Key organizational processes
• Dominant coalition
• Employees and other tangible assets
• Formal organizational arrangements
• Social system
• External environment
FIGURE 8.12 Factors that shape organizational culture
As shown in Figure 8.12, these factors interact with each other. In fact, no single ingredient is independent of the others. Let us examine each of these factors.26
Key Organizational Processes At the core of every organization, and fundamental to it, are the processes people follow to gather information, communicate, make decisions, manage work flow, and produce a good or service. How managers communicate to employees, how they share decision making, and how they structure the flow of work define the organization. These processes affect and are affected by the other six factors that influence organizational culture.
Dominant Coalition An organization’s culture is greatly affected by the objectives, strategies, personal characteristics, and interrelationships of its managers, who form the dominant coalition. Managers’ leadership styles (discussed in Chapter 13) determine how employees are treated and how they feel about themselves and their work. The dynamic energy and vision of Bill Gates at Microsoft made his company the world leader in computer software. Herb Kelleher of Southwest Airlines created a culture that values having fun at work and that stresses the importance of the contribution of each employee. Deloitte LLP, the subject of this chapter’s Valuing Diversity feature, launched its Initiative for the Retention and Advancement of Women and changed a culture that spurned women to one that valued and retained them.
Deloitte LLP Changes the Culture
For ten years, Cynthia Turk inched her way up the ladder at the accounting firm of Deloitte & Touche. Eventually she became a partner—when fewer than ten percent of the partners were women—but she wasn’t welcomed openly. “I walked into a culture that wasn’t used to having women in very senior positions. It wasn’t warm, welcoming, or nurturing” (Lawlor). Three years later, Turk left, still feeling unaccepted.
Since Turk, with many other women, left, few firms have made a more public commitment to top-to-bottom cultural change than has Deloitte LLP. Following a fact-finding study to determine why, after years of hiring women for 50 percent of the entry-level jobs, fewer than ten percent of those promoted to partner were female, a task force was formed. A strategic plan with top-down accountability was developed.
To change a culture where women, once they had a family, were perceived as less committed, Deloitte embarked on an ambitious program in 1993, known as the Women’s Initiative (WIN). Focused at all parts of the culture, the program included gender awareness training for partners and managers, formal career planning for all female partners and senior managers, and succession planning for senior women. The program also involved more flexible work arrangements, including the possibility of becoming a partner on a part-time basis. Also, partners are monitored to ensure they give their female managers challenging, growth-oriented assignments, rather than clerical work.
WIN helped Deloitte change its culture and close the gender gap. An internal forum at Deloitte was so popular that the company decided to take it public in 2007 as “the first blog to help define the next generation workplace and workforce—out there in the world, as well as at Deloitte. It is an ongoing community conversation about life, work, and everything in between” (WIN blog, www.deloitte.com/us/winblog).
The Women’s Initiative Annual Report emphasizes WIN results. “Deloitte shattered the glass ceiling 17 years ago with the Women’s Initiative, an initiative for the retention and advancement of women. That initiative has helped make us an employer of choice, and given us the intellectual capital to succeed for our clients and ourselves. To see how we help women reach for the stars, visit www.deloitte.com/us/womensinitiative.”
→ Sharon Allen (Chairman of the Board, Deloitte LLP) addressing the Wharton Women in Business Conference, said, “Forget the negative things you might read and hear and forget the statistics that detail a tough business world where success is hard to come by. There’s never been a better time to be a woman in business.” Do you agree with Ms. Allen? Explain your answer.
Sources: http://www.us.deloitte.com, About Deloitte, Women’s Initiative Annual Report, 2010; Douglas M. McCracken, “Best Practice—Winning the Talent War for Women: Sometimes It Takes a Revolution,” Harvard Business Review, November-December, 2000; Angela Briggins, “Win-Win Initiatives for Women,” Management Review, June 1995, 6; Julia Lawlor, “Executive Exodus,” Working Woman, November 1994, 39–41, 80–87.
Employees and Other Tangible Assets An organization uses its resources—employee population, plant and offices, equipment, tools, land, inventory, and money—to carry out its activities. These assets are the most visible and complex of the factors that influence organizational culture. Their quantity and quality have a major effect on organizational culture and performance. For example, Procter & Gamble attributes much of its success to the quality of its people—who, in turn, are proud to be part of an organization that describes itself as “special,” “great,” “excellent,” and “unique among the world’s business institutions.”
Formal Organizational Arrangements The formal arrangements that organize tasks and individuals constitute another factor that affects organizational culture. These arrangements include the structure of the organization and its procedures and rules. Specific mandated behaviors are also a part of organizational arrangements.
Social System The social system, which contributes norms and values to organizational culture, includes the set of employee relationships that relate to power, affiliation, and trust. It also includes the grapevine and the informal organization, thus helping render it one of the most important factors of organizational culture. Because people are the organization, their relationships are crucial to defining what the organization is like.
Technology The major technological processes and equipment that employees use and how they use them also affect organizational culture. Is a machine or process intended to replace human labor or enhance workers’ skills and productivity? The answer sends a message about the values of employees in the organization. Assembly-line technology promotes an impersonal, uninvolved culture. Many years ago, Volvo of Sweden embraced quality and worker satisfaction as corporate values. As a result, Volvo managers adopted team organizations and unconventional layouts in Volvo facilities. These changes helped shift the organizational culture away from the mechanistic values of the assembly line.
External Environment The discussions on the external environment in Chapters 3, 4, and 6 related how suppliers, markets, competitors, the economy, regulators, and other factors outside an organization affect its goals, resources, and processes. Clearly these factors influence a firm’s culture in many ways. For example, when a company expands globally, the international employees bring their values, beliefs, and attitudes to the organization. This infusion of diversity alters the culture.
Manifestations of Culture
An organization’s culture is nurtured and becomes apparent to its members in various ways. Some aspects of culture are explicit; some must be inferred. The chief evidences of culture include statements of principle, stories, slogans, heroes, ceremonies, symbols, climate, and the physical environment.
Statements of Principle
Some corporations have developed written expressions of basic principles central to organizational culture. Many years ago Forrest Mars developed the “Five Principles of Mars,” which established fundamental beliefs for the company.27 Mars’s principles still guide the company today:
1. Quality. No one at Mars has the word quality in his or her job title; quality control is everywhere, and everyone is responsible for it.
2. Responsibility. All employees are expected to take on direct and total responsibility for results, exercising initiative and making decisions.
3. Mutuality. In all dealings—with the consumer, other employees, a supplier or distributor, or the community at large—employees are to act so that everyone can win.
4. Efficiency. All of the company’s factories operate 24 hours a day, 7 days a week. As a whole, the company uses 30 percent fewer employees than its competitors do.
5. Freedom. The company provides freedom to allow employees to shape their futures, and profits that allow employees to remain free.
Shared stories illustrate the culture. Telling stories acquaints new employees with the culture’s values and reaffirms those values for existing employees. For example, all new employees at Nordstrom learn the importance of being a “customer service hero” by seeing, hearing, and reading “true tales of incredible customer service.”28 This gives Nordstrom employees a standard to aspire to—and even surpass.
A slogan is a phrase or saying that clearly expresses a key organizational value. The late Sam Walton’s slogan, “The customer is the boss,” keeps the culture of Walmart focused on providing high-quality customer service. A slogan, however, should not be confused with a company’s advertising campaign, unless the slogan is genuinely backed by the actions of the company and becomes a company value.
