The sociocultural dimension of the general environment represents the demographic characteristics as well as the norms, customs, and values of the general population. Important sociocultural characteristics are geographical distribution and population density, age, and educational levels. Also important are the society's norms and values.
Other recent sociocultural trends that are affecting many companies include the trend toward no smoking, the anti-cholesterol fever, the greater purchasing power of young children, and the increased diversity of consumers, with specialized markets for groups such as Hispanics and women over 30.
The economic dimension represents the general economic health of the country or region in which the organization operates. Consumer purchasing power, unemployment rate, and interest rates are part of an organization's economic environment. Not-for-profit organizations such as the Red Cross and the Salvation Army find a greater demand for their services during economic decline but receive smaller contributions. They must adapt to these changes in economic conditions. The most significant recent trend in the economic environment is the frequency of mergers and acquisitions. The corporate landscape is being altered and the impact on employees is enormous. In the media industry alone, Sony purchased CBS Records to guarantee control over a supply of music for its Walkman customers. News Corporation acquired other corporations like TV, newspapers and publisher of TV guides, creating uncertainty about future job security. The deal is just the beginning of employee uncertainty, because about half of the acquired companies are resold.
The legal-political dimension includes government regulations at the local, state, and federal levels as well as political activities designed to influence company behavior. The U.S. political system encourages capitalism, and the government tries not to over regulate business. However, government laws do specify rules of the game. The government influences organizations through the Occupational Safety, Health Administration and Environmental Protection Agency, fair trade practices, libel statutes allowing lawsuits against business, consumer protection legislation, product safety requirements, import and export restrictions, and information and labeling requirements. Many additional regulations will be proposed and many of them will be adopted.
The international dimension of the external environment represents events originating in foreign countries as well as opportunities for American companies in other countries. The high quality, low-priced automobiles from Japan and Korea have created a permanent change in the European automobile industry. In addition, many companies have adopted the strategy of having parts manufactured and assembled in other countries (called outsourcing), such as Romania, because of the low price of labor. Changes in the foreign exchange rate can increase or decrease the value of products overseas as well as the competitiveness of foreign products within the U.E. states. The international dimension has become so important to the management companies. IBM has a complex environment that includes international as well as the other sectors discussed above.
1.4. Managerial ethics
1.4.1. Managerial Culture Influence
We intend to highlight some important aspects of the managerial ethics with the strategic approach and to present the specific of this relationship in the economy of the industrial companies in Romania.
The strategic, tactic and operative behavior of the managers of a company is strongly influenced by their knowledge and culture they have in the field of business.
The idea according to which managerial culture represents an efficiency element is shared by more and more experts, allowing the company to integrate as well as it can in the world of business, but also a stability factor as a system of values shared by the managers of the organization managerial culture is a product having a special complexity, it is not only the result of the strategic approach of the industrial unit, coherently developed in time, but it also has its source in the history of the industrial unit and in its organizational culture.
Edgar Schein, the American researcher, includes in the organizational culture the following: the rules of inter-human behavior; the inner rules of the team; the system of values shared by the organization; the philosophy inspiring the political behavior of the organization concerning the employees and customers; rules governing an efficient work of the industrial unit; the spirit and environment of the unit, mainly expressed in the manner of contacting customers in the world of business.
Each company has a typical culture, this granting its identity. This identity corresponds to the characteristics of the company i.e. stability and coherence.
Managerial culture inspired by organizational culture is the philosophical expression of directing business, of the working style adopted by a manager, of the managerial policy and strategies. They also include the traditions in management and the managers attitudes, managerial events and last, but not least the standards of the managerial ethics.
The system of values is a reference factor, influencing the manager’s conception regarding the ethics they promote in relationship with their employees, their customers, their suppliers, the shareholders, the trade-unions, the foreign investor, the business community.
1.4.2. Ethic Codes
The close relation between the system of values and the ethic standards, which have to be the basis of the organizational behavior in general, and the managerial one in special, lead to a growing interest of the companies for ethic codes.
An ethic code (aiming at the company's businesses or the managerial behavior) contains the rules and principles defining the proper, moral conduct in business, in relationship with the inner or outer environment of the company. Usually it is very difficult to establish what is right, what is wrong, what is moral, immoral or amoral in the conduct of the company or in that of the managers. This difficulty is much amplified today by the turbulence of the business, environment, by the fast rhythm of the changes within companies, due to either new technologies, new financial politics, new steam-lining, latest information, or, frequent crisis the company has to face.
The companies and their managerial teams have to operate in a context highly influences by competition and instability, in a permanent change. As a consequence, more than in past, managers have to acquire and integrate these new data in their conduct, in their decision-making, and to direct in the long run the development of their companies, paying attention to the strategic approach based on the ethic code.
1.4.3. Managerial Responsibility
For a manager, the strategic decision is therefore much more flexible, more delicate and more risky. Making such a decision implies the responsibility of the decision-maker, in as much as it can affect the survival of the firm, the future of the employees, jeopardizing at the same time his credibility as manger for the shareholders. A manager should expect to be "judged" form the quality of his strategic decisions, for the way in which he uses his capacities, for how he hands them over and make them accepted by his subordinates in the company, and also for the degree of his intellectual honesty in the case of a failure, which he is expected to have the courage to admit.
Evaluation of strategic behavior of a manager gives rise to a real dilemma in the sense that it implies a choice between two alternatives, both being equally unacceptable considering the manager's decisions only on purely economic and financial criteria, to the prejudice of the ones belonging to managerial ethics and vice-versa, passing judgments on the managerial activity considering the morality and correctness criteria only, ignoring the economic-financial evaluation.
Facing such a dilemma brings about difficulties from the manager in the sense that he’s often in the situation when he has to opt between the standards of ethics or turning into account some opportunities that may bring some profit.
Some examples to illustrate the above mentioned situation could be quoted such as:
- the option of turning into unemployed some of the employees so as to increase the profit of the company or the gradual politics of reducing the number of the unskilled employees, or the retirement of those who have a considerable length of service;
- the option between using in the production process of some noxious materials, dangerous for the health of the workers, but which included in the finished product would bring fabulous profits and the use of some resources which are not a danger for the employees, but the use of which is not profitable enough for the company,
- the option between adopting a strategy which could jeopardize the competitive position of the company, but would ensure an adequate protection of the environment, and a strategy which would mainly ensure the rapid growth of profit and a better position in the market to the prejudice of quality of the environment.
`More examples could be given. Ethically a rapid reorganizing of the company should be promoted, with the unpredictable consequences on its personnel, under the circumstances of a void in the Romanian legislation in the field of social protection and then some radical structural changes in the company? Is it fair that an employee gets a key-position by means of tribe, or only because he is very shy in business, or is it to be preferred a legal contest (examination) to be organized for that position?
The above mentioned cases and similar ones highlight the confrontation of the managers (of companies) with unattractive situation (under economic aspect), but are unacceptable from the moral point of view and vice-versa. These problems imply the managerial responsibility as for the priorities, the economic-financial criteria or the moral ones in decision-making.
The incompatibility between the economic-financial criteria and the moral ones used in the decision-making process is only apparently. The more highlighted this appearance, the longer the time interval implied by the managerial decision. Why? Because the managerial team has in view the log lasting performance and their objectives are profitable businesses in the log run and do not steadily consider any opportunity to be profitable at any cost, regardless the ethic code of business.
What we considered so far bring us to a definite conclusion: the economic-financial considerations and the moral ones, to the extent to which they are correctly interpreted, are not contradictory by al means. During a longer time interval, conditions for them to converge could be created. In the decision-making process, a manager with a responsible conduct cannot avoid the moral code, the economic-financial aspects cannot be ignored either in as much as the economic issues have an impact on the developing strategy of the company in the log run. The strategic approach of the company must be admitted as legitimate by the environment in which the company develops. However, H.I. Ans even suggests a legitimating the aim of which is to evaluate the economic strategy of the company; to implement the social responsibility strategies, and to influence the evaluation development of the company by correlating the managers desires to the society needs.
This view in business and the managerial conduct has a very firm foundation and an economic viability, generating competitive advantage in the log run.
In other words the company managers should learn to lose in the short run if they want to gain in the log run by obeying the moral code of business and being responsible for the decisions made.
These successes in business of the sound enterprises, who guide their conduct according to moral standards, deny the idea according to which moral is implied, profit is diminished.
1.4.4. Rules of managerial Ethics:
Managerial ethics and, generally the ethics of business according to their deontological values have a growing importance in the field strategic management of the companies seeking for long-lasting performance. Moral conduct within these companies is more and more promoted in implementing and controlling the cost strategies, the relationship with the shareholders, customers suppliers and last, but not least with the trade unions and the local community.
The managerial teams of the moneymaking companies realize more and more that ethics is the art ensuring success in the long run, implying respect for the employees, and the whole business community.
A study on successful companies (during the recent 5 years) doing business with West European companies, we could identify some moral standards taken into account and they guided the managerial conduct in the long run:
- rules of general ethics: honesty, loyalty, reliability, tolerance, rigor, mutual respect;
- rules of professional ethics of managers: prompt delivery and respect for customers, consideration for workers and employees, obedience for inner rules and law, promotion of loyal relationship, developing the team spirit, increased "transparence';
- rules of morals of the companies - hierarchies based on acknowledged competence, fair pay of the employees, adequate motivation, transparency of the 'rules of game', avoidance of: nepotism, breach of trust, any kind of discrimination;
- norms of ethics in the strategic approach; establishing and implementing competitive strategies in the log run, based on the right perception of the inner and outer environment of the company, on taking into account of the risk implied, on promoting the new and optimum communication, avoidance of strategies based on abusive marketing, on getting an as big profit as possible by all means, on "underground" arrangements and coalitions;
- rules of market ethics: correct information, regulation of free markets, removing violence of the market, of intimidation, fraud, corruption, anti-social behavior.
A lot of managers are tempted to ignore ethic conduct and their social responsibility under difficult circumstances or profound crises. In Romania, during the recent 7 years, most companies were affected by global crises, and they often ignored the existent laws and the moral standards in business.
1.4.5. Types of Companies According to Managerial Ethics:
On the basis of our researches in time, we reached the conclusion we can establish (according to the existence or non-existence or a moral code of business and the respect for legislation) the following types of companies units:
- Amoral Companies. Generally they are small-size companies set up after 1989 which permanently ignore legislation and its owner has no idea of morality. He secures a great deal of his necessary resources from the "underground network" and does not realize the responsibility he has to take for his acts. The number of this type of companies is rapid decreasing because of the new legislation and the strict control of their activity by the legal authorities.
- Immoral Companies. This type of company exists mainly because of the immorality of the managerial team who ignores the standards of legal conduct and those of general ethics; the only reason inspiring their conduct is profit at al costs. Their managerial culture is undeveloped and, accordingly the ethics of business is non-existent.
- Illegal Companies. These types of companies are not exactly companies specifically, since they do not have a legal status and are not recorded in "The Register of Commerce". They operate illegally and belong to the "underground" economy. For the legal authorities their existence, in most cases, is not motivated. Most of these company Managerial Ethics - Strategic Issues 47 are illegal "exchange offices" in the street, the trade with smuggled goods.
- Legal Companies. Most companies belong to this type. They were set up according to the existing legislation and at the same time, managerial culture is based upon consideration of law in business. The companies belonging to this type operate according to the principle: "What is not forbidden by law is permitted". In business activities and their managerial conduct pay little respect for the moral code and for the social responsibility.
- Ethic Companies. Managerial culture incorporates the values of ethics. Accordingly, the managerial conduct is guided by the existing ethic-legal standards. One can notice the balance between legality and moral standards in decision-making process and business environments.
2. Managerial Goals Setting and Planning
2.1. Overview of goals and plans
Most corporate planning is like a ritual rain dance: it has no effect on the weather that follows, but it makes those who engage in it feel that they are in control. Most discussions of the role of models in planning are directed at improving the dancing, not the weather.
We are going to explore the process of planning and weather it can help bring needed rain.
Special attention is given to goals and goal setting, for that is where planning starts.