A hero is a person in the organization who exemplifies the values of the culture, as Southwest Airlines former CEO Herb Kelleher did. To his employees, Kelleher embodied what Southwest stands for—customers first, quality service, and having fun while doing it. A true hero? When Herb Kelleher was CEO, all of Southwest’s employees secretly contributed to buying a full-page ad in USA Today for National Boss Day.29
Managers hold ceremonies to exemplify and reinforce company values. Awards ceremonies for outstanding service, top producers, or high-performance teams promote the values of the culture and allow recipients and colleagues to share the experience of achievement. Awards ceremonies at Mary Kay Cosmetics are legendary in the cosmetics industry. At these lavish affairs, high-achieving sales representatives receive furs, pins, and cars. Whereas ceremonies at Mary Kay are simmering with sophistication, the same could hardly be said at Henkel Consumer Adhesives, manufacturer and marketer of Duck brand duct tape. Henkel’s celebrations are raucous and fast moving. To celebrate successes, people in yellow duck outfits (“duct” sounds like “duck”) waddle through the halls, employees perform the Henkel Consumer Adhesives cheer at the beginning of every meeting, and they celebrate at the Duck Challenge Day each year.30
Many companies use a ceremony to mark the advancement of a new hire from trainee to full-fledged employee. Ceremonies also include rituals that honor promotions. These events increase the employee’s identification with the organization’s values.
An object or image that conveys meaning to others is a symbol. Some organizations use symbols to embody their core values. Walt Disney created an entire symbolic language to reinforce his company’s core values. At the Disney theme parks:
• Employees are “cast members.”
• Customers are “guests.”
• A crowd is an “audience.”
• A work shift is a “performance.”
• A job is a “part.”
FIGURE 8.13 Nordstrom’s handbook symbolizes its core values
• A uniform is a “costume.”
• The personnel department is “casting.”
• Being on duty is “on stage.”
• Being off duty is “off stage.”31
At Nordstrom each employee receives a copy of the employee handbook, which consists of a single 5½ by 8½ inch card. As shown in Figure 8.13, the symbolic handbook embodies the core values of customer service and autonomy. Symbols may include job titles and perks, such as the location of a reserved parking space, the size and location of the office, or the size of the desk.
As defined in Chapter 3, organizational climate is the quality of the work environment experienced by employees—that is, how it feels to work there. Climate is largely a function of how workers feel about the organization. Do they work hard and apply themselves to the task, cooperating with management goals and directives; or do they drag their feet, resenting management instructions, and resisting demands for output?
A company with a healthy climate encourages everyone to tap into the other person’s expertise, empowers people and rewards them for taking risks, and provides lots of celebrations where peers cheer peers. An unhealthy climate is found in enterprises in which managers promote different values, are in conflict, and the organization has widely divergent goals.
Last but not least in the discussion of culture-shaping factors is a simple but powerful force: the physical environment of an organization. It is no coincidence that Sears & Roebuck, a hierarchical organization, built one of the world’s tallest buildings. The Sears Tower (renamed Willis Tower in 2009) dominates the Chicago skyline and reflects the multilayered structure and centralized culture of the organization. A software developer or computer maker, on the other hand, may create a campuslike environment to promote the free exchange of ideas. Such enclaves are common in California’s Silicon Valley.
CREATION OF CULTURE
6 Explain the role of managers and employees in creating culture and making a culture effective
Managers and employees create organizational culture. Managers like Walt Disney deliberately set out to instill certain values. In other cases the culture simply emerges from a pattern of behaviors that may not be consciously planned.
Role of Managers
Managers at all levels in an organization help develop the culture. Quite simply, managers set the tone, control the resources, and have the means to influence the results. Management helps create culture in the following ways:
• Clearly defining the company’s mission and goals
• Identifying the core values
• Determining the amount of individual autonomy and the degree to which people work separately or in groups
• Structuring the work in accordance with the corporation’s values to achieve its goals
• Developing reward systems that reinforce the values and goals
• Creating methods of socialization that will bring new workers inside the culture and reinforce the culture for existing workers
The task of defining the culture often begins with the organization’s founder. Both Walt Disney and Sam Walton created and put their stamp on strong organizational cultures. Sometimes, though, managers in charge of existing organizations wish to change that organization’s culture. For example, a new manager might be hired into a culture that is hierarchically oriented and frowns on confrontation. Decisions are made too slowly. People don’t take risks.
Such an organization needs a new spirit with a willingness to compete. To begin the transformation, a new mission focusing on fulfilling the needs of the customer is required. Core values—such as respect for the individual, integrity, trust, credibility, and continuous improvement—will help build the culture.
James C. Collins and Jerry I. Porras point out that regardless of whether a manager is the organization’s founder, a second generation CEO, or a newly positioned chief executive, truly visionary managers and companies “translate their ideologies into tangible mechanisms aligned to send a consistent set of reinforcing signals. They indoctrinate people, impose tightness of fit, and create a sense of belonging to something special.”32 Figure 8.14 presents a summary of practical ways Collins recommends for building culture.
Role of Employees
Employees contribute to organizational culture to the extent that they accept and adopt the culture. Workers at Disney theme parks are renowned for their sunny disposition and friendliness to patrons. The training they receive after hiring clearly succeeds in making them see themselves as performers who give enjoyment.
FIGURE 8.14 Practical ways to build a culture
Also, workers contribute to organizational culture by helping to shape the values it embodies. Employees who shirk the tasks at hand—and influence newcomers to do the same—have a significant effect on quality, regardless of what top managers may say about quality as a value. Employees who give each other a hand to meet a deadline create a feeling of teamwork that exists regardless of management’s decisions about structuring work.
Finally, workers play a role in influencing organizational culture by forming subcultures. A subculture is a unit within an organization that is based on the shared values, norms, and beliefs of its members. The values of the subculture may or may not complement those of the dominant organizational culture. Unionized employees constitute a subculture. Groups of workers who share a common background or interest or who work in the same department may also form subcultures. When workers form a subculture, their shared experiences take on a deeper meaning, because they also share values, norms, and beliefs. Subcultures influence their members’ behavior; managers should, therefore, consider them important. If a subculture’s values and norms conflict with those of the dominant culture, managers must take action.
A unit within an organization that is based on the shared values, norms, and beliefs of its members
Factors Contributing to the Effectiveness of Culture
Culture affects performance. In a study of hundreds of firms, John P. Kotter and James Heskett found a dramatic difference between effective and ineffective cultures:
We found that firms with cultures that emphasized all the key managerial constituencies (customers, stockholders, and employees) and leadership from managers at all levels outperformed firms that did not have those cultural traits by a huge margin.33
Kotter and Heskett went on to warn that managers must do more than promote an effective culture; they must be constantly on the lookout for the signs of an ineffective culture.
Corporate cultures that inhibit strong long-term financial performance are not rare; they develop easily, even in firms that are full of reasonable and intelligent people. Cultures that encourage inappropriate behavior and inhibit change to more appropriate strategies tend to emerge slowly and quietly over a period of years, usually when firms are performing well.34
Three factors help determine the effectiveness of an organizational culture: (1) coherence, (2) pervasiveness and depth, and (3) adaptability to environment.
Coherence In discussions of organizational culture, coherence refers to how well the culture fits the mission and other organizational elements. A culture like the one at Walmart, which values customer service and a low-cost strategy, must train employees to recognize customer needs. It must also empower them to make decisions to meet those needs, create processes and structures that will achieve the goals of low inventory cost and low overhead, and employ technology to meet those goals. If decision-making authority at Walmart were centralized, the culture would be less coherent, because such a design does not mesh with other aspects of the culture.
Pervasiveness and Depth The phrase pervasiveness and depth refers to the extent to which employees adopt the culture of an organization. The greater the acceptance of and commitment to organizational values, the stronger the culture. 35 By insisting that all employees take responsibility for quality, Motorola ensures that quality, as a value, is pervasive. By training theme-park employees extensively, Disney helps guarantee that employees deeply hold its values. In applicant interviews, employees of Southwest Airlines ask the interviewee, “What did you do on your last job to have fun?” This perpetuates the fun-loving environment at Southwest.
Adaptability to the External Environment If organizational culture fits the external environment, managers and employees have the mind-set they need to compete. For decades, American Telephone & Telegraph (AT&T) enjoyed a monopoly on long-distance telephone service. In the 1980s, when long-distance service was deregulated, AT&T employees found they did not have the mind-set to compete in their new environment; their organizational culture did not fit well into the real world. The new external environment had created new demands, and it required a new way of thinking—a new culture.
Of the three factors that determine the effectiveness of organizational culture, the degree of fit with the external environment is perhaps the most critical. Its importance lies in the fact that the environment changes. Just ask managers at Sears, IBM, or GM about the importance of change in the external environment. These three organizations fell on hard times, because they were not adaptable enough. Each organization possessed an effective culture. Indeed, IBM provided a model of strong corporate culture. The true measure of the effectiveness of a culture, then, is its ability to adapt. Managers must achieve the difficult task of building a culture strong enough to compel commitment and unwavering support but flexible enough to allow change in the face of emerging external demands.
Meeting that challenge will likely become even more important to organizational survival in the future. In the current volatile business world, environmental change is a constant. We now turn to understanding change and learning how to manage change.
NATURE OF CHANGE
7 Define change and identify the kinds of change that can occur in an organization
Not since the Industrial Revolution has U.S. business experienced so much change. In the past decade, almost every industry has been rocked by change. Telecommunications has been changed by divestitures. Pharmaceuticals and banking have undergone consolidation. The banking and transportation industries have had to adjust to deregulation, as investment brokers and health care providers have had to adjust to increasing regulation. Manufacturers battle an increase in foreign competition, and the computer industry must constantly accommodate technological innovation. The Internet has affected every single industry. Managers are assaulted by change. Furthermore, as soon as they adjust to one change, they must readjust to accommodate another.
Change is any alteration in the current work environment. The shift may be in the way things are perceived or in how they are organized, processed, created, or maintained. Every individual and organization experiences change. Sometimes change results from external events beyond the control of a person or an organization. Other times the change results from planning. When a company lowers its prices to increase market penetration, for example, the change in price is purposeful.
Any alteration in the current work environment
The example about lowering prices indicates how complex a change can be. Lowering prices may seem to be a simple matter, but it involves more than just printing a new price list. A company lowers prices to increase sales. If sales increase, the company may need additional staff or equipment (phone lines or computers) to handle the volume of orders. It might need more production capacity to fill the orders, a more efficient technology to meet the needs, and so on. Furthermore, the information system must communicate the new price throughout the organization, and employees must receive briefings so they will know how to handle the increase. Even an apparently mechanical change calls for adjustments throughout an organization.
This section explores change by discussing its sources and types. The sections that follow will examine the kinds of changes that confront an organization during its typical life span and how change affects managers at each level.
Sources of Change
Change originates in either the external or internal environments of the organization.
External Sources Change may come from the political, social, technological, or economic environment. Externally motivated change may involve government action, technology, competition, social values, and economic variables. Developments in the external environment require managers to make adjustments. New government regulations, for example, can require that a manufacturer install pollution-control devices or that a restaurant raise the wages of its workers to meet a new minimum. The actions of competitors certainly put demands on a business. When one U.S. airline launches new low fares, other domestic airlines in the same markets feel compelled to follow suit. Companies successful at coping with change take advantage of new technologies earlier rather than later.
Internal Sources Internal sources of change include managerial policies or styles, systems and procedures, technology, and employee attitudes. When managers change the standards by which they measure job performance or when a new manager takes over a department or company, employees must adapt their behavior to fit the new situation.
New conditions in the external environment clearly can bring about changes within the organization; internal change can also cause external change. Whether internal change affects the external environment depends on the extent of the internal change and on whether the change affects a part of the organization that has impact on the environment. New internal policies requiring employees to check their email at least once each day will unlikely have any impact on the external environment.
Types of Change
Change can also be understood on the basis of its focus, which can be strategic, structural, process oriented, or people centered. Such changes can have dramatic impact on the organizational culture.
Strategic Change As discussed in Chapter 4, sometimes managers find it necessary to change the strategy or the mission of the organization. Organizations that decide to focus on a single mission often need to divest themselves of unrelated businesses, as Motorola did when it sold off its semiconductor group. Managers who want to expand operations to new areas may move to acquire another company, as eBay did in its purchase of PayPal and Skype.
Achieving strategic changes can require, in turn, a change in organizational culture or other elements. When a company adopts quality as a key to its competitive strategy, it has to adopt quality work as a corporate value.
Structural Change Managers often find it necessary to change the structure of their organizations, as has been the case in recent years, with the prevalence of team building and downsizing. These changes have usually been made to make operations run more smoothly, improve overall coordination and control, or empower individuals to make their own decisions. Because structural change has a major impact on an organization’s social system and climate, it greatly affects organizational culture.
Process-Oriented Change Many changes aim at processes, such as using new technology, shifting from human to mechanical labor in plants that employ robotics for manufacturing, or adopting new procedures. If process-oriented change takes the form of reengineering, it may have dramatic effects on the organization and its culture. As defined in Chapter 2 and discussed in Chapter 5, reengineering is the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, traditional measures of performance, such as cost, quality, service, and speed. Reengineering first determines what process is necessary, then how to do it.36
As illustrated in Figure 8.15, most business processes involve activities in more than one department. When the steps have been completed in one department, the process continues as additional activities are undertaken in the next department. In most instances the result is an inefficient and ineffective process. 37 Reengineering takes aim at these processes to optimize the workflow and productivity. Changing or reengineering the processes may change the entire organization.38
FIGURE 8.15 Processes wind throughout the organization
Businesses processes are becoming integrated electronically, as technology is used to aid in the conduct of business. Early adopters of the Internet were those businesses willing to innovate and to take some risks. Dell helped pioneer the end-to-end use of digital networks to communicate with its customer, take orders, and then pull together products from suppliers. Dell did this by surpassing traditional distribution channels and going directly to customers. Dell’s outlet started using Twitter, the microblogging Internet site, in 2007 and by 2009 surpassed $2 million in sales.
People-Centered Change Many changes are directed at the attitudes, behaviors, skills, or performance of the company’s employees. These changes can be achieved through retraining, replacing current employees, or increasing the performance expectations of new employees. The task of changing attitudes and behaviors falls into the domain of behavioral training. As an aspect of organizational development, behavioral training will be discussed later in this chapter.
Rates of Change
Change can also be viewed based on its pace—that is, either evolutionary or revolutionary. Evolutionary change focuses on the incremental steps taken to bring about progress and change. Organizations like Johnson & Johnson show a strategy for incremental change. Visionary companies have a philosophical commitment to constant change, but at a measured pace.39 Motorola and Johnson & Johnson were among the first to commit to incremental change techniques defined and discussed in Chapter 5: kaizen, total quality management, quality circles, and benchmarking. Each technique has at its core a belief in continuous, gradual change. Figure 8.16 illustrates evolutionary changes.
The incremental steps taken to bring about progress and change
FIGURE 8.16 Examples of evolutionary and revolutionary change
Revolutionary change focuses on bold, discontinuous advances. To the observer, these “leaps” bring about dramatic transformations in organizational strategies and structure. Organizations and managers involved in revolutionary change push the envelope and practice outside-of-the-box thinking. By his actions, Jack Welch, former CEO of GE, was a supporter of revolutionary change. In transforming GE, Welch opted for immediate rather than incremental change. Welch, using a tool of revolutionary change, challenged the company by setting a BHAG (as described in Chapter 4, a BHAG is a Big Hairy Audacious Goal). GE was “to become #1 or #2 in every market [it] serves and revolutionize the company to have the speed and ability of a small enterprise.”40
Bold, discontinuous advances that bring about dramatic transformations in organizational strategies and structure
As previously discussed, business process reengineering (BPR), another tool of revolutionary change, takes nothing for granted. It ignores what is and concentrates on what should be. It calls everything into question—what no longer needs to be done, what must be done, and how better to execute the latter. Reengineering changes the fundamental ways in which people and their organization handle their processes. Typical results of BPR have been to dramatically change organization’s missions, visions, values, activities and structures. Figure 8.16 illustrates revolutionary changes.