Goals and plans have become general concepts in our society. A goal is a desired future state that the organization attempts to realize. Goals are important because organizations exist for a purpose and goals define and state that purpose. A plan is a blueprint for goal achievement and specifies the necessary resource allocations, schedules, tasks, and other actions. Goals specify future ends; plans specify today’s means. The term planning usually incorporates both ideas; it means determining the organization’s goals and defining the means for achieving them. Consider PPG (formerly Pittsburgh Plate and Glass Company). In 1984, PPG’s return on equity was 15.7 percent. Chairman Vincent A. Sarni and his senior executives established goals for 1994 of a return on equity of 18 percent, combined with annual sales of 10 $billion. Their plane for achieving these goals was to obtain two-thirds of the company’s sales from high profit products. Low-profit operations were put on the sales block. Another part of the plan was to raise R&D spending from 3.5 percent of sales to 4.8 percent. The ten-year goals are ambitious, designed to make PPG one of the most profitable corporations in America, but senior management has a plan it believes will succeed.
The planning process starts with a formal mission that defines the basic purpose of the organization. Then companywide strategic goals are determined and form the basis for the organization’s lower-level objectives. The term objective is often used interchangeably with goal but usually refers to specific short-term targets for which measurable results can be obtained. The organization’s goals and plans exist at 3 levels: the strategic (company) level, the tactical (divisional) level, and the operational (department) level. Strategic goals influence the tactical objectives, which in turn influence operational objectives because goals and objectives must support one another.
Exhibit 2.1. Relationship between Goals and Plans in the Planning Process.
Developing explicit goals and plans provide several important benefits for on organization.
Source of motivation and commitment.
A goal statement describes the purpose of the organization or subunit to employees. A goal provides the ‘why’ of an organization’s or subunit’s existence. A plan tells employees what actions to undertake. A plan tells ‘how’ to achieve the goal. Goals and plans facilitate employees’ identification with the organization and help motivate them by reducing uncertainty and clarifying what they should accomplish.
Guides to action.
Goals and plans provide a sense of direction. They focus attention on specific targets and direct employee efforts toward important outcomes.
Rationale for decisions.
Through goal setting and planning, managers learn what the organization is trying to accomplish. They can make decisions to ensure that internal policies, roles, performance, structure, products, and expenditures will be made in accordance with desired outcomes. Decisions throughout the organization will be in alignment with the plan.
Standard of performance.
Before goals define desired outcomes for the organization, they also serve as performance criteria. They provide a standard of assessment. If an organization wishes to grow by 15 percent, and actual growth in 17 percent, managers will have exceeded their prescribed standard.
The overall planning process prevents managers from thinking merely in terms of day-to-day activities. When organizations drift away from goals and plans, they typically get into trouble.
Setting goals starts with top managers. The overall planning process begins with a mission statement and strategic goals for the organization as a whole.
Mission: the organization’s reason for existence.
Mission statement: a broadly state definition of the organization’s basic business scope and operations that distinguish it from similar types of organizations.
The mission describes the organization’s values, aspirations, and reason for being. The formal mission statement is broadly stated definition of basic business scope and operations that distinguish the organization from others of a similar type. The content of a mission statement often focuses on the market and customers and identifies desired fields of endeavor. Some mission statements describe company characteristics such as corporate values, product quality, location of facilities and attitude toward employees. Mission statements often reveal the company’s as well as purpose.
Types of goals
Within the organization there are three levels of goals:
Broad statements of were the organization wants to be in the future are called strategic goals. They pertain to the organization as a whole rather than to specific divisions or departments. Strategic goals sometimes are called official goals, because they are the stated intentions of what the organization wants to achieve.
What do strategic goals cover? Peter Drucker suggests that business organizations’ goals should encompass more than profits, because profits alone lead to short-term thinking. He suggests that organizations focus on eight content areas: market standing: innovation: productivity: physical and financial resources; profitability; managerial performance and development; worker performance and attitude; and public responsibility.
Drucker’s first five goal areas relate to the tangible, measurable aspect of the organization and its operations. The last three are most subjective and personal. Most organizations have explicit strategic goals in some but not in all of these areas. For example, Columbia Gas System set the following four strategic goals for 1986 to 1990 period to fit the mission described earlier:
- Meet stockholders’ expectations as to total return.
- Have access to reasonable amounts of capital at reasonable costs at all times;
- Provide for efficient management of and planned growth in stockholders’ equity;
- Insure the orderly succession of System officers, and enhance employee performance;
These goals pertain to profitability and stockholders’ return, efficient management, the acquisition of financial resources, and manager/employee performance and development.
The results that major divisions and departments within the organization intend to achieve are defined as tactical objectives. These objectives apply to middle management and describe what major subunits must do in order for the organization to achieve its overall goals. For example, one tactical objective for Columbia Gas was to “regain a long-term debt rating by the end of 1988.” This tactical objective pertains to strategic goal 2 regarding access to reasonable amounts of capital. Achieving this objective will increase the organizations’ ability to borrow money at a reasonable rate. The Winning Moves box tells how Timex used strategic goals and tactical objectives to reassert itself in the wristwatch market.
The specific result expected from departments, work groups, and individuals are the operational objectives. They are precise and measurable. “Process 150 sales applications each week”, “reduce overtime by 10 percent next month”, and “develop two new elective courses in accounting” are examples of operational objectives.
Effectively designed organizational goals and objectives fit into a hierarchy; that is, the achievement of objectives at lower levels permits the attainment of higher-level goals. This is called a means-ends chain because lower-level objectives lead to accomplishment of higher-level goals. Operational objectives lead to achievement of tactical objectives, which in turn lead to the attainment of strategic goals. Strategic goals typically are the responsibility of top management, tactical objectives that of middle management, and operational objectives that of first-line supervisors and workers.
Exhibit 2.2. Hierarchy of Objectives for a Manufacturing Organization
2.2. Goal characteristics
The following characteristics pertain to organizational goals at the strategic, tactical, and operational levels.
Specific and measurable.
When possible, goals should be expressed in quantitative terms, such as increasing profits by 2 percent, decreasing scrap by 1 percent, or increasing average teacher ratings from 3.5 to 3.7. Not all goals can be expressed in numerical terms, but vague goals and objectives have little motivating power for employees. At the top of the organization, goals are often qualitative as well as quantitative. John Reed, CEO of Citicorp, has defined both qualitative and quantitative goals for his organization, including:
- Trim work force from 20,000 to 17,000.
- Clean up loan portfolio, reduce write-offs.
- Wire 90 trading rooms around the globe.
- Build a merger and acquisition finance group.
Each goal is precisely defined and allows for measurable progress. Conflict often occurs during goal setting because key managers disagree over objectives. Yet for goals to be effective, commitment is essential. Two techniques for achieving commitment to goals are coalition building and participation.
An informal alliance among managers who support a specific goal is called a coalition.
Coalition building is the process of forming alliances among managers. In othcr words, a manager who snpports a specific goal, such as increasiug tlie corporation's growth by acquiring anolher com-pany, talks informaily to othcr executives and tries to persuado them to snpport the goal. Coalition building involves negotiation and bargaining. Without a coalition, a powerful individual or group conld derail the goal-setting process. Coalition building gives managers nn opportunily to contribute to the goal-setting process, cnhancing their commitment to the goals that are finally adopted.
Coalition building occurs most often at the uppcr levels of the organization, where uncertainty îs high. For example, Compaq Computer Corporation, described as a Theory Y coinpany in Chapter 2, spccîalizes in coalition building. Compaq was slow to dcvelop a laptop computer, bccause designs were tumed down three times because one or more managers did not agrec with the prototype. But whcn the 286-SLT laptop was finally acceptcd by consensus, it was perfect for the niarket and was an immediate smash, Robcrt Forsberg, president of Mupac Coiporation, facilitates coalition building throngh ever-widening circles of managers. Hc slarts with senior managers who set strategic goals and llicn hroadens the circle of participatiun to include clepartment managers. Moreover, thc cntirc management team participatcs in brainstorming sessions to plan how to achieve the targets in Mupac's five-year plan. The final action plans are adopted by consensus.
At lower levels of the organization, managers and supervi-sors try to adopt objectives that arc consistent with strategic goals. However, if operaţional objectives are prescribed in a onc-way top-down fashion, supervi-sors and employccs may not adopt the goals as their own. A more effectivc process is to encourage subordinates to participate in the goal-setting process. Managers can describe the organization's goals and act as connselors by helping subordinates sort out various goal options, discussing whether the objectives are realistic and specific, and determining whether objectives are congruent with organizational goals. Goal discussions between superior and subordinate take into consideration the subordinate's interests and abilities.
Developing Plans for Attaining Goals.
Defîning organization al goals and objectives is the first step in the planning process. Thc second step — which is equally important — is to define plans for meeting objectives. Targets mean little if managers do not map ont the path ways to them. Managers often fînd the development of plans difficult. One study found that seven out of ten companies did not carry stvategy formulation much beyond general statements of objectives.21 Managers found it difficult to specîfy how to reach future targets. Yet detailed planning is an important component of future performance.
In developing plans for attaining goals, managers have several types of plans at their disposal, including strategic plans, tactical plans, operaţional plans, single-use plans, standing plans, and contingency plans.
Strategic plans define the aetion steps by which a company intends to attain strategic goals. The strategic plan is the blueprint that defines the organizational activities and resource allocations — in the form of cash, personnel, space, and facilities — required for meeting those targets.
Strategic planning tends to be long term and may define organizational action steps from two to five years into the future. The purpose of the strategic plan is to turn organizational goals into realities ovcr that time period. For example, Bob Wright, new CEO of NBC, adopted a goal of expansion in an industry where costs have been cut to the bone and growth is slow. The plan NBC's executives adopted involves three parts: buy stations, such as WTVJ-TV in Miami, and perhaps two UHF outlets; expand the audience trough cable TV, such as offering sports or entertainment cable channels; and have NBC produce more of the programs it airs, thereby profiting from the production of hit shows.
As another example, a small company wanted to improve its market share from 15 to 20 percent over the next three years. This objective was pursued through the following strategic plans: (1) allocate resources for the development of new, competitive products with high growth potenţial; (2) improve produetion methods to achieve higher output at lower costs; and (3) conduct research to develop alternative uses for current products and services.
Tactical plans are designed to help execute major strategic plans and to accomplish a specific part of the company's strategy. Tactical plans typically have a shorter time horizon than strategic plans — over the next year or so. The term tactical derives from the militaiy. For example, strategic weapon systems, such as Intercontinental Ballistic Missiles or the B1 bomber, are designed to deliver major blows to the enemy, Strategic weapon systems reflect the country's overall strategic plans. Tactical weapon systems, such as fighter airplanes, are used to achieve just one part of the overall strategic plan.
Tactical plans defîne what the major departments and organizational subunits will do to implement the overall strategic plan. Normally it is the middle manager's job to take the broad strategic plan and identify specific tactical actions. For example, Jolt Cola, introduced in 1986, had a strategic plan that called for high levels of sugar and caffeine to appeal to a specific niche in tlie marketplace for soft drinks. Packaging the product to accommodate this market segment was an important part of the tactical plan. The package had a yellow lightning bolt flashing through a red and white logo. The labei looked like something out of a comic book, but its chief tactical prpose was to convey the product's image — a jolt — and this it did.
Operational plans are developed at the lower levels of the organization to specify action stcps toward achieving operaţional goals and to support tactical plans. Tlie operaţional plan is the department manager's tool for daily and weekly operations. Objectives are stated in quantitative terms, and the department plan describes how objectives will be achieved. Operaţional planning specifies plans for supervisors, department managers, and individual employees. For example, Du Pont has a program called Individual Career Management that involves a series of discussions that defîne what each manager's new goals should be and whether last year's operaţional goals were met. At Du Pont the goals are set as high as possible to stretch the employee to insure continued improvement. These year-end discussions also provide the basis for rewards to those who have excelled.
Schedules are an important component of operaţional planning. Schedules define precise time frames for the completion of each objective required for the organization's tactical and strategic goals. Operaţional planning also must be coordinated with the budget, because resources must be allocated for desired activilies. For example, Apogee Enterprises, a window and glass fabricator with 150 small divisions, is fanatical about operaţional planning and budget-ing. Committees are set up that require inter- as wcll as intra-divisional review and challenge of budgets, profit plans, and proposed capital expeditures. Assigning the dollars makes the operaţional plan work for everything from hiring new salespeople to increasing travel expenses.
Single-use plans are developed to achieve a set of objectives that are not likely to be repeated in the future. Single-use plans typically include both programs and projects.
A program is a complex set of objectives and plans for attaining an important, one-time organmitional goal. The program is designed to carry out a major course of action for the organization. An example of such a program is the Pershing missile program at Martin Marietta. Others include the development of the space shuttle for NASA, the Boeing 767 aircraft, and the System 360 computer by IBM, Programs are major undertakings, may take scveral years to complete, and often reqnire the creation of a separate organization. Programs are large in scope and may be associatcd with several projects.
A project is also a set of objectives and plans designed to achieve a one-time goal but generally is smaller in scope and complexity than a program, it normally has a shorter time horizon and rcquires fewer resources.
A projeet is often one part of a program. Thus, when NASA works to complete its space station program, it will have one project for a rocket booster, one for the environment inside the space station, and one for the station's external shell. A specific project is defîned for each major component of the overall program. Within business corporations, projects often are undertaken to perform a specific activity that is not part of the normal production process.
For example, the name change from U.S. Steel to USX Corporation was a project. Hundreds of worker-hours and millions of dollars were spent researching a name that would characterize the corporation’s new mission. Another project at USX evolved from the decision to close some of its steel plants. A project team was created to study the steel plants and decide which ones to close.
2.3. Develop a career plan
Welcome to the guided tour of Planning a Career. On this tour, you can find out how to choose a career and how to reach your career goal. You can also pick up useful tips on job hunting, resume writing, and job interviewing techniques. Feel free to leave the tour at any time to find out more about a subject just by clicking on the highlighted text.
Ten Steps to Planning Your Career:
1. Develop a . Think about what you want to do and find out more about the kind of training, education, and skills you will need to achieve your career goal.
2. Assess your . Think hard about what you enjoy, what you are good at, what kind of personality you are, and the values you hold.
3. Research . Find out more about the nature of the jobs that interest you, such as educational requirements, salary, working conditions, future outlook, and anything else that can help you narrow your focus.
4. Compare your with the you've selected. The career that matches your skills, interests, and personality the closest may be the career for you.
5. Choose your . Once you've decided what occupation matches up best with you, then you can begin developing a plan to reach your career goal.
6. that offers a college degree or training program that best meets your career goal and financial needs.
7. Find out about to help support you in obtaining your career goal. If you haven't already done so, begin .
8. Learn about as you prepare to graduate or move into the job market.
9. Prepare your , and practice .
10. Go to your career guidance center (at your middle school, high school, or college) or local library for additional information and help on career planning, or check out our .
What do you want to be?
With all career possibilities available, how do you make a decision? Once you know what career path you want to follow, how do you get there?
One way to answer questions about your future career is to develop a career plan. A career plan outlines the steps you need to take to reach your .
Steps to Developing a Career Plan
- Develop a career plan to determine your . Thinking about your skills and interests can help you find a satisfying career.
To determine your interests, think about what you like to do. Think about experiences you have enjoyed. Evaluate what you liked, what you found challenging, and what you may have learned from those experiences. Make a list of activities you have enjoyed during the past few years.
- Make a list of skills you have. Your skills may include training you have gained through part-time or full-time jobs. Even if you haven't been employed before, you do have some skills which will help you find a job. For example, you may have skills you learned through volunteer work or through social activities.
Evaluate those skills and interests you have listed. Are there similar activities on the two lists? Are there any experiences that could turn into a career? For instance, if you volunteered at a hospital and enjoyed the experience, you may want to consider a medical career.
- Find out about the available to you. If you don't research careers, you may not know about the best occupations to fit your .
It's also important to decide if the career you are considering is really what you expect and whether it offers the salary and benefits you want. One good way to learn about a career is to intern in the position. (Internships are also a great way to gain experience in your selected career field). Another good way to find out about a job is to network -- talk to someone who is in the career now.
- Once you have determined what career path you want to follow, assess what you need to do to prepare for that career. Do you need special training? If so, research the that offer the kind of training you need. What kinds of experience will you need to be successful in the career? Consider an internship as a way to get work experience in the career field.
By developing a career plan, you can focus on what you want to do and how to get there. And when you are ready to write your for your , you will have a better understanding of your skills and experiences to discuss with potential employers.
Sample Career Plan
A career plan is developed after you have analyzed your and researched possible . Match your skills and interests to an occupation, decide on a and plan how you will reach that goal.
To become a civil engineer, to design, plan, and supervise the construction of buildings, highways, and rapid transit systems.
- Bachelor's degree in engineering.
- Ability to work as part of a team.
- Analytical mind.
- Capacity for detail.
- Presentation skills.
- Writing skills.
- Knowledge of physical sciences and mathematics.
- Accreditation by Licensing Board.
2.4. Managerial Decision Making
2.4.1. Management Problem
Decision making involves the ability to collect, organize, and synthesize information into a useful form for identifying and evaluating alternate options. It takes knowledge and puts it into action; it applies and uses knowledge. Another element of decision making is risk taking. For example, a decision without some risk is usually easy to make. A decision with risk requires the use of our judgment and good judgment is learned through practice and experience.
What if you owned a retail business that does most of its business in four hours each day, but must remain open 24 hours. What decision do you make about the dead time? This problem is real for Tony Andrade, who owns six Dunkin’ Donuts franchises. The business is terrific between 6 o’clock and 10 o’clock in the morning when over 50 percent of the coffee and doughnuts are sold. But doughnuts must be replaced every five hours, causing lots of waste the rest of the day. Even worse, the fast-food franchises - Burger King, Wendy’s practically everyone - and supermarket bakeries are throwing themselves into the break-fast competition. Andrade’s franchises are still profitable, but between dead time and competition, things are bound to get worse.
If you were Tony Andrade, would you make a decision about dead time? What alternatives would you consider, and what course of action would you select?
The Dunkin’ Donuts franchises are not in trouble yet, but Tony Andrade and other franchises owners may need to use their decision-making skills to make important decisions that will affect the future of their businesses. Organizations grow, prosper, or fail as result of decisions by their managers. Managers often are referred to as decision makers. Although many of their important decisions are strategic, managers also make decisions about every other aspect of an organization, including structure, control systems, responses to the environment, and human resources. Managers scout for problems, make decisions for solving them, and monitor the consequences to see whether further decisions are required. Good decision making is a vital part of good management because decisions determine how the organization solves its problems, allocates resources, and accomplishes its objective.
Decision making is not easy. It must be done amid ever-changing factors, unclear information, and conflicting points of view. For example, when Chairman Patrick Hayes of Waterford Glass tried to cut costs by offering early retirement to the highly paid work force that makes Waterford crystal, too many experienced glassblowers opted for retirement. The remaining workers have not been able to achieve enough output, hence crystal operations have lost money for two years straight. John Sculley, chairman of Apple Computer, bet on a shortage of memory chips, the personal computer’s most common component. Pale acquired a big inventory of high-priced chips, and when the shortage alleviated a few months later, Apple was forced to lower the price of its expensive Apple products. Kay Koplovitz worked her way up to president of USA Network and is now betting the company’s future to finance 24 original movies and other television programming over the next two years. This is a nail-biting gamble, but she prefers risk taking to playing it safe, despite the incredible consequences if she bets wrong.
As a manager, you can defer decision making, refuse to make a decision, make a decision quickly, and reverse a decision. Your motive should be to do everything to help your team to get the job done effectively and efficiently.
2.4.2. Types of Decisions and Problems
A decision is a choice made from available alternatives. For example, an accounting manager’s selection among Bill, Nancy, and Joan for the position of junior auditor is a decision. Many people assume that making a choice is the major part of decision making, but it is only a part.
Decision making is the process of identifying problems and opportunities and then resolving them. Decision making involves effort both prior to and after the actual choice. Thus, the decision as whether to select Bill, Nancy, or Joan requires the accounting manager to ascertain whether a new junior auditor is needed, determine the availability of potential job candidates, interview candidates to acquire necessary information, select one candidate, and follow up with the socialization of the new employee into the organization to insure the decisions’ success.
Programmed and Non-programmed Decisions
Management decisions typically fall into one of two categories: programmed and nonprogrammed.
Programmed decisions involve situations that have occurred often enough to enable decision rules to be developed and applied in the future. Programmed decisions are made in response to recurring organizational problems. The decision to reorder paper and other office supplies when inventories drop to a certain level is a programmed decision. Other programmed decisions concern the types of skills required to fill certain jobs, the reorder point for manufacturing inventory, exception reporting for expenditures 10 percent or more over budget, and selection of freight routes for product deliveries. Once managers formulate decision rules, subordinates and others can make the decision, freeing managers for other tasks.
Programmed decisions recur and are predictable. Well-defined procedure is used to make these decisions, such as production scheduling, assigning shifts, following standard operating procedures, and inventory maintenance. Computers are very helpful with these types of decisions.
Shorty, another explanation that could be given:
- programmed decisions - decisions that have been encountered and made in the past
- have objectively correct answers
- are solvable by using simple rules, policies, or numerical computations
Nonprogrammed decisions are made in response to situations that are unique, are poorly defined and largely unstructured, and have important consequences for the organization. Nonprogrammed decisions often involve strategic planning, because uncertainty is great and decisions are complex. Nonprogrammed decisions would include decisions to build a new factory, develop a new product or service, enter a new geographical market, or relocate head-parters to a new city. The decision facing Dunkin’ Donuts franchisees described at the beginning of this chapter is an example of a nonprogrammed decision. Routine decision rules or techniques for solving this problem do not exist. Tony Andrade will spend long hours analyzing the problems, developing alternatives, and making a choice.
Some short attributes of nonprogrammed decisions are:
2. Poorly defined
3. Largely unstructured
4. Likely to have important consequences
5. Uncertainty is great
6. Decisions are complex
7. Routine decision rules for solving the problem do not exist.
In a perfect world, managers would have all the information necessary for making decisions. In reality, however, some things are unknowable; thus, some decisions will fail to solve the problem or attain the desired outcome. Managers try to obtain information about decision alternatives that will reduce decision sucertainty. Every decision situation can be organized on a scale according to the availability of information and the possibility of failure. The four positions on the scale are certainty, risk, uncertainty, and ambiguity.
CERTAINTY. Certainty means that all the information the decision maker needs is fully available. Managers have information on operating conditions, resource costs or constraints, and each course of action and possible outcome. For example, if a company considers a $10,000 investment in new equipment that it knows for certain will yield $4,000 in cost savings per year over the next five years, managers can calculate a before-tax rate of return of about 40 percent. If managers compare this investment with one that will yield only $3,000 per year in cost savings, they can confidently select the 40 percent return. However, few decisions are certain in the real world. Most contain risk or uncertainty.
RISK. Risk means that a decision has clear-cut objectives and good information is available but the future outcomes associated with each alternative are subject to chance. However, enough information is available to allow the probability of a successful outcome for each alternative to be estimated. Statistical analysis might be used to calculate the probabilities of success or failure. The measure of risk captures the possibility that future events will render the alternative unsuccessful. For example, a petroleum executive may bid to sell 10,000 barrels of a petroleum distillate, knowing that there is an 80 percent chance of success with a $5 per barrel price and a 50 percent chance with a $4.20 price. When Sears introduced its “everyday low pricing” strategy, managers felt that they had better than a 80 percent chance of succeeding. Using probabilities, managers can determine which alternative is most desirable for their company.
UNCERTAINTY. Uncertainty means that managers know which objective they wish to achieve but information about alternatives and future events is incomplete. Managers do not have enough information to be clear about alternatives or to estimate their risk. Factors that may affect a decision, such as price, production costs, volume, or future interest rates, are difficult to analyze and predict. Managers may have to make assumptions from which to forge the decision even though the decision will be wrong if the assumptions are incorrect. Managers may have to come up with creative approaches to alternatives and use personal judgment to determine which alternative is best.
For example, Time Inc.’s decision to launch a new magazine called TV-Cable Week was made under uncertainty. Time was unable to get good data on critical variables; thus, it assumed that the magazine would capture a 60 percent market penetration among cable subscribers and that Time would reach distribution agreements with 250 cable systems. These assumptions turned out to be wildly unrealistic, and the magazine launch was a failure. Many decisions made under uncertainty do not work out as desired, but sometimes managers must be risk takers. Risk taking is especially important when starting a new business, as illustrated in the Focus on Entrepreneurship box.