Management and Change
Each level of management faces change in a different way. Top-level managers tend not to address minute details; instead, they focus on the broad outlines of the desired change. Top-level managers are more likely to be involved in changes of strategy, structure, and process. Because such changes have a major impact on culture and on the way an organization does business, the effects of change decisions made by top managers ripple throughout an organization. Top managers must be sensitive to the external environment; that is, they need to stay attuned to changes in that environment. By scanning the external environment, they may be able to see when internal changes are needed to fit new circumstances and meet new opportunities.
Middle managers will likely face structural, process-oriented, or peoplecentered changes, although they may well have some input into decisions about strategic change. To achieve greater efficiency or higher quality, they might reorganize staff or workflow. They might develop training programs to introduce new technology. In any case, the changes implemented by middle managers are likely to have a wide impact. They could affect all members of a division.
Although first-line managers might participate in discussions about strategic or structural changes, they are unlikely to make decisions about these issues. First-line managers institute process-oriented and people-centered change. They implement all types of changes developed higher in the hierarchy. Because they come into close contact with their employees, these managers must understand how to manage change.
How to Manage Change
A company can deal with change by trying to anticipate the need for it and plan for it. A company and its managers can adopt a philosophy of planned change, which involves trying to anticipate what changes will occur in both the external and internal environments and then developing a response that will maximize the organization’s success. When managers plan for change—whether employing an evolutionary approach or a revolutionary style—they are more likely able to predict the results and control events. The alternative—management by reaction—can invite disaster.
Trying to anticipate what changes will occur in both the external and internal environment and then developing a response that will maximize the organization’s success
management by reaction
A management method that does not anticipate change but merely reacts to it
The change agent implements planned change. The change agent could be the manager who conceived of the need to change; it could be another manager within the organization who is delegated the task; it could be an outsider—a consultant brought in specifically to help an organization adopt a new way of doing things; or it could be someone other than a consultant, hired from the outside to change the organization. Jack Welch at GE and Lou Gerstner at IBM fall into this last category. An outside change agent is considered to be more objective, less influenced by existing politics and people, and committed to the goals agreed to upon hiring. Inside change agents often cannot see the correct actions to take or are reluctant initiators.41
A person who implements planned change
The next section will examine planned change by looking at the kinds of changes that managers can expect throughout the life of the organization, the steps involved in planned change, and the attitudes that underlie an effective approach to change.
Need for Change: Diagnosis and Prediction
Managers can diagnose and predict the need for organizational change by studying the typical phases of change. Recall the organizational life cycle of birth, youth, midlife, and maturity and some of the crises commonly experienced by organizations at each stage. Management consultant Larry Greiner has graphed these predictable phases of organizational evolution (see Figure 8.17).42 Anticipating these phases can help managers prepare for change rather than simply reacting to it. Greiner has identified five phases of growth.
FIGURE 8.17 Model of organizational growth and change
Phase 1: Creativity This birth stage of the organization is marked by concerns for product and market, by an informal social system, and by an entrepreneurial style of management. Soon the need for capital, new products, new markets, and new employees forces the organization to change. A crisis of leadership occurs when management becomes incapable of reacting to the growing organization’s need for structure. The organization enters a new phase.
Phase 2: Direction The second phase is characterized by the implementation of rules, regulations, and procedures. A functional organizational structure is introduced; an accounting system is created; incentives, budgets and work standards are established; and formal, impersonal communications begin. Eventually, lower-level managers demand greater decision-making authority, which brings on another crisis and launches the organization into the next phase.
Phase 3: Delegation Decentralization is the key to the third phase, in which top management creates profit centers under territorial managers, who are given leeway to act and held accountable for the results. Communication from the top becomes less frequent. Eventually, top managers sense that they have lost control of the organization. This realization brings on another crisis and another major change.
Phase 4: Coordination Responding to their sense of loss of control, managers attempt to seize control by emphasizing coordination. Decentralized work units are merged, formal organizationwide planning is introduced, capital expenditures are restricted, and staff personnel begin to wield greater power. The price of this phase: red tape and interpersonal distance between line and staff and between headquarters and the field develop. A new crisis takes place.
Phase 5: Collaboration The final phase introduces a new people-oriented and flexible system, with managers exhibiting more spontaneity. Characteristics of this phase include problem solving by teams, reductions in headquarters staff, simplification of formal systems, and encouragement of an attitude of risk taking and innovation.
The heart of Greiner’s model shows a key point about change. The solution to one set of problems eventually creates another set of problems that require solving. In other words, the need for change is constant.
STEPS IN PLANNED CHANGE
8 Explain the steps managers can follow to implement planned change
Once committed to planned change, a manager or an organization must create a step-by-step approach to achieve it. Figure 8.18 presents the steps that a manager can use to implement change.43 As an example, the following paragraphs will show how Wendy, a manager, can use this process to change her company’s policy about smoking.
Recognizing the Need for Change The first step in the change-implementation process is to identify the need for a change. Recognition can come as a result of factors inside or outside an organization. In Wendy’s case, suppose the company’s health insurance carrier notifies her that it will conduct a rate-structure review in light of research about the effects of smoking. Meanwhile, an internal force, a group of employees, requests a policy statement about smoking in the workplace. In this case, external and internal forces contribute to the recognition of the need for change.
FIGURE 8.18 Nine steps for implementing planned change
Developing Goals As in any planning process, a key step is the identification of goals. Managers must ask what they wish to achieve. In Wendy’s case, the manager’s goals become (1) to develop a smoking policy for the organization that will be widely accepted, and (2) to prevent insurance costs from rising.
Selecting a Change Agent With goals in mind, the next issue is to determine who will manage the change. Wendy asks the leader of the group concerned about smoking to assist her as a change agent.
Diagnosing the Problem In the next step, the manager gathers data about the problem and analyzes the data to identify the key issues. The two change agents in the current example find that other companies control health insurance costs by instituting smoking restrictions. They also learn that whether employees support or oppose smoking in the workplace, smoking is an emotional issue.
Selecting the Intervention Method In the fifth step, the manager must decide how to achieve the change. Because smoking is such an emotionally charged issue, the change agents in the current example decide not to create the needed policy themselves. Instead, they form a task force that includes representatives from all departments. They believe that large-scale participation will help ensure the facilitation of the change.
Developing a Plan This step involves actually putting together the “what” of the change. The task force must decide if the company will have a no-smoking policy or will designate areas that permit smoking.
Planning for Implementation In this phase, the decision maker must decide the “when,” “where” and “how” of the plan. The task force in Wendy’s case must decide when the policy will go into effect, how it will be communicated, and how its impact will be monitored and evaluated.
Implementing the Plan After a plan is created, it must be put into effect. Implementing the plan requires notifying the employees who will be affected by the change. Notification may consist of written messages, briefings, or training sessions. The choice depends on the depth of the change and the impact it will have on people. With a major change, such as the adoption of work teams, training might be necessary for some time. In Wendy’s case, the task force decides to settle the smoking issue by announcing the plan and holding briefings.
Following Up and Evaluating Once a change has been implemented, the manager must follow up by evaluating it. Evaluation consists of comparing actual results to goals. If the new smoking policy receives widespread employee acceptance and holds the line on insurance costs, then the change was worthwhile.
QUALITIES PROMOTING CHANGE
9 Identify the organizational qualities that promote change
Managers can help create a climate that promotes change by developing a philosophy toward change that includes three elements: mutual trust, organizational learning, and adaptability.
Creating an environment of mutual trust between managers and employees is vital for managers who wish to implement change. Many research studies indicate that trust is the most important factor in creating an effective, well-run organization.44 In this context, mutual trust is the ability of individuals to rely on each other based on their character, ability, and truthfulness. In a period of uncertainty and hard times, mutual trust allows individuals to continue to function while maintaining a hope that things will improve.
The ability of individuals to rely on each other based on their character, ability, and truthfulness
Mutual trust includes two essential ingredients: sense of adequacy and personal security. Adequacy means that each employee feels that he or she counts for something in the organization and that his or her presence makes a difference in the overall performance of the firm. Personal security is the degree to which each person feels safe when speaking honestly and candidly.