AMBIGUITY. Ambiguity is by far the most difficult decision situation. Ambiguity means that the objectives to be achieved or the problem to be solved are unclear, alternatives are difficult to define, and information about outcomes is unavailable. Ambiguity is what students would feel if an instructor created student groups, told each group to write a paper, but gave the groups no topic, direction, or guidelines whatsoever. Ambiguity has been called a “wicked” decision problem. Managers have a difficult time coming to grips with the issues. Wicked problems are associated with manager conflicts over objectives and decision alternatives, rapidly changing circumstances, fuzzy information, and nuclear linkages among decision elements. Fortunately, most decisions are not characterized by ambiguity. But when they are, managers must conjure up objectives and develop reasonable scenarios for decision alternatives in the absence of information. One example of an ambiguous decision was the marketing department assignment to develop an advertising campaign for a birth control device. Managers were unclear about advertising norms, to whom the ad should be targeted (men, women, marrieds, singles), ad content, or media. The entire approach had to be worked out without precedent.
Another example is the movie industry - one of the most difficult in which to make decisions, because so many new movies are flops. Studio decision makers, however, are seeking new ways to reduce risk and uncertainty,
2.4.3. Decisions Making Models
The approach managers use to make decisions usually falls into one of two types - the classical model or the administrative model. The choice of model depends on the manager’s personal preference, whether the decision is programmed or nonprogrammed, and the extent to which the decision is characterized by risk, uncertainty, or ambiguity.
The classical model of decision making is based on economic assumptions. This model has arisen within the management literature because managers are expected to make decisions that are economically sensible and in the organization’s best economic interests. The assumption underlying this model is as follows:
- The decision maker operates to accomplish objectives that are known and agreed upon. Problems are precisely formulated and defined.
- The decision maker strives for conditions of certainty, gathering complete information. All alternatives and the potential results of each are calculated.
- Criteria for evaluating alternatives are known. The decision maker selects the alternative that will maximize the economic return to the organization.
- The decision maker is rational and uses logic to assign values, order preferences, evaluate alternatives, and make the decision that will maximize the attainment of organizational objectives.
The classical model of decision making is considered to be normative, which means it defines how a decision maker should make decisions. It does not describe how managers actually make decisions so much as it provides guidelines on how to reach an ideal outcome for the organization. The value of the classical model has been its ability to help decision makers be more rational. For example, many senior managers rely solely on intuition and personal preferences for making decisions. In recent years, the classical approach has been given wider applications because of the growth of quantitative decision techniques that use computers. Quantitative techniques include such things as decision trees, pay-off matrices, breakers analysis, linear programming, forecasting, and operations research models. The use of computerized information system and data bases has increased the power of the classical approach.
In many respects, the classical model represents an “ideal” model of decision making that is often unattainable by real people in real organizations. It is most valuable when applied to programmed decisions and to decisions characterized by certainty or risk, because relevant information is available and probabilities can be calculated. One example of the classical approach is the decision model developed by Weyerhauser Company for converting a timbers harvest into end products. It starts with the description of a tree - size and shape - and evaluates such factors as harvesting costs, hauling, mill location facility operations, expected end products (plywood, dried trim, and fiber, lumber) and customer demand. The model help managers evaluate hundreds of possibilities for moving lumber through the production process to the consumer and choose the most economically efficient alternatives.
The administrative model of decision making describes how managers actually make decisions in difficult situations, such as those characterized by nonprogrammed decisions, uncertainty, and ambiguity. Many management decisions are not sufficiently programmable to lend themselves to any degree of quantification. Managers are unable to make economically rational decisions even if they want to.
BOUNDED RATIONALITY AND SATISFICING. The administrative model of decision making is based on the work of Herbert A. Simon. Simon proposed two concepts that were instrumental in shaping the administrative model bounded rationality and satisfying. Bounded rationality means that people have limits, or boundaries, on how rational they can be. The organization is incredibly complex, and managers have the time and ability to process only a limited amount of information with which to make decisions. Because managers do not have the time or cognitive ability to process complete information about complex decisions, they must satisfied. Satisfying means that decision makers choose the first solution alternative that satisfies minimal decision criteria. Rather than pursuing all alternatives to identify the single solution that will maximize economic returns, managers will opt for the first solution that appears to solve the problem, even if better solutions are presumed to exist. The decision maker cannot justify the time and expense of obtaining complete information.
An example of both bounded rationality and satisfying occurs when a junior executive on a business trip stains her blouse just prior to an important meeting. She will run to a nearby clothing store and buy the first satisfactory replacement she finds. Having neither the time nor the opportunity to explore all the blouses in town, she satisfies by choosing a blouse that will solve the immediate problem. In a similar fashion, managers generate alternatives for complex problems only until they find one they believe will work. For example, a few years ago, Disney chairman Ray Watson and chief operating officer Ron Miler attempted to thwart takeover attempts, but they had limited options. The acquisition of these companies had the potential to solve the problem at hand; thus, they looked no further for possibly better alternative.
The administrative model relies on assumptions different from those of the classical model and focuses on organizational factors that influence individual decisions. It is more realistic than the classical model for complex, nonprogrammed decisions. According to the administrative model:
- Decision objectives often are vague, conflicting, and lack consensus among managers. Managers often are unaware of problems or opportunities that exist in the organization.
- Rational procedures are not always used, and when they are, they are confined to a simplistic view of the problem that does not capture the complexity of real organizational events.
- Manager’s search for alternatives is limited because of human, information, and resource constraints.
- Most managers settle for a satisfying rather than a maximizing solution. This is partly because they have limited information and partly because they have only vague criteria for what constitutes a maximizing solution.
The administrative model is considered to be descriptive, meaning that it describes how managers actually make decisions in complex situations rather than dictating how they should make decisions according to a theoretical ideal. The administrative model recognizes the human and environmental limitations that affect the degree to which managers can pursue a rational decision-making process.
INTUITION. Another aspect of administrative decision making is intuition. Intuition represents a quick apprehension of a decision situation based on past experience but without conscious thought. Intuitive decision making is not arbitrary or irrational, because it is based on years of practice and hands-on experience that enable managers to quickly identify solutions without going though painstaking computations. Managers rely on intuition to determine when a problem exists and to synthesize isolated bits of data and experience into an integrated picture. They also use their intuitive understanding to check the results of rational analysis. It the rational analysis does not agree with their intuition, managers may dig further before accepting a proposed alternative.
Intuition helps managers understand situations characterized by uncertainty and ambiguity that have proven impervious to rational analysis. For example, virtually every major studio in Hollywood turned down the Star Wars concept except 20th Century Fox. George Lucas, the creator of Star Wars, had attempted to sell the concept to 12 major studios before going to Fox. In each case, the concept had been rejected. All 13 studios saw the same numbers, but only Alan Ladd and his associates at Fox had the right “feel” for the decision. Their intuition told them that Star Wars would be a success. In addition, George Lucas was told by many experts that the title Star Wars would turn away crowds at the box office. His intuition said the title would work. The rest is history.
The key dimensions of the classical and administrative models are listed in the table bellow. Recent research into decision-making procedures has found rational, classical procedures to be associated with high performance for organizations in stable environments. However, administrative decision-making procedures and intuition have been associated with high performance in unstable environments, in which decisions must be made rapidly and under more difficult conditions.
Whether a decision is programmed or nonprogrammer and regardless of manager’s choice of the classical or administrative model of decision making, six steps typically are associated with effective decision processes. These are depicted in the following diagram.
A. RECOGNITION OF DECISION REQUIREMENT
Managers confront a decision requirement in the form of either a problem or an opportunity. A problem occurs when organizational accomplishment is less than established objectives. Some aspect of performance is unsatisfactory. An opportunity exists when managers see potential accomplishment that exceeds specified current objectives. Managers see the possibility of enhancing performance beyond current levels.
Awareness of a problem or opportunity is the first step in the decision sequence and requires surveillance of the internal and external environment for issues that merit executive attention. This resembles the military concept of gathering intelligence. Managers scan the world around them to determine whether the organisation is satisfactory progressing toward its goals. For example, managers at Well Fargo & Company in San Francisco survey employees to detect potential human resources problems. The survey covers effectiveness of company advertising, product quality, and responsibility to the community, as well as employee satisfaction and organizational climate.
Some information comes from periodic accounting reports, MIS reports, and other sources that are designed to discover problems before they become too serious. Managers also take advantage of informal sources. They talk to other managers, gather opinions on how things are going, and seek advice on which problems should be tackled or which opportunities embraced.
Recognizing decision requirements is difficult, because it often means integrating bits and pieces of information in novel ways. For example, Worlds of Wonder, Inc., developed the first animated talking toy, called Teddy Ruxpin, and Lazer Tag. The astonishing success of these products was due to the pulse taking of customers. Worlds of Wonder works regularly with 1,000 families chosen at random to learn about problems and opportunities in the marketplace for toys. This early recognition contributed directly to the success of Lazer Tag, a toy geared for the young-adult market.
B. DIAGNOSIS AND ANALYSIS OF CAUSES
Once a problem or opportunity has come to a manager’s attention, the understanding of the situation should be refined. Diagnosis is the step in the decision-making process in which managers analyze underlying causal factors associated with the decision situation. Managers make a mistake here if they jump right into generating alternatives without first exploring the cause of the problem more deeply.
Kepner and Tregoe, who have conducted extensive studies of manager decision making, recommned that managers ask a series of questions to specify underlying causes, including:
- What is the state of disequilibrium affecting us?
- When did it occur?
- Where did it occur?
- How did it occur?
- To whom did it occur?
- What is the urgency of the problem?
- What is the interconnectedness of events?
- What result came from which activity?
Such questions help specify what actually happened and why. Toyota asked questions like these when diagnosing the need for a new luxury car.
Toyota’s most popular car in North America is the inexpensive Camry, the car targeted at the lower end of the market. Based on informal information from sales records and competitor sales, Toyota executives, especially Chairman Toyoda, perceived a need to move into the luxury car market. The people who for years bought Camrys were moving up in life and wanting more expensive cars, such as the BMW, Mercedes, Porsche, and Cadillac.
To fully define the decision requirements, Toyota dispatched 20 designers to the United States to study what customers wanted. They visited dealers, buttonholed car buyers, and organized focus groups. They learned that the need was for a luxury car that would suit younger buyers who wanted to buy European cars but could not yet afford them. Because the United States was the major market, a small team stayed in California designing clay models. In the meantime, the U.S. subsidiary, Toyota Motor Sales USA Inc., staged expensive comsumer research and discoveredthat the average sales prospect was a 43-year-old male with a household income of $100,000. A separate dealer network to handle the luxury car was also recommended.
After all this information was pulled together, the Lexus was born. Now Toyota and the rest of the automobile industry is waiting to see whether the problem was properly diagnosed and whether the new automobile will provide the conspicuous consumption that affluen Americans love.
C. DEVELOPMENT OF ALTERNATIVES
Once the problem or opportunity has been recognized and analyzed, decisions makers begin to consider taking action. The next stage is to generate possible alternative solutions that will respond to the needs of the situation and correct the underlying causes.
For a programmed decision, feasible alternatives are easy to identify and in fact usually are already available within the organization’s rules and procedures. Nonprogrammed decisions, however, require developing new courses of action that will meet the company’s needs. For decisions made under conditions of high uncertainty, managers may develop one or two custom solutions that will satisfice for handling the problem.
Decision alternatives can be thought of as the tools for reducing the difference between the organization’s current and desired performance. Consider how Chrysler Corporation handled a problem of too little production capacity.
After the turnaround led by Lee Iacocca, Chrysler found itself with greater demand for cars in both American and European markets than it could provide. Chrysler executives considered three alternatives, including building new plants, having employees work nights and weekends in existing plants, and renting additional production capacity on a temporary basis. If Chrysler built new plants, it might get stuck with high overhead and excess capacity, and because current plants were working full tilt, additional labor hours would not produce many additional cars. The third alternative represented a creative solution. Chrysler executives rented an American Motor plant in Kenosha, Wisconsin, to build Chrysler automobiles. The AMC workers avoided a layoff, and Chrysler fulfilled its requirements of greater short-run production capacity. Developing decision alternatives led to a creative idea that helped Chrysler stay efficient and at the same time sell more cars.