Mutual trust can lessen fear of change, which can help managers implement change. When trust is present, employees will feel comfortable as the organization moves through change, even though change is threatening.
The term organizational learning refers to the ability to integrate new ideas into an organization’s established systems to produce better ways of doing things. A manager can view organizational learning as either single looped or double looped.45
the ability to integrate new ideas into an organization’s established systems to produce better ways of doing things
A single-looped learning situation is one in which only one way of making adjustments exists. An organization with single-looped learning has a prescribed way of doing things. When actions do not follow the prescription, the actions are adjusted to meet the standards. An organization with this belief is inflexible; it does not change its attitude, only its responses.
Double-looped learning, on the other hand, is based on the realization that more than one alternative exists. Double-looped learning facilitates change because it allows for more than one type of action. If a manager believes there are numerous ways of reaching a goal, each employee can freely share ideas and the assumptions underlying the ideas. Double-looped learning provides for a change in both attitude and behavior.
Managers can either plan for change or react to it. Being adaptive takes energy, commitment, and caring, but the wear and tear of the reactive approach is far worse. Adaptiveness means being open to new and different ways of doing things; it means being flexible rather than rigid.
According to James C. Collins, adaptiveness means changing without losing the company’s core values. Companies have done so by grasping the differences between timeless principles and daily practices.
IMPLEMENTATION OF CHANGE
10 Explain why people resist change and what managers can do to overcome that resistance
To implement a program of change, a manager must be aware of why people resist change, why change efforts fail, and what techniques can be used to modify behavior.
Resistance to Change
One of the greatest difficulties faced by managers trying to institute change involves overcoming the resistance of those who must change. In his book, The Reengineering Revolution, the late MIT professor-consultant Michael Hammer called people’s innate resistance to change “the most perplexing, annoying, distressing, and confusing part” of the change process.46 Nevertheless, resistance must be overcome or the change cannot take place.
Sources of Resistance People resist changes for many reasons. The following list includes some of them:
• Loss of security. Change scares people. Individuals tend to find security in traditional methods; the familiar is comfortable. New technology, new systems, new procedures, and new managers can threaten that security and thus cause resistance.
• Fear of economic loss. Sometimes people resist change because they foresee, or fear, an economic loss. Workers might disapprove of new processes because they feel that the result will be layoffs or reduced wages.
• Loss of power and control. Change often poses problems of power and control. “Will my influence still exist?” “Where will I end up in the pecking order?” These questions reflect the anxiety caused by change. Some reorganizations clearly indicate that specific people will lose power. These people are likely to wish to preserve the status quo.
• Reluctance to change old habits. Habits provide a programmed method for decision making and performing. Someone who needs no initiative to solve problems might think, “I can do this job blindfolded.” Learning new processes requires rethinking or learning to think again; it’s hard work.
• Selective perception. A person who has a biased interpretation of reality is guilty of selective perception. To someone with selective perception, reality is what the person thinks it is. Employees prone to selective perception tend to think in terms of stereotypes, and these stereotypes can permeate their logic. Faced with a change at work, a person with selective perception might think, “It’s a management plot to do away with us.” An employee with such an attitude is difficult for a manager to deal with. If the employee’s views are extreme, he or she regards all actions of management as suspect.
• Awareness of weaknesses in the proposed change. Sometimes employees resist change because they see that the change may cause problems. This type of resistance can be constructive. By listening to the objections of these employees, managers can help the organization avoid problems and save time, money, and energy. For employees to have a constructive effect, however, they must communicate their concerns effectively and early.47
Techniques for Overcoming Resistance Managers can use five techniques to overcome resistance to change:
1. Participation. Participation can be as simple as saying “we changed” instead of “they changed.” A person involved in the process of change understands the goals and feels more strongly committed to the change than someone who did not participate. Organizations have recognized and have responded by implementing cross-functional teams (one of the topics in Chapter 14).
2. Open communication. Uncertainty breeds fear, which creates rumors, which causes more uncertainty. Managers can reduce the likelihood of this unsettling cycle by providing timely, complete, and accurate information. Holding back information destroys trust.
3. Advance warning. Sudden change can have the same effect as an earthquake. People adapt better to change if they are prepared for it. As managers sense a need for change or know that change is imminent, they should inform the employees who will be affected. Continuous education and training help people prepare for change. Continuous learning seems to enhance adaptability.
4. Sensitivity. When implementing change, managers must work with those affected to learn each employee’s concerns and respond to them. In other words, managers must be sensitive to the effects the change has on each person. Sensitivity minimizes resistance to the change.
5. Security. People are much more willing to accept change if the fear of dire consequences can be removed. In many cases, managers can reassure workers simply by explaining that the change will not affect income and job security. Of course, such a commitment is meaningful only if it’s true. When managers break promises, they are taking the first step to employee discontent.
WHY CHANGE EFFORTS FAIL
11 Explain why change efforts fail
Not all change efforts are successful. Even when they undertake change for the best of reasons, managers cannot always bring about desired changes. Normally, failure can be traced to one of the following causes.
Faulty Thinking Managers can fail to achieve change by not analyzing the situation properly. A classic example of faulty thinking is California’s tomato industry, which was threatened because of a lack of laborers to harvest the tomatoes. Managers thought the problem could be solved by a mechanical tomato harvester, but the machine crushed the tomatoes. Instead of changing the machine, the problem was solved “by breeding a firmer-skinned tomato—also known as the square tomato—that the machine could not crush, thus keeping California’s tomato industry alive.”48
Inadequate Process Sometimes change efforts fail because of the process used to bring them about. A change might fail because the manager did not follow the steps for change shown in Figure 8.18, or because he or she did not follow the steps properly. Perhaps the manager chose an inappropriate change agent or neglected a step in the process. In any case, an incomplete approach usually leads to failure.
Lack of Resources Some changes require a significant expenditure of time and money. If those resources aren’t available, the change effort may be doomed from the beginning.
Lack of Acceptance and Commitment If individuals, both managers and employees, do not accept the need for change and commit to it, change will not occur. Lack of commitment typically occurs in organizations whose managers frequently announce change but do not follow through on implementation. In such a situation, employees begin to see each new announcement as merely a program of the month—entertaining perhaps, but nothing to be taken seriously.
Lack of Time and Poor Timing Some situations do not allow enough time for people to think about the change, accept it, and implement it. In other instances, the timing is poor—for example, an economic downturn might lower revenue, employees might be occupied with other commitments, or a competitor might release a new product. A company might invest years and millions of dollars into a change, only to find that the environment has evolved so much that the plan devised for success no longer applies.
A Resistant Culture In some cases the cultural climate of an organization needs to be changed before other changes are made.
Methods of Affecting Change
This section will explore how to change behavior on the individual level. Most first-line managers need to understand this kind of change, because their change efforts will be directed at modifying or altering their subordinates’ behavior. Change in individuals usually relates to a change in skills, knowledge, or attitude. The paragraphs that follow explore two approaches: the three-step approach and force-field analysis.
Three-Step Approach Many psychologists and educators have observed that different people react differently to pressures to change. Most will accept the need to learn new skills and update their knowledge, but most resent efforts to change their attitudes. Accordingly, workplace efforts to change attitudes succeed less often than any change efforts. Yet if attitudes are not changed, the behaviors that grow out of attitudes cannot change. Kurt Lewin provided a useful approach to changing attitudes in a lasting way.49 His method, called the three-step approach, consists of three phases: unfreezing, change, and refreezing.
a technique of behavior modification to change attitudes in lasting ways; it consists of three phases: unfreezing, change, and refreezing
In the first step, unfreezing, managers who spot deficiencies in a subordinate’s behavior must identify the causes of that behavior. They confront the individual with the behavior and the problem it causes; they then begin trying to convince him or her to change by suggesting methods and offering incentives. This step may include pressure on the individual that makes him or her uncomfortable and dissatisfied. When the person is upset enough, step two may begin.
For example, say that Jessica wants to improve the productivity of Jane, a staff member in the Information Center. By spending too much time on her work, Jane increases the workload of others in the department. To resolve the problem, Jessica must first explain to Jane that her work is inadequate and that her coworkers must unfairly carry her burden. She may mention that the others are starting to complain about Jane. Having reviewed Jane’s work, Jessica thinks that the basic problem is lack of training. As a result, she suggests that Jane undertake a special weeklong training course offered by the company. She could offer an incentive, too—pointing out that the higher productivity could mean a better chance at a salary increase.
In the second step, change, the individual’s discomfort level rises. When it rises high enough, he or she will look for ways to reduce the tension. This leads the employee to question his or her motives for the current behavior, and this questioning provides the manager with the opening to present new role models that promote the desired behavior. As the individual adopts that behavior, performance will improve; but the manager must support and reinforce that behavior if it is to last.
In our example, Jane might begin to notice the disapproving looks or whispered comments from coworkers. Uncomfortable in this unfriendly atmosphere, she might decide she will undertake the needed training.
In step three, refreezing, the manager recognizes and rewards new and approved attitudes and behaviors. If any new problems arise, the manager must identify and discourage them; in other words, the process begins again. After Jane takes the training, Jessica should closely monitor Jane’s productivity. When Jessica sees output increase, she must be sure to congratulate Jane on the improvement. For the desired behavior to continue, positive reinforcement should come fairly frequently, especially at first. If a salary increase was promised, that promise must be kept.
The three-step process is continuous. Managers must watch that the new behaviors do not become counterproductive. If they do, the behaviors must be unfrozen and replaced by a new, more desirable behavior.
Force-Field Analysis Kurt Lewin also developed force-field analysis, another useful tool for managing change. As Figure 8.19 shows, to achieve change a manager must overcome the status quo—the balance between forces that favor change and forces that resist change. The change forces are known as driving forces, and the resisting forces are known as restraining forces. Managers trying to implement a change must analyze the balance of driving and restraining forces, then attempt to tip that balance by selectively removing or weakening the restraining forces. The driving forces will then become strong enough to enable the change to be made.
A technique to implement change by determining which forces drive change and which forces resist it
To see how force-field analysis works, return to the example of Jane, the worker in the Information Center. To convince Jane to change, Jessica must first identify the driving forces: self-esteem, the regard of peers, and increased monetary compensation. The key restraining forces might be Jane’s lack of desire to expend the effort to improve and her unfamiliarity with the computer. Jessica can weaken the restraining forces by having one of Jane’s coworkers tell Jane how the training program helped the coworker. This information may strengthen the driving forces and alter the balance of the forces, leading Jane to accept the change.
FIGURE 8.19 Forces that contribute to a force field
12 Explain the purpose of an organizational development program
Managing change is an ongoing process. If a manager does it well, he or she can maintain a positive organizational climate. Some organizations make thorough analyses of their problems and then implement long-term solutions to solve them. Such an approach is called organizational development (OD).
organizational development (OD)
A process of conducting a thorough analysis of an organization’s problems and then implementing long-term solutions to solve them
Purposes of Organizational Development
The main purpose of OD, according to one management writer, is “to bring about a system of organizational renewal that can effectively cope with environmental changes. In doing so, OD strives to maximize organizational effectiveness as well as individual work satisfaction.”50 Organizational development is the most comprehensive strategy for intervention. It involves all the activities and levels of management in ongoing problems that respond to external and internal sources. The OD process is cyclical, as Figure 8.20 shows.
FIGURE 8.20 Model of the organizational developmental process
Strategies of Organizational Development
Managers may choose one or more of the tools and strategies of OD described in Figure 8.21. The choice depends on the circumstances. Restrictions the managers might have to take into account include limits on time and money and lack of skill at implementing a strategy.
The choice of a strategy usually results from conferences and discussions involving those who will be most directly affected. The experiences, feelings, and perceptions of conference participants help determine if their parts of the organization are ready for change and for OD techniques. The success of OD depends on a high level of receptiveness to change.
Evaluating the Effectiveness of Organizational Development
Since OD requires an ongoing, long-term effort to bring about lasting change in an organization’s technology, structure, and people, a successful OD program takes a significant investment of money and time. Both are needed for managers to adequately diagnose the problem, select the strategy, and evaluate the effectiveness of the program.
Managers can measure the effectiveness by comparing the results of the program to the goals set before implementation. Were the goals met? If not, why not? Perhaps they were too rigid and too hard to achieve. Perhaps the problems were inadequately defined, and the inadequate definition resulted in the choice of an inappropriate solution. Perhaps managers tried to institute changes before people were prepared for them. Regardless of the cause, the results of the OD analysis will provide feedback needed for later changes.
FIGURE 8.21 Tools and methods for applying organizational development strategies
In the final analysis, as is the case with any other management effort, the effectiveness of OD depends on the quality of its inputs and the skills of those making the analysis. Successful OD depends on solid research, clear goals, and implementation by effective change agents, who use appropriate methods.
OD is an expression of managers’ efforts to stay flexible. Managers recognize that events inside and outside the organization can happen quite suddenly and can create pressure for change. OD provides the personnel and mechanisms to deal with change; control its evolution; and direct its impact on organizational structure, technology and people.
REVIEW WHAT YOU’VE LEARNED
1 Define organizational design and describe the four objectives of organizational design. Organizational design is the creation of or change to an organization’s structure. It involves developing the overall layout of the positions and departments as well as establishing the interrelationships among the positions and departments.
The managers responsible for organizational design have four objectives in creating organizational structures. They design structure to:
1. Respond to change. To stay competitive the company must respond to changes in the environment as well as to changes that emerge from its evolutionary development.
2. Integrate new elements. As organizations grow, evolve, and respond, new positions and new departments must be integrated into the fabric of the organization.
3. Coordinate the components. Managers need to find a way to tie all departments together to ensure coordination and collaboration across the departments.
4. Encourage flexibility. Designers need to institutionalize the ability to respond to change.
2 Distinguish between mechanistic and organic organizational structures. Depending on how organizational concepts are balanced, the design produced can be a tight, mechanistic structure, or a flexible, organic structure. A mechanistic structure is characterized by rigidly defined tasks, formalization, many rules, and regulations and centralizes decision making right down to the employees performing the job.
3 Discuss the influence that contingency factors—organizational strategy, environment, size, age, and technology—have on organizational design. Whether an organization will be mechanistic or organic is influenced by the meshing of five factors:
1. Organization strategy. The mission, corporatelevel strategy, and business-level strategy influence design. Structure is a tool to accomplish strategy.
2. Organization environment. Whether a company operates in a stable or in a dynamically changing environment influences structure. A mechanistic structure functions well in a stable environment; an organic structure functions better in a changing environment.
3. Organization size. Large companies tend to have mechanistic structures. Small companies have organic structures.
4. Organization age. Older, mature companies tend to have mechanistic structures. New or young organizations tend to have organic structures.
5. Organization technology. Every organization uses some form of technology to convert resources to outputs. The type of technology—small batch, mass production, or continuous process—influences the type of structure. Small batch and continuous process favor organic structures. Mass production technology favors a mechanistic structure.
4 Describe the characteristics, advantages, and disadvantages of functional, divisional, matrix, team and network structural designs. The organizational design alternatives include a functional structure, divisional structure, matrix structure, team structure, and network structure.
• The functional structure groups positions into departments based on similar skills, expertise, and resources used. The functional structure has the advantages of economies of scale, minimizes duplication of personnel and equipment, makes employees comfortable, and simplifies training. Disadvantages include the lack of understanding and concern for other specialty areas, communication barriers, lack of cooperation and coordination, and slow response time to changes in the environment.
• The divisional structure groups departments based on organizational outputs. Divisions become self-contained strategic business units (SBUs). The divisional structure focuses the attention of the employees and managers on the results for the product, customer, or geographical area. It is flexible and responsive to change, performance is easier to target, and it aids in developing senior executives. Disadvantages include duplication of activities and resources; lack of technical specialization, expertise and training; lack of coordination across positions; and competition among divisions.