D. SELECTION OF DESIRED ALTERNATIVE
Once feasible alternatives have been developed, one must be selected. The decision choice is the selection of the most promising of several altenative courses of action. Managers’ goal is to make the choice with the least amount of risk and uncertainty. Because some risk is inherent for most nonprogrammed decisions, managers try to gauge prospects for success. Under conditions of uncertainty, they may have to rely on their intuition and experience to estimate whether a given course of action is likely to succeed.
Making choices depends on the manager’s personality factors and willingness to accept risk and uncertainty. For example, risk propensity is the willingness to undertake risk with the opportunity of gaining an increased payoff. The level of risk a manager is willing to accept will influence the analysis of cost and benefits to be derived from any decision.
E. IMPLEMENTATION OF CHOSEN ALTERNATIVE
The implementation stage involves the use of managerial, administrative, and persuasive abilities to ensure that the chosen alternative is carried out. The ultimate success of the chosen alternative depends on whether it can be translated into action. Sometimes an alternative never becomes reality because managers lack the resources or energy needed to make things happen. Implementation may require discussion with people affected by the decision. Communication, motivation, and leadership skills must be used to see that the decision is carried out.
One reason Lee Iacocco succeded in turning Chrysler around was his ability to implement decisions. Iococca personally hired people from ford to develop new auto models. He hired people who shared his vision and were eager to carry put his decisions.
By contrast, Tandy Corporation’s decision to become a major supplier to businesses by setting up 386 computer centers to support a new direct sale force floundered. Tandy has a great success selling to consumers through its radio Shack stores, but simply did not know how to sell computers to businesses. The results were dissapointing, and many of the computer centers had to be closed. Tandy lacked the ability to implement the decision to go after business customers.
F. EVALUATION AND FEEDBACK
In the evaluation stage of the decision process, decisions makers gather information that tells them how well the decision was implemented and whether is was effective in achieving its objectives. For example, Tandy executives’ evaluation of and feedback on the decision to open computer centers revealed poor sales performance. Feedback indicated that implementation was unsuccessful, so computer centers were closed and another approach was tried.
Feedback is important because decision making is a continuous, neverending process. Decision making is not completed when an executive or board of directors votes yes or no. Feedback provides decision makers with information that can precipitate a new decision cycle. The decision may fail, thus generating a new analysis of the problem, evaluation of alternatives, and selection of a new alternative. Many big problems are solved by trying several alternatives in sequence, each providing modest improvements. Feedback is the part of monitoring that assesses whether a new decision needs to be made.
3.1. FUNDAMENTALS OF ORGANIZING
- Reasons for Organizing
- Structure and Formal Organization
- Division of Labor and Specialization
- Boards of Directors
Organizing is the process of dividing an overall task into parts that individuals, groups or units can perform, then coordinating their efforts with each other and with financial and technical resources so that the overall goals are ultimately achieved.
- Reasons for Organizing
One of the primary reasons for organizing is to establish lines of authority. Secondly, organizing improves the efficiency and quality of work through synergism. Synergism occurs when individual or separate units work together to produce a whole greater than the sum o the parts. A final reason for organizing is to improve communication.
- Structure and Formal Organization
Organization structure is the defined set of relationships among divisions, departments and managers in the organization, including the responsibilities of each unit. According to John Child in his book “Organization”, there are four major components to the definition of structure:
1. It describes the assignment of tasks and responsibilities to individuals and departments in the organization.
2. It designates formal reporting relationships, including the number of levels in the management hierarchy and the span of control of each.
3. It identifies the grouping of individuals into departments and departments into organization.
4. It incorporates the design of system to ensure effective communication, coordination and integration of efforts among departments and across levels of the organization.
The organization chart identifies many characteristics of the formal organization:
- Division of labor: how the total work of the organization is divided among its members or groups of members.
- Reporting relationships: the network linking all participants in the task of goal achievement; it indicates the path along which directives flow from the source to the parties responsible for carrying them out and the path along which information concerning results is fed back to the source.
- Level of management: successive layers of reporting relationships.
- Division of Labor and Specialization
Division of labor and specialization represent the first half of the organizing function. Once plans have specified what work must be accomplished, the work must be divided into segments individuals or units can actually accomplish. The people doing each task then tend to become experts, or specialists doing it.
Division of labor is the process of breaking a large task into components an individual or group can accomplish and designing them so that organizations goals can be achieved. Restaurants provide a simple illustration of how organizations must vary their division of labor according to their goals. Each restaurant has a number of tasks that must be performed: greeting patrons, taking drink and food orders, transferring food orders to the cooks, delivering food and drinks to patron, cleaning the tables, calculating a bill, delivering a bill, collecting money and preparing the tables for the next patron. How these tasks are grouped, how employers are assigned to them and know their work is coordinated is determined by the type of service that the restaurant wants to provide.
Specialization refers to the designing of work so that each individual undertakes a limited set of activities. As labor is divided, people can focus on their particular jobs
Is the grouping of activities and responsibilities by subunits of the organization? These subunits are called departments. The methods of departmentalization are referred to as departmentalization by function and departmentalization by purpose.
Departmentalization by function is a method of organizing work by grouping together people who perform similar or closely related tasks.
One of the main advantages of departmentalizing by function is the development of localized expertise, or unit specialization. Each person within a functional unit gains knowledge and experience from working on one task for a long period of time. Over time, many become skilled at producing highly accurate loss ratios and can therefore determine premium rate schedules that will ensure healthy profits for the insurance company.
Departmentalization by purpose is a method of organizing work by grouping together people who are responsible for achieving a single purpose. The employees in a given department are not necessarily doing the same tasks, but all of their work focuses on a common objective. Such departments are usually set up (1) to cater to a particular geographic region; (2) to produce, market and sell one particular product from a broaden family of products; (3) to serve one particular client or group of clients.
A disadvantage of departmentalization by purpose is that because each department is somewhat self-contained, stuff is often duplicated. This is an added cost.
Matrix organization is a departmentalization by two dimensions such as function and purpose, simultaneously.
Matrix organizations are found in all types of settings. Originally developed in aerospace companies, the idea of the matrix spread rapidly to such diverse companies as General Electric, Dow Chemical, Citibank, and Shell Oil and is used in government agencies as well. One of its most prevalent uses has been in universities, where academic departments such as accounting, marketing and finance often form a “matrix” with undergraduate, masters, doctoral or executive programs. Faculty members in such a university are responsible to both the department chair and the program director or administrator.
Matrix organizations are not limited to the combination of function and purpose. Any two dimensions could be combined. The primary advantage of the matrix organization is that it takes advantage of the best aspects of the other methods of departmentalization. The matrix organization is not without problems. Because each employee reports to two supervisors, he or she may receive conflicting directives. Because of this, many managers prefer the one-boss reporting relationships in simpler organization structures.
Committee is an organization structure in which a group of people are formally appointed, organized and superimposed on their line or line and stuff structure to consider or decide certain matters.
- The formation of a committee places emphasis on the problem.
- Expertise can be drawn from many areas of the organization; thus, better solutions often result.
- Group decisions are better than individual decisions.
- Committee members are often motivated by being involved.
- Better coordination and communication often result because all affected parties can be represented.
- Consolidation of authority from several areas of organization exists to make decisions.
- They can be excessively time consuming and costly.
- They tend to compromise when agreement is not easily reached. Such compromise decisions are often mediocre in quality.
- They can result in divided responsibility with no one feeling personally responsible.
- They can result in a tyranny of the minority. For example, one very strong-minded and vocal member can often control the entire committee.
- Boards of directors
A board of directors is, in reality, a type of committee that is responsible for reviewing the major policy and strategy decisions proposed by top management. Boards are used strictly as figureheads in some organizations, contributing little to the organization. Directors do not necessarily need to own stock; they should be chosen primarily for what they can and will contribute to the organization.
3.2. Achive Strategic Objectives
This review describes several important concepts of strategic management.
Strategic management begins with an evaluation of the organization’s mission, goals, and strategy. This is followed by situation analysis (sometimes called SWOT analysis) which examines opportunities and threats in the external environment as well as strengths and weaknesses within the organization. Situation analysis leads to the formulation of explicit strategic plans, which then must be implemented.
Strategic management is considered one specific type of planning.
This planning usually takes place in for-profit business organizations and pertains to competitive actions in the marketplace. Although some companies hire strategic planning experts, the responsibility for strategic planning rests with line managers. Seniors executives at companies such as General Electric, Westinghouse and Delta want middle and lower-level line managers to think strategically. Strategic thinking means to take the long-term view and to see the big picture, including the organization and the competitive environment and how they fit to together. Understanding the strategy concept, the levels of strategy, and strategy formulations versus implementation is an important start toward strategic thinking.
What is strategic management?
Strategic management is the set of decisions and actions used to formulate and implement strategies that will provide a competitively superior fit between the organization and its environment so as to achieve organizational objectives. Strategic management is a process used to help managers answer strategic questions such as “Where is the organization now? Where wants the organization to be? What changes and trends are occurring in the competitive environment? What courses of action will help us achieve our goals?”
Trough the process of strategic management executives defines an explicit strategy, which is the plan of action that describes resource allocation and activities for dealing with the environment and attaining the organization’s goals.
A strategy has four components: scope, resource deployments, distinctive competence and synergy.
SCOPE: The number of businesses, products or services that defines the size of the domain within which the organization deals with the environment is considered its scope.
The trend of mergers, acquisitions, and divestments in North America and now spreading also into Europe, is an exercise in redefining business scope.
RESOURCE DEPLOYMENT: The level and pattern of the organization’s distribution of physical, financial, and human resources for achieving its strategic goals is its resource deployment. For example, some 480 of the 970 research employees were let go to fit the new strategy of short-term profits instead of developing products for ten years in the future.
DISTINCTIVE COMPETENCE: An organization’s distinctive competence is the unique position it develops vis-à-vis its competitors through its decisions concerning resource deployments or scope. For example, Briggs & Stratton enjoys a distinctive competence because it has concentrated on keeping costs lower than the Japanese and thus is producing more small motors than anyone else.
SYNERGY: When organizational parts interact to produce a joint effect that is greater than the sum of the parts acting alone, synergy occurs. The organization may attain a special advantage with respect to cost, market power, and technology or management skill. Bob Guccione, the controversial publisher of Penthouse, is trying to achieve synergy through the acquisition of Saturday Review and other magazines. The synergy comes from arranging package deals with advertisers for space in several magazines. Management skills and new technology can be shared among magazines, thereby increasing productivity for all magazines beyond what they could do alone.
LEVELS OF STRATEGY
Strategy formulation takes place at three levels: corporate, business and functional.
Corporate grand strategies include growth, stability and retrenchment. Frameworks for accomplishing them include the BCG matrix and the GE business screen.
Business-level strategies include Miles and Snow’s strategy topology, Porter’s competitive strategies, and the product-life cycle. Once business strategies have been formulated, functional strategies for supporting them can be developed (exhibit 3.1.).
Exhibit 3.1.Three level of strategy in Organizations
Even the most creative strategies have no value if they cannot be translated into action.
Corporate- level strategy
The questions which concerns corporate- level strategy is <What business are we in?>
This pertains to the organization as whole and the combination of business units and product lines that make up the corporate entity. Strategic actions at this level usually relate to the acquisition of new businesses; additions or divestments of businesses units, plants, or product lines; and joint ventures with other corporation in new areas.
Business- level strategy
The question: <How do we compete?> concerns business- level strategy. Pertains to each business unit completes within its industry for customers. Strategic decisions at this level concern amount of advertising, direction and extent of research and development, product changes, new-product development, equipment and facilities, and expansion or contraction of products line. For example, Jostens, Inc., a Minneapolis producer of high school rings, has a business-level strategy of competing through product innovation. Although students has become less interested in buying class rigs over the years, Jostens now offers 23 different stones and 16,000 ring permutations to fit every student’s need. Salespeople visit high schools personally to beat competitors to the student’s door.
Functional- level strategy
The question: How we support the business-level strategy? concerns functional-level strategy. It pertains to the major functional departments within the business unit. Functional strategies involve all the major functions, including finance, research and development, marketing, manufacturing, and finance. For Hershey to compete on the basis of new-product innovation, its research department adopted a functional; strategy for developing new products.
Many large corporations engage in acquisitions or divestments as part of a strategic plan. Philip Morris Inc. purchased General Food Corporation for 85.7 billion. Going in the other direction, National Distillers and Chemical Corporation sold off its liquor division, including Old Grand add Bourbon and Gilbey’s gin and used the money to expand plastics and propane gas.
All corporations are finding ways to respond to competitors, cope with difficult environmental changes, and effectively use available resources.
The Strategic Management process
As illustrated in the foregoing diagram, the strategic management process begins when executives evaluate their current position with respect to mission, goals and strategies. They than scan the organization’s internal and external environments and identify strategic factors that may require change. Internal and external events may indicate a need to redefine the mission or goals or to formulate a new strategy at the corporate, business, or functional level. Once a new strategy is selected, it is implemented through changes in leadership, structure, human resources, or information and control systems.
Exhibit 3.2. Strategy implementation
Situation analysis typically includes a search for SWOT – strengths, weaknesses, opportunities-, and threats that affect organizational performance. External information about opportunities and threats may be obtained from a variety of resources, including customers, government reports, and professional journals, suppliers, bankers, friends in other organizations, consultants, or associating meetings. Many firms hire special scanning organizations to provide them with newspaper clippings and analyses of relevant trends. Some firms use more subtle techniques to learn about competitors, such as asking potential recruits about their visits to other companies, hiring people away from competitors, debriefing former employees of competitors or customers, taking plant tours posing as “innocent” visitors.
Executives acquire information about internal strengths and weaknesses from a variety of reports, including budges, financial rations, profit and loss statements, and surveys of employee attitudes and satisfaction. Managers spend 80 percent of their time giving and receiving information from others. Trough frequent face-to-face discussions and meetings with people at all levels of hierarchy, executives build an understanding of the company’s internal strengths and weaknesses.
EXTERNAL OPPORTUNITIES AND THREATS
Threats are characteristics of the external environment that may prevent the organization from achieving its strategic goals. Opportunities are characteristics of the external environment that have the potential to help the organization archive or exceed its strategic goals. The task environment sectors are the most relevant to strategic behavior and include the behavior of competitors, customers, suppliers, and the labor supply. The general environment contains those sectors that have an indirect influence on the organization but nevertheless most be understood and incorporated into strategic behavior. The general environment includes technological developments, the economy, legal-political and international events, and socio- cultural changes.
Additional areas that might reveal opportunities or threats include pressure groups, interest groups, creditors, natural resources, and potentially competitive industries.
INTERNAL STRENGHTS AND WEAKNESSES
Strengths are positive internal characteristics that the organization can exploit to achieve its strategic performance goals. Weaknesses are internal characteristics that may inhibit or restrict the organization’s performance. Some examples of what executives evaluate to interpret strengths and weaknesses are given bellow. The information sought typically pertains to specific functions such as marketing, finance, production, and R & D.
Internal analysis also examines overall organization structure, management competence, and quality and human resource characteristics. Based on their understanding of these areas, managers can determine their strengths or weaknesses vis-à-vis other companies.
STRATEGY FORMULATION VERSUS IMPLEMENTATION
The final aspect of strategic management is the stage of formulation and implementation.
Strategy formulation includes the planning and decision making that lead to the establishment of the firm’s goals and the development as a specific strategic plan. Strategy formulation may include assessing the external environment and internal problems and integrating the results into goals and strategy. This is a contrast to strategy implementation (exhibi 3.2.), which is the use of managerial and organizational tools to direct resources toward accomplishing strategic results. Strategy implementation is the administration and execution of the strategic plan. Manager may use persuasion, new equipment, changes in organization structures, or a reward system to ensure that employees and resources are used to make formulated strategy a reality.
Another fundamental characteristic of organization structure is departmentalization which is bases for grouping positions into departments and departments into the total organization. Managers make choices about how to use the chain of command to group people together to perform their work. There are five approaches to structural design that reflect different uses of the chain of command in departmentalization. The functional, divisional and matrix are traditional approaches that rely on the chain of command to define groupings and reporting relationships. Two contemporary approaches are the use of teams and networks. These newer approaches have engaged to meet organizational needs in a highly competitive global environment. Brief illustrations of the five structural alternatives are in Exhibit 3.3.
1. Functional approach. People are grouped together in departments by common skill and work activities, such s in an engineering department and accounting department.
2. Divisional approach. Departments are grouped together into separate, self-contained divisions based in a common product, program or geographical region. Diverse skills rather than similar skills are the basics of departmentalization.
3. Matrix approach. Functional and divisional chains of command are implemented simultaneously and overly one another in the same department. Two chains of command exist and some employee report to two bosses.
4. Team approach. The organization creates a series of teams or task forces to accomplish specific tasks and coordinate major departments. Teams can exist from the office of the president all the way down to the shop floor.
5. Network approach. The organization becomes a small central broker electronically connected to other organizations that perform vital functions. Departments are independent contacting services to the broker for a profit. Departments can be located anywhere in the world.
3.3. Five approaches to structural designs
Each approach to structure serves a distinct purpose for the organization and each has advantages and disadvantages. The basic differences among structures in the way in which employee are departmentalized and to whom they report. The differences in structure illustrated in exhibit 3.3 have major consequences for employee goals and motivation. The ability of managers to known when and how to use each form and structure allows them to solve problems such as we saw in Albany Ladder Company describes at the beginning of this chapter. Let us now turn to each of the five structural designs and examine their implication for managers.
Functional approach is the grouping of positions into departments based on similar skills expertise and resource use (exhibit 3.4). A functional structure can be thought of as departmentalization by organizational resources, because each type of functional activity – personnel, engineering, and manufacturing – represents specific resources for performing the organization’s task.
Exhibit 3.4. Grouping of positions into departments.
People and facilities representing a common organizational resource are grouped together into a single department.
An example of a functional structure for America Airlines is presented in Exhibit 9.5 the major departments under Chairman Crandall are grouping of similar expertise and resources, such as employee’s relations, government affairs, operation, information systems and marketing. Each of the functional departments at American Airlines is concerned with employees in all areas, and one marketing department is responsible for all sales and marketing.
ADVANTAGES AND DIADVANTAGES
Grouping employees into departments based on similar skills has many advantages for an organization. Employees who perform a common task are grouped together so as to permit economies of scale and efficient resource use at American Airlines as illustrated in exhibit 3.5 all information systems people work in the same department. They have to expertise for handling almost any problem within a single large department.
Exhibit 3.5. Functional structure for Americans airlines.
The large functional departments enhance the development of in-depth skills because people work on a variety of problems and are associated with other experts. Career progress is based on functional expertise thus employees are motivated to develop their skills. Managers and employees are compatible because of similar training and expertise.
The functional structure also offers a way to centralize decision making and provide unified direction from the top because the chain of command converges at the top of organization. Sometimes the functional structure is also associates with wider spans of control because of large departments and common expertise. Communication and coordination among the employees within each department are excellent. Finally functional structure promotes high-quality technical problem solving. The pool of well-trained experts motivated toward functional expertise, gives the company an important resource especially those that work with sophisticated technology.
The disadvantages of functional structure reflect the barriers that exist across departments and show response to environmental changes. Because people are separated into distinct departments, communication and coordination across functions are often poor. Poor coordination means a slow response to environmental changes, because innovation and change require involvement of several departments. Because the chain of command are separated beneath the top of the organization, decision involving more than one department may pile up at the top of the organization and be delayed. The functional structure also stress work specialization and division of labor, which may produce routine, no motivating employee tasks.
The functional structure also creates management problems such as difficulty in pinpointing problems within departments. In case of an insurance company, for example each function works on all products only a part of the task for any product line.
Exhibit 3.6. Advantages and disadvantages of functional structure
Hence, in one life insurance product is not performing well, there is no specific department or group that bears responsibility. In addition, employees tend to focus on the attainment of departmental goals. They see only their respective tasks and not the big picture. Because of this narrow task specialization employees are trained to become experts in their fields and not to manage and coordinate diverse departments, thus, they fail to become groomed for top management and general management position.
In contrast to the functional approach, in which people are grouped by common skills and resources, the divisional structure occurs when departments are grouped together based on organizational outputs. The difference between functional and divisional structure are illustrated in exhibit 3.7.
Exhibit 3.7. Functional versus Divisional Structure
In the divisional structure divisions are crested as self-contained units for producing a single product. Each functional department resource needed to produce the product is assigned to one division. For example, in a functional structure all engineers are grouped together and work on all products. In a divisional structure separate engineering departments are established within each division. Each department is smaller and focuses on a single product line. Departments are duplicated across product lines.
The divisional structure is sometimes called a product structure, program structure or self-contained unit structure. Each of these terms means essentially the same thing: diverse departments are brought together to produce a single organizational output, whether it is a product, a program or a service to single customer.
In very large companies, a divisional structure is essential. Most large corporation has separate business division that performs different tasks, serve different clients or use different technologies. When a huge organization produces products for different markets, the divisional structure works because each division is an autonomous business. For example Pepsi Co. uses a divisional structure, Fritto-lay, Pizza Hut, Taco Bell, North American Van Lines and Wilson’s Sporting Goods are stand-alone division.
A major difference between divisional and functional structure is that the chain of command from each function converges lower in the hierarchy. In the Exhibit 9.7 differences of opinion among R&D marketing, manufacturing and finance would be resolved at the divisional level rather than by the president. Thus the divisional structure encourages decentralization. Decision marking is pushed down at least one level in the hierarchy, freeing up the president and other top managers for strategic planning.
GEOGRAPHICALLY AND CUSTOMER-BASED DIVISION
Two variations of the divisional structure are the organization of division by geography and by customer. Departmentalization by customer simply means that all skills needed to service a specific customer are grouped in a single division.
A company may have a very large customer – say U.S. government – for a certain line of products. It can create a separate division to serve that customer full time. An example is a supplier that manufactures part for both General Motors and Bowing aircrafts. It may create two divisions, one for each major customer. A divisional status provides a common employee focus on the customer needs.
Geographical divisions are created when an organization serves a national or international area and functional skills need to be located in each geographical region.
ADVANTAGES AND DISADVANTAGES
For medium-size companies, the choice between functional and divisional structure is difficult because each represents different strengths and weakness. By dividing employees and resources along divisional lines, the organization will be flexible and responsive to chance because each unit is small.
Exhibit 3.8. Advantages and disadvantages of Divisional Structure
Because top management control is somewhat weaker under divisional structure, top managers must assert themselves in order to get divisions to work together.
Many companies must carefully decide whether the divisional or functional structure better suits their needs. It is now uncommon for a company to try one structure and then switch to another as its needs change.
Exhibit 3.10. Key position in a matrix structure
The functional boss is responsible for the technical and personnel issues, such as quality standards, providing technical training and assigning technical personnel projects.
The divisional boss is responsible for program wide issues, such as overall design decision, schedule deadlines, and coordinating technical specialists from several functions.
The senior engineer is called a two-boss employee because he or she reports to two supervisors simultaneously. Two-boss employees must resolve conflicting demands from the matrix bosses joint decisions. They need excellent human relations skills with which to confront managers and resolve conflicts.
The matrix boss is the product or functional boss, who in exhibit 3.10 is the engineering director and the medical products vice-president. The matrix boss is responsible for one side of matrix. The top leader is responsible for entire matrix. The top leader oversees both the product and functional chains of command. His or her responsibility is to maintain a power balance between the two sides of the matrix. If the disputes arise between them, the problem will be kicked upstairs to the top leader.
Matrix bosses and two-boss employees often find it difficult to adapt to the matrix. The matrix boss has only half of each employee. Without complete control over employees, bosses must consult with their counterparts on the problems.
3.4. Innovation and Change
Every organization experiences stress and difficulty coping with change. Innovation from within is widely recognized as one of the critical problems facing business today in the United States and Canada. To be successful, organizations must embrace many types of changes. Business must develop improved production technologies, create new products desired in the marketplace, implement new administrative systems, and upgrade employee’s skills. Companies such as Westinghouse, Intel, Black & Decker, Herman Miller and Merck implement all of these changes and more.
How important is organizational change? Consider this: The parents of today’s college students grew up without cable television, crease-resistant clothing, personal computers, detergents, VCRs, electronic games, compact disks, frozen entrees, video stores, or laser checkout systems in supermarkets.
Companies that produce the new products have prospered, while many of those caught in transition with outdated products and technologies have failed. Organizations that change and innovate successfully, such as IBM, Hewlett-Packard, Raychem, 3M, Citicorp, and Frito-Lay, are both profitable and admired.
Figure 3.11. Model of Change Sequence of Events:
Organizational change is defined as the adaptation of a new idea or behavior by an organization.
In this chapter, we will look at how organizations can be designed to respond to the environment through internal innovation and change. First we will examine the basic forces for organizational change. Then we will look closely at how managers facilitate two change requirements: initiation and implementation. Finally, we will discuss the four major types of change – technology, new product, structure, and culture/people – and how the organization can be designed to facilitate each.
Managing Organizational Change
Change can be managed. By observing external trends, patterns, and needs, managers use planned change to help the organization adapt to external problems and opportunities. When organizations are caught flat-footed, failing to anticipate or respond to new needs, management is at fault.
An overall model for planned change is presented in Figure1. Four events make up the change sequence:
(1) Internal and external forces for change exist;
(2) Organization managers monitor these forces and become aware of a need for change;
(3) The perceived need triggers the initiation of change, which
(4) is then implemented. How each of these activities is handled depends on the organization and managers styles.
We now turn to a brief discussion of the specific activities associated with the first two events – forces for change and the perceived need for the organization to respond.
Forces for Change
Forces for organizational change exist both in the external environment and within the organization.
External forces originate in all environmental sectors, including customers, competitors, technology, economic, and international. For example, many North American companies have been blindsided by global competition. Consider General Electric, which built a new factory to produce microwave ovens. As plans were being made, Yun Soo Chu was working 80 hours per week for Samsung in Korea perfecting a microwave oven. About the time the GE plant came on stream, Samsung started exporting thousands of microwaves to the United States at one-third the cost of General Electric’s microwaves. Today, Samsung has 25 percent of the U.S. market, and GE is one of the best customers. GE closed its microwave plants, preferring to buy cheaper Samsung ovens to sell under the GE label. As another example, McDonald experienced an external force from the customer sector. Customers were tired of eating hamburgers in their cars, to which top managers responded by incorporating sit-down facilities in McDonald’s restaurants. The Manager’s Shoptalk box describes how Johnson Wax stays abreast of and responds to external forces from around the globe.
Internal forces for change arise from internal activities and decisions. If top managers select a goal of rapid company growth, internal actions will have to be changed to meet the growth. New departments or technologies will be created. General Motor’s senior management, frustrated by poor internal efficiency, designed the Saturn manufacturing plant to solve the internal need. Demands, by employees, labor unions, and production inefficiencies can all generate a force to which management must respond with change.
Need for Change
As indicated in Figure 1, external or internal forces translate into a perceived need for change within the organization. Managers sense a need for change when there is a performance gap – a disparity between existing desired performance levels. The performance gap may occur because current procedures are not up to standard or because a new idea or technology could improve current performance.
The management’s responsibility is to monitor threats and opportunities in the external environment as well as strengths and weaknesses within the organization to determine whether a need for change exists.
One striking need for change occurred when executives at General Electric’s Louisville refrigerator plant realized that the Japanese, Brazilians, and Italians were building cheaper compressors of better quality than theirs. GE could not compete because of high wages.
Thanks to visionary engineers and managers, GE chose to innovate with a rotary compressor manufactured in a new automated plant.
Managers must detect problems and opportunities, because the perceived need for change is what sets the stage for subsequent actions that create a new product or technology. Big problems are easy to spot. Sensitive monitoring systems are needed to detect gradual changes that can fool managers into thinking their company is doing fine. An organization may be in greater danger when the environment changes slowly, because managers may fail to trigger an organizational response. Failing to use planned change to meet small needs can place the organization in hot water, as illustrated in the following passage:
“When frogs are placed in a boiling pail of water, they jump out – they don’t want to boil to death.
However, when frogs are placed in a cold pail of water and the pail is placed on a stove with the heat turned very low, over time the frogs will boil to death.”
After perceiving the need for change, the next part of the change process is initiating change, a truly critical aspect of change management. This is where the ideas that solve perceived needs are developed. Responses an organization can make are to search for or to create a change to adopt.
Search is the process of learning about current developments inside or outside the organization that can be used to meet the perceived need for change. Search typically uncovers existing knowledge that can be applied or adopted within the organization. Managers talk to friends and colleagues, need professional reports, or hire consultants to learn about ideas used elsewhere. For example, an internal consulting program was developed for the Office of Employee Relations for New York State, creating teams of 10 to 20 managers from a cross-section of agencies to provide information to managers experiencing problems. The consulting team provided a quick way for managers to search out new ideas used in other departments.
Many needs, however, cannot be resolved through existing knowledge but require that the organization develop a new response. Initiating a new response means that managers must design the organization so as to facilitate creativity of both individuals and departments, encourage innovative people to initiate new ideas, or create new-venture departments.
These techniques have been adopted by such corporations as IBM and Apple with great success.
Creativity is the development of novel solutions to perceived problems. Creative individuals develop ideas that can be adopted by the organization.
Figure 3.12 Characteristics of highly creative people
People noted for their creativity include Edwin Land, who invented the Polaroid camera; Frederick Smith, who came up with the idea for Federal Express’s overnight delivery service during an undergraduate class at Yale; an Swiss engineer George de Mestral, who created the Velero after noticing the tiny hooks on the burrs caught on his wool socks. Each of these people saw unique and creative opportunities in a familiar situation.
One test of creativity is to imagine a block of ice sitting on your desk. What use could you make of it? A creative person might see that it could be used to quench someone’s thirst, reduce a patient’s fever, crack a victim’s skull, or produce steam by boiling. Or consider the person interviewing college graduates for job openings. “Show me a new use for this stapler,” the interviewer said. Calmly picking up the scissors on the desk, one creative woman cut the interviewers tie in half and than stapled it back together. Smiling, she asked, “Now that I’ve demonstrated my instant mender, how many will you take?”
Each of us has the capacity to be creative. Characteristics of highly creative people are illustrated in the left-hand column of figure 3.12.
Creative people often are know for originality, curiosity, open-mindedness, a focused approach to problem solving, persistence, a relaxed and playful attitude, and receptiveness to new ideas.
Creativity can also be designed into organizations. Companies or departments within companies can be organized to be creative and initiate changes. The characteristics of creative organizations correspond to those of individuals, as illustrated in the right-hand column of Figure 2. Creative organizations are loosely structured. People find themselves in a situation of ambiguity, assignments are vague, territories overlap, tasks are poorly defined, and much work is done through teams. Creative organizations have an internal culture of playfulness, freedom, challenge, and grass roots participation. They harness all potential sources of new ideas from within.
Many participative management programs are born out of desire to enhance creativity for initiating changes. People are not stuck in the rhythm of routine jobs. Managers in an insurance company that had been tightly controlled from the top remarked on the changes that enabled them to be more creative:
- We used to run by the book and now I don’t even know where the book is.
- Yesterday’s procedures are outdated today.
- If you don’t like the organizational chart, just wait until next week, we’ll have a new one.
The most creative companies encourage employees to make mistakes. Jim Read, president of the Road Corporation, says, “When my employees make mistakes trying to improve something, I give them a round of applause. No mistakes mean any new products. If they ever become afraid to make one, my company is doomed.” Ross Perot, founder of EDS, believed creative managers could not keep their noses clean: “We teach people that mistakes are like skinned knees for little children…. My people are covered with the scars of their mistakes. By the time they get to the top, their noses are pretty well broken.”
Open channels of communication, overlapping jobs, discretionary resources, decentralization, and employee’s freedom to choose problems and make mistakes can generate unexpected benefits for companies. Creative organizational conditions such as those described in Figure 2 enable more than 200 new products a year to bubble up from 3M’s research labs. The same conditions enabled brand manager Cal Blodgett at General Mills to propose a change for the 6-by-300-foot sheets of granola rolling out of the oven to be crumbled into cereal bits. “Let’s cut that into bars,” he thought, and Nature Valley Granola Bars were born. In another General Mills department, Craig Nalen responded to the frustration of developing a new snack food with the idea of turning the food into a product. “Why not peddle the snack food as a toy?” With that idea, Lickety Sticks were born and General Mills entered the toy market.
If creative conditions are successful, new ideas will be generated that must be carried forward for acceptance and implementation. This is where idea champions come in. The formal definition of an idea champion is a person who sees the need for and champion’s productive change within the organization. For example, Linda Clemens of Federal Express championed the idea of developing an internal hot line for employees to complain about red tape and excess paperwork, thereby cutting back corporate bureaucracy. Wendy Black of Best Western International championed the idea of coordinating the corporate mailings to the company’s 2800 hoteliers into a single packet every two weeks. Some hotels were receiving three special mailings a day from different departments. Her idea has saved $600,000 a year for five years in postage alone. Remember: Change does not occur by itself. Personal energy and effort are required to successfully promote a new idea. Often management rejects a new idea. Champions are passionately committed to a new product or idea despite rejection by others.
Championing an idea successfully requires roles in organization, as illustrated in Figure 3.13.
Sometimes a single person may play two or more of these roles, but successful innovation in most companies involves interplay of different people, each adopting one role. The inventor develops a new idea and understands its technical value but has neither the ability nor the interest to promote it for acceptance within the organization.
Figure 3.13. Four Roles in Organizational Change
The champion believes in the idea, confronts the organizational realities of costs and benefits, and gains the political and financial support needed to bring it to reality. The sponsor is a high-level manager who approves the idea, projects it, and removes major organizational barriers to acceptance. The critic counterbalances the zeal of the champion by challenging the concept and providing a reality test against hard-nosed criteria. The critic prevents people in the other roles from adopting a bad idea.
Al Marzocchi was both an inventor and a champion at Owens-Corning Fiberglass. He invented ways to strengthen fiberglass, developed the fiberglass belted tire in conjunction with Armstrong Tire, and pioneered new ways of using asphalt. One reason Marzocchi thrived was that Owens-Corning’s president, Harold Boeschenstein, sponsored his activities and held critics at bay. Once Marzocchi violated company rules by going directly to an outside firm, but the president protected him and his idea.
Managers can directly influence whether champions will flourish. When Texas Instruments studied 50 of its new-product introductions, a surprising fact emerged: Without exception, every new product that had failed had lacked a zealous champion. In contrast, most of the new products that succeeded had a champion. Texas Instruments managers made an immediate decision: No new product would be approved unless someone championed it.
A recent idea for facilitating corporate innovations is called a new-venture team. A new-venture team is a unit separate from the rest of the organization and is responsible for developing and initiating a major innovation. New-venture teams give free reign to members’ creativity because their separate facilities and location free them from the organizational rules and procedures. These teams typically are small, loosely structured, and organic, reflecting the characteristics of creative organizations described in the table regarding the characteristics of creative people and organizations. Peter Drucker advises organizations that wish to innovate to use a separate team or department:
“For the existing business to be capable of innovation, it has to create a structure that allows people to be entrepreneurial… This means, first, that the entrepreneurial, the news, has to be organized separately from the old and the existing. Whenever we have tried to make an existing unit the carrier of the entrepreneurial project, we failed.”
New-venture team: a unit separate from the mainstream of the organization that is responsible for developing and initiating innovations.
Fig.3.14. Location of New-Venture Team in an Organization
For a giant corporation such as IBM, new-venture teams free people from the constraints of the large organization. IBM was one of the first companies to use the new-venture team successfully, and its genius was to suspend normal product development practices. IBM has started 14 new-venture units. Each is tiny company-within-the-company that explores areas of customized software, robots and electrocardiographs. IBM’s biggest success – the personal computer – was built by a new-venture group. The PC new-venture team was so appealing that 5,000 employees applied for the initial 50 positions. Other companies that have created new-venture units are Monsanto, Levi Strauss, Exxon, Du Pont, Dow, and Motorola.
One variation of venture teams used by some companies is called skunkworks. Skunkworks are small, informal, and sometimes unauthorized groups that create innovations. Companies such as Kollmorgen, IBM, Merck, Philip Morris, and Macy encourage employees to form informal groups, often working nights and weekends, to develop a new idea. If the new venture is successful, group members are rewarded and encouraged to run the new business.
Skunkworks: small, informal, and sometimes unauthorized groups that create innovations.
Another variation of new-venture teams is the new-venture fund, which provides resources from which individuals and groups can draw to develop new ideas, products, or businesses. For example, Teleflex, a producer of many technical and consumer products, allocates one-half of one percent of sales to a new-venture fund. More than $1 million dollars was allocated to employees in 1988 to explore new ideas.
New-venture fund: a fund providing resources from which individuals and groups draw to develop new ideas, products, or businesses.
3.5. THE MANAGEMENT OF INVESTMENTS
--the investment and economic efficiency of investment concepts definition;
--financial resources for investment projects;
--the main indicators for economic efficiency of investments analysis;
--the time factor influence upon economic efficiency of investments;
--the indicators for economic efficiency of investments used by EBRD (European Bank for Reconstruction and Development).
The investment and economic efficiency of investment concepts definition
Investment - concept
In general, investment represents any capital expenses which are made for the purpose to obtain future profit. Particularly it is used the concept of:
- Capital investment
- Financial investment
Capital investment refers to funds invested in fixed assets, tangible or intangible or both.
Financial investment are any funds allocated for capital stock or other businesses, bounds, public and private, real estate held for rental income and also for the prospect of capital gains.
The investments vary in degree of liquidity. Some can be turned into cash in a reasonable time, but others are difficult to convert even though they are profitable sources of revenue. For example, the capital investments are lack in fluidity and flexibility and they are more rigid because they are expected to be held until their services to the business have expired.
The economic efficiency of investments concept
In general, the economic efficiency of investments expresses the way that the expected purposes are achieved.
Concrete, the economic efficiency of investments refers to the link between the resources (the quantity and structure of the investment efforts) and the results (those which are obtain after the investment process is finished).
In other words, the concept expresses the mutual connection between investment efforts and effects.
This link can be express in two ways:
- Maximizing the effects
economic efficiency of investments
- Minimizing the efforts
- Financial resources for investment projects
There are two main kinds of investment resources:
- Internal resources:
- the primary investors capital
- capital depreciation
- funds from bounds and stocks
- external resources:
- funds from the budgets of local public administration authorities
The main indicators for economic efficiency of investments analysis
In order to choose the right option for evaluation the investment project it is used a number of indicators which are shown the economic efficiency of investments.
- Total investment value - express the whole resources which are used to realize the investment objective (capital costs);
- Specific capital - express the investment payment for each output unit (physical or valuable)
total investment value
- Rate of profit - express the profit earning capacity of an economic unit
rate of profit
- Payoff period – express the recoup investment period
Measurement unit is always evaluating in years. The indicator needs to be smaller than the standard payoff period:
- Output factor – express the annual profit obtained for each investment unit
The indicator is inverse proportion of payoff period.
- Speed of investment recoup – express how many times investment can be recovered during the investment object standard service period
speed of investment recoup
- Equivalent costs – express total costs with investment and operating costs during the standard payoff period
- Operating efficiency
profit which remains at the firm disposal after the payoff period.
For the project analyses general trend of the indicators should be as follows:
- The time factor influence ( updating technique)
- it is used to bring all investment information to a single moment named reference moment;
- depending on that moment we can use one of the two following factors:
- Compound interest factor – represents the amount that it will be obtain after ,,n” years from one value unit:
- Present value factor (discounting factor) – represents what means now a value unit obtain after ,,n” years:
In both cases ,,a” represents updating ratio, a minimum efficiency level which has to fulfill the next condition:
interest rate for borrowed funds
risk investment rate
The moments are:
investment decision making moment
investment beginning moment
start-up running the investment objective
start-up loan repayment
end the investment period of service
The periods are:
investment carrying out period
investment objective period of service
Updating technique is very important and necessary taking into consideration that it is a difference between the investment periods of time: carrying out period and service period.
Thus we ensure the information comparability.
- The indicators for economic efficiency of investments used by EBRD (European Bank for Reconstruction and Development).
The EBRD methodology take into consideration three main indicators, using updating technique for investment efforts and effects at the investment beginning moment (,,n” moment from the previous diagram).
- Net present value added (NPV) – represents the updating cash-flow during the entire period (d+D)
net present value added
annual investment costs
annual manufacturing costs
present value factor (discounting factor)
The decision rule would be: accept all investments with positive or zero net value (as they produce a return either equal to or greater than their cost), and reject all those with a negative net value.
- Costs – returns ratio
An investment project is usually accepted if the indicator is equal or greater than 1.
- Internal rate of return
The internal rate of return of a project can be defined as the rate of discount which, when applied to the project's cash flows, produces a zero net present value:
Considering an investment project for a firm, as it follows:
minimum updating ratio for which
maximum updating ratio for which
net present value for and
The decision rule is that only projects with a greater than or equal to some predetermined ,,cut-off” rate should be accepted. This ,,cut-off” rate is usually the market rate of interest or inflation ratio.
All other investment project opportunities should be rejected.
Minimum updating ratio begins from a = 10 % and the maximum is a = 20 %
A. The static economic efficiency indicators are:
1. Total investment value:
I = 5 million €
2. Annual profit:
Ph = 3 – 0,5 = 2,5 million €
Totally profits for all the 5 years is 2,5 x 5 = 12,5 million €, and if we add the remainder value than the totally net returns value will be 12,5 + 0,1 = 12,6 million €.
3. The cash-flow will be 12,6 – 5 = 7,6 million € , so the investment project appears to be efficient.
4. Payoff period
5. Output factor
annual profit / 1 € investment
- Operating efficiency
after investment payoff period / 1 € of investment
B. The efficiency indicators updating to the ,,n” moment for a = 10 %
- Net present value added for a=10%:
mil €, so
- Costs – returns ratio is:
for a = 10%, the investment project is efficient.
For an updating ratio a=35%, we shall have:
- Net present value added for a = 35%:
mil €, so
- Costs – returns ratio is:
for an updating ratio a = 35%, the project is no longer efficient.
In that case we shall determine the internal rate of return ( IRR):
In conclusion, the investment project can sustain an updating ratio at the most 33,98%.
4. Leadership in organizations
4.1.1. The nature of leadership
The phrase "the art of leadership" is certainly well worn. But consciously recognizing the practice of leadership as artistry has received little attention. For now, I simply suggest that art, artist, and artistry be given a more prominent place within the lexicon of leadership theory and practice.
The image of artist, cast as a metaphor for those who provide acts of leadership, immediately evokes two primary responses—affirmation and resistance. Those who think of themselves as artists in the conventional sense of the word for example, painters, sculptors, musicians, writers, architects, photographers, and some athletes and gardeners may pick up the metaphor with ready enthusiasm, recognizing that incorporating their artist-self into their practice of leadership opens into a horizon of powerful possibilities. But those who suffered through their last required art project in school, or who hold the stereotype of an artist as no rational, asocial, marginal, or soft may cast a more jaundiced eye upon this metaphor.
It is highly likely, however, that the jaundiced eye belongs to someone who in some aspect of his or her professional or personal life exemplifies the power and qualities of an artist: the ability to work on an edge, in an interdependent relationship with the medium, with a capacity for creative improvisation. (Entrepreneurs and some politicians, physicians, and educators, for example, are akin to artists, seeking to bring into being what has not yet taken form.)
Within any profession or sector, one of the primary characteristics of the artistry of leadership is the willingness to work on an edge the edge between the familiar and the emergent.
That acts of leadership require the ability to walk the razor's edge without getting your feet too cut up working that edge place between known problems and unknown solutions, between popularity and anxious hostility. Artistic leadership is able to remain curious and creative in the complexity and chaos of swamp issues, often against the odds. As we have seen, those who practice adaptive leadership must confront, disappoint, and dismantle and at the same time energize, inspire, and empower. The creativity that emerges from working on this paradoxical edge is integral to adaptive work, building out of what has come before, yet stirring into being something new and unprecedented the character of leadership that is needed at this threshold time in human history.
Artists work within a set of relationships that they cannot fully control. In regard to the practice of leadership, one of the most potent features of thinking like an artist is that the artist necessarily works in a profoundly interdependent relationship with the medium paint, stone, clay, a musical instrument, an orchestra, a tennis court, a slalom run, or food. Artists learn "everything they can about the medium(s) with which they work . . . what they can expect from it and where it will fall short." A potter, for example, must learn that clay has its own life, its own potential and limits, its own integrity. The potter develops a relationship with clay, spending time with it, learning to know its properties, how it will interact with water, discovering that if you work it too hard, it will collapse, and if you work with it, it will teach you its strength, your limits, and the possibilities of co-creation. "Even in drawing," notes an architect, "though we think of the artist as imposing something arbitrary on the page, when you draw even a single line on the page, it begins to speak back to you. The kind of pencil you use and the tooth of the paper will affect the message. The design emerges in the dynamic interaction of the relationships among architect, pencil, paper, client, site, building materials, budget, and contractor."
The practice of adaptive leadership requires the same awareness of working within a dynamic field of relationships in which the effect of any single action is not entirely controllable because in a systemic, interdependent reality, every action affects the whole. On the other hand, if one learns to understand the nature of the system that needs to be mobilized (the underlying structure and patterns of motion), he or she can become artfully adept at intervening in ways that are more rather than less likely to have a positive affect in helping the group to move to a new place, creating a new reality.
4.1.2. Concepts of leadership
Good leaders are made not born. If you have the desire and willpower, you can become an effective leader. Good leaders develop through a never ending process of self-study, education, training, and experience. This guide will help you through that process.
To inspire your workers into higher levels of teamwork, there are certain things you must be, know, and do. These do not come naturally, but are acquired through continual work and study. Good leaders are continually working and studying to improve their leadership skills;
Leadership is a process by which a person influences others to accomplish an objective and directs the organization in a way that makes it more coherent.
When a person is deciding if she respects you as a leader, she does not think about your attributes, rather, she observes what you do so that she can know who you really are. She uses this observation to tell if you are a honorable and trusted leader or a self serving person who misuses authority to look good and get promoted. Self-serving leaders are not as effective because their employees only obey them, not follow them. They succeed in many areas because they present a good image to their seniors at the expense of their workers.
The basis of good leadership is honorable character and selfless service to your organization. In your employees' eyes, your leadership is everything you do that effects the organization's objectives and their well being. Respected leaders concentrate on what they are [be] (such as beliefs and character), what they know (such as job, tasks, and human nature), and what they do (such as implementing, , and provide ).
What makes a person want to follow a leader? People want to be guided by those they respect and who have a clear sense of direction. To gain respect, they must be ethical. A sense of direction is achieved by conveying a strong vision of the future.
The Two Most Important Keys to Effective Leadership
Hay’s study examined over 75 key components of employee satisfaction. They found that:
- Effective communication by leadership in three critical areas was the key to winning organizational trust and confidence:
- Helping employees understand the company's overall business strategy.
- Helping employees understand how they contribute to achieving key business objectives.
- Sharing information with employees on both how the company is doing and how an employee's own division is doing - relative to strategic business objectives.
4.1.3. Principles of Leadership
To help you be, known, and do; follow these eleven principles of leadership (later chapters in this guide expand on these and provide tools for implementing them):
Be technically proficient - As a leader, you must know your job and have a solid familiarity with your employees' tasks.
- Seek responsibility and take responsibility for your actions - Search for ways to guide your organization to new heights. And when things go wrong, they always do sooner or later -- do not blame others. Analyze the situation, take corrective action, and move on to the next challenge.
- Make sound and timely decisions, meaning: Use good problem solving, decision making, and planning tools.
- Set the example - Be a good role model for your employees. They must not only hear what they are expected to do, but also see. We must become the change we want to see - Mahatma Gandhi
- Know your people and look out for their well-being - Know human nature and the importance of sincerely caring for your workers.
- Keep your workers informed - Know how to communicate with not only them, but also seniors and other key people.
- Develop a sense of responsibility in your workers - Help to develop good character traits that will help them carry out their professional responsibilities.
- Ensure that tasks are understood, supervised, and accomplished - Communication is the key to this responsibility.
- Train as a team - Although many so called leaders call their organization, department, section, etc. a team; they are not really teams...they are just a group of people doing their jobs.
- Use the full capabilities of your organization - By developing a team spirit, you will be able to employ your organization, department, section, etc. to its fullest capabilities.
Factors of leadership
There are four major factors in leadership:
Different people require different styles of leadership. For example, a new hire requires more supervision than an experienced employee. A person who lacks motivation requires a different approach than one with a high degree of motivation. You must know your people! The fundamental starting point is having a good understanding of human nature, such as needs, emotions, and motivation