• The matrix structure combines the advantages of functional specialization with the focus and accountability of the divisional structure. It utilizes the functional and divisional chains of command simultaneously in the same part of the organization. To achieve this, the matrix structure uses dual lines of authority. The matrix organization is flexible, communication and coordination are increased, motivation is increased for the individual employee, and technical training is provided for both functional and general management skills. Disadvantages include potential conflict, confusion, and frustration created by the dual chain of command; the danger of creating conflict by pitting divisional objectives against functional objectives; time lost in meetings to resolve conflicts and the problem of balance of power between the functional and divisional sides of the matrix.
• The team structure organizes separate functions or processes into a group based on one overall objective. The team concept breaks down barriers across departments; speeds up decision making and response time; motivates employees by developing employee responsibility; eliminates levels of managers, resulting in lower administrative costs; and eliminates the double reporting problem associated with the matrix structure. Disadvantages include the dependence on employee learning and training for the system to succeed and the large amount of time required for meetings.
• The network structure features a small central organization that relies on other organizations to perform critical functions on a contract basis. The network structure provides flexibility and reduces administrative overhead. Disadvantages include the lack of control, the unpredictability of supply, and the lack of internal managerial technical expertise to effectively resolve technical problems.
5 Define organizational culture and describe the ways that culture is manifested. Organizational culture is the distinctive character of an organization comprising its shared values, beliefs, philosophies, experiences, habits, expectations, norms, and behaviors. Seven factors influence organizational culture: key organizational processes, the dominant coalition, employees and other tangible assets, formal organizational arrangements, the social system, technology, and the external environment.
The culture becomes apparent through the following manifestations:
• Statements of principle—written expressions of basic principles central to the organizational culture
• Stories—illustrations of the culture used to acquaint new employees with the cultural values and to reaffirm those values to existing employees
• Slogans—a phrase or saying clearly expressing a key organizational value
• Heroes—people in the organization who exemplify the values of the culture
• Ceremonies—presentation of awards to provide examples of and reinforce company values
• Symbols—objects or images that convey meaning to others
• Climate—the quality of the work environment experienced by employees
• Physical environment—the structure of the work setting, which often reflects the cultural values
6 Explain the role of managers and employees in creating culture and making a culture effective. Managers help develop culture by identifying core values, defining the company’s mission, determining the amount of individual autonomy and the degree to which people work separately or in groups, structuring the work in accordance with the corporation’s values, developing reward systems that reinforce values, and creating methods of socialization that will bring new workers inside the culture and reinforce the culture for existing workers. Employees contribute to defining the culture by the extent to which they accept and adopt it, by shaping the organization’s norms and values, and by forming subcultures.
Three factors make a culture effective:
1. Coherence—how well the culture fits the organization’s mission and other organizational elements
2. Pervasiveness and depth—the extent to which employees adopt the culture of an organization
3. Adaptability to the external environment—the degree to which a culture is flexible enough to allow change in the face of emerging external demands
7 Define change and identify the kinds of change that can occur in an organization. Change is any alternative in the current work environment. Change can occur in strategy, structure, process, and people.
Evolutionary change focuses on incremental steps to bring about progress. Its techniques include kaizen, total quality management, quality circles, and benchmarking. Revolutionary change focuses on bold, discontinuous advances. Its techniques include BHAGS and reengineering.
Planned change involves trying to anticipate what changes will occur in both external and internal environments and then developing a response that will maximize the organization’s success. Unplanned change involves reacting to events rather than anticipating them.
8 Explain the steps managers can follow to implement planned change. To implement planned change, managers should follow these steps: recognize the need for change, develop goals, select a change agent, diagnose the problem, select the intervention method, develop a plan, plan for implementation, implement the plan, and follow up and evaluate.
9 Identify the organizational qualities that promote change. The organizational qualities that promote change include mutual trust, organizational learning, and adaptiveness.
10 Explain why people resist change and what managers can do to overcome that resistance. People resist change because of loss of security, fear of economic loss, loss of power and control, reluctance to change old habits, selective perception, and awareness of weaknesses in the proposed change. To overcome resistance, managers might develop techniques including participation, open communication, advance warning, sensitivity, and security.
11 Explain why change efforts fail. Change efforts fail for a number of reasons, including faulty thinking or an inadequate process, lack of resources or commitment, poor timing or a resistant cultural climate.
12 Explain the purpose of an organizational development program. The purpose of an organizational development program is to bring about a system of organizational renewal that can effectively cope with environmental changes. In doing so, OD strives to maximize organizational effectiveness as well as individual work satisfaction.
change, p. 261
change agent, p. 265
continuous-process production, p. 242
divisional structure, p. 245
evolutionary change, p. 263
flexible manufacturing system (FMS), p. 242
force-field analysis, p. 273
functional structure, p. 244
large batch technology, p. 242
Lean, p. 243
management by reaction, p. 265
mass production technology, p. 242
matrix structure, p. 246
mechanistic structure, p. 236
mutual trust, p. 269
network structure, p. 251
organic structure, p. 237
organizational design, p. 234
organizational development (OD), p. 274
organizational learning, p. 269
organizational life cycle, p. 240
planned change, p. 265
revolutionary change, p. 264
small batch technology, p. 242
social media, p. 250
subculture, p. 259
team structure, p. 248
technology, p. 241
three-step approach, p. 272
unit production technology, p. 242
1. When managers are engaged in organizational design, what are they developing?
2. Identify and discuss the four objectives of organizational design.
3. What are the characteristics of a mechanistic organization? What are the characteristics of an organic organization?
4. Name factors that influence organizational design. How does an organization’s strategy influence organizational design? What types of structure are appropriate for the three types of technology? What two needs in organizational design result from a volatile environment?
5. What are the characteristics of a functional organization structure? What are the advantages of a divisional structure? What are the characteristics of a matrix organizational structure? What are the characteristics of teams? What are the advantages and disadvantages of networks?
6. What are the seven factors that influence culture? Use specific examples to explain how they interact.
7. How is culture evidenced?
8. What is the role of managers in creating culture? What is the role of employees in creating culture?
9. How does culture influence organizational effectiveness? What factors contribute to an effective culture?
10. What are the four kinds of change that can occur in an organization?
11. What are the steps of planned change?
12. What organizational qualities promote change?
13. Describe three reasons that people resist change, and explain what managers can do to overcome that resistance.
14. Describe three reasons for the failure of change effort.
15. Why do organizations adopt an organizational development program?
DISCUSSION QUESTIONS FOR CRITICAL THINKING
1. In which structural design options—functional, divisional, or matrix—would you prefer to work? Least prefer? Explain your answers.
2. What examples can you provide to demonstrate the application of the team structure? Was the team organized by process or by function?
3. The discussion on contingency factors affecting organizational design states that organizational structure follows strategy. Other observers suggest that strategy should fit the organization’s structure. With which position do you agree? Why?
4. What specific examples can you give to demonstrate the manifestations of culture (statements of principle, stories, slogans, symbols, heroes, etc.) in an organization with which you have been involved?
5. Can a change made in one area of a company—in strategy, for instance—lead to a change in other areas? Why or why not?
6. If appointed CEO of a troubled company, would you adopt a revolutionary or evolutionary change agent style? Why? Which would be more effective?
7. Demonstrate your understanding of force-field analysis by applying it to a change with which you have been involved.
8. In order to be proactive, instead of reacting to change, managers must anticipate and make change happen. List some rules for leading change.
APPLY WHAT YOU KNOW
WEB 2.0 EXERCISES
• Organizational culture includes shared values, which help give an organization its distinctive character. (Organizational culture was defined in Chapter 3; core values were defined in Chapter 4). Web 2.0 values openness, ease of use, and sociability. Popular culture values influence, success, status, recognition, and wealth. Ethical virtues include peace, love, integrity, and justice. Choose one word from each area—Web 2.0, popular culture, ethical virtues—that is most important to you. What do the words mean to you? If others in a company share these similar values and beliefs, how might it influence worker behavior?
• Use the “The Conversation Prism” to identify the networks you use and the ones you are missing.
A Cultural Mismatch
North American Chrysler merged with Germany’s Daimler-Benz AG to form DaimlerChrysler in May 1998. Chrysler’s profit performance and leadership in minivans during the 1990s made it an attractive partner for Daimler. The core management, engineering, manufacturing, purchasing, and design operations of Chrysler were located at one place in Auburn Hills, Michigan, facilitating decentralized and quick decision making.
“Chrysler’s primary reason for teaming with Daimler-Benz is to extend its international reach” (Smith). Daimler-Benz AG’s Mercedes Benz brand stood as a symbol of Germany’s economic might, but Daimler-Benz AG was known as an autocratic decision maker. “From the beginning, the high command in Stuttgart issued orders to Detroit about everything from where the headquarters would be located (Germany) to what kind of business cards would be used” (Jamieson).
Chrysler was successful before the merger but began to flounder soon after the merger. In fact, many began to believe that the deal was not a merger of equals but was really an acquisition. Soon after the merger, top American managers at Chrysler were replaced by German managers, and plants were closed. Furthermore, Germans headed all divisions, while Americans were laid off.
Nine years after the $36 billion dollar merger, Chrysler was sold for just $7.4 billion. Dave Healy, an analyst with Burnham Securities, said, “You had two companies from different countries with different languages and different styles come together yet there were no synergies. It was simply an exercise in empire-building by Juergen Schrempp (Daimler-Benz chairman at time of merger). Basically Daimler paid Cerberus Capital Management to take Chrysler off its hands” (ArticlesBase). Chrysler immediately had major problems with the change.
• It was hard to imagine two more different cultures than those of Chrysler and Daimler-Benz AG.
• Chrysler is based in the heart of an American industrial neighborhood. Daimler-Benz AG sits an ocean away in Europe.
• Chrysler’s workers make decisions from the bottom up. Daimler-Benz’s managers make decisions from top down.
• Chrysler’s management is low key and creates autonomy. The management at Daimler is intense, precise, and controlling.
1. Based on the experiences of Chrysler and Daimler- Benz AG, what is the importance of culture in the change process?
2. What specific cultural factors caused problems in the change process? Cite examples to support your answer.
3. What specific mistakes did Chrysler and Daimler- Benz AG make in the change process? Cite examples to support your answer.
4. Using as your guide the nine steps for planned change discussed in this chapter, construct a change process to successfully merge Chrysler with Daimler-Benz AG.
Sources: David C. Smith, “Is Bigger Really Better—Daimler- Chrysler merger faces hurdles,” Ward’s Auto World, June 1, 1998; Bob Jamieson, “Far From a Merger of Equals,” ABC News, January 25, 2001; ArticlesBase “How Daimler, Chrysler Merger Failed,” May 18, 2007, http://www.articlesbase.com/automotive-articles/how-daimler-chrysler-merger-failed-149797.html#ixzz19cyiPFdU.
ON THE JOB VIDEO CASE
Video: Evo Gear: Leading Teams
Evo’s smart, balanced, principled approach to business is paying off in rapid growth. Several years ago, it added a bricks-and-mortar store to its online business. Although the 2008 recession may have caused a dip in its numbers in recent years, it had been experiencing annual sales of $2 to $3 million and 70 percent yearover- year growth just prior to that.
Relationship to Chapter
Evo Gear makes extensive use of teams. The teams focus on projects and therefore new teams may need to be built to deal with new projects. The use of teams has generally been successful in the company and has resulted in not only creative synergy but cost effectiveness as indicated by the fact that the firm is competitive in its pricing. The teams have enabled Evo to respond to change, integrate new elements, coordinate organizational components, and encourage flexibility.
A key challenge involves selecting team members and having a team leader who can assure communication and positive relationships among members. Communication involves sharing the concerns and priorities of each person.
1. Based on the video, Evo has not had a major problem with lost time due to frequent meetings nor have any team members failed to do their share. Why might that be the case? How can a team leader make sure that the team is productive without becoming dictatorial? How does selection of members play a role?
2. Many of the teams at Evo consist of people with a wide range of creative skills. Do you think that would make it easier or more difficult to lead such a team? Why?
3. How might the size of Evo impact on the effectiveness of its teams?
Source: www.evogear.com, accessed July 22, 2010. (Plunkett 232)
Plunkett, Warren R., Gemmy Allen, Raymond Attner. Management. Cengage Learning, 01/2012. VitalBook file.
This is what I have and need the rest within the next two hours.
In today’s challenging business environment we have found it very challenging to ensure a workforce is trained and ready to take on all the demands to be successful. Within any organization people are the best advantage they can have but the question is can you produce the desired results with the people you have or want? Staffing a business can either make or break any business. All organizations want the best of the best but they must understand how to accomplish that task. Within this paper an attempt to describe the relationship between human resource planning activities and the organization’s strategic development and implementation, the eight elements of the staffing process and the relationship between the eight elements of the staffing process and the four activities related to human resource planning.
According to, (Plunkett, 2013, p318), “The point is, you don’t just hire bodies, but seek employees that you value enough to invest in.” A small business most possibly will have managers to fulfill their staffing needs as to where a larger company will have a human resource department assist in the handling task. “Human talent is the basic building block for everything an organization uses, does, produces, and delivers, and for the value it adds to all stakeholders—the organization’s mission,” (Kaufman, 2016, p3). A study conducted showed an interesting result in that, “there was no statistically significant difference between the responses of the strategic planners and the human resource managers,” (Devanna, Fombrun, Tichy, & Warren, 1982 para1).
Now with that said there are many activities involved within the process of human resource planning such as job analysis, inventory, forecasting and inventory and forecast comparison. The staffing process also has many factors, Human resource planning, recruiting, selection, training and development, compensation and employment decision. Let’s begin with job analysis, this is said to be the “study that determines the duties associated with a job and the human qualities needed to perform it,” (Plunkett, 2012, p330), thus meaning to find the number and type of employee that will be required to perform the various jobs within the organizational structure.
Next we have, inventory which is “a catalog of the skills, abilities, interests, training, experience, and qualifications of each member of its current workforce,” (Plunkett , 2012, p31). Forecasting meaning the use of information from the past in order to identify future conditions, this allows the organization to bring the quantity and quality of people available from internal and external sources. Now is when the inventory and forecast comparison takes place, matching the demand and supply. “The human resource (HR) department of organizations should monitor the changing environment which may affect this critical asset (human) and implement proactive strategies,” (Bajpai Singh & Dutch, 2014, para 1).
Moving on to the eight elements of the staffing process, the human resource planning is the review of what the organization has as far as their employees, deciding what the future plan needs in terms of staff and either hiring or cutting down on their employees. Deciding to hire or recruit internally or externally will be decided at this point. After this decision has been made the selection process begins, interviewing the best possible applicants to fill the positions. The selection has been made and now the training will take place and the employee will be introduced to the organization face to face. The last two are the compensation and employment decision elements which entails the establishment of pay and benefits and whether there needs to be a promotion, transfer demotion or possible termination.
To compare the two is very interestingly similar,
Bajpai Singh, L., & Dutch, M. A. (2014). Changing Socio-Cultural Environment and Human Resource Practices. Amity Global Business Review, 99-14.
Devanna, M. A., Fombrun, C., Tichy, N., & Warren, L. (1982). STRATEGIC PLANNING AND HUMAN RESOURCE MANAGEMENT. Human Resource Management, 21(1), 11.
KAUFMAN, R. (2016). Strategic Planning: Getting From HERE TO THERE. TD: Talent Development, 70(3), 54.
Plunkett, Warren R., Gemmy Allen, Raymond Attner. Management. Cengage Learning, 01/2012. VitalBook file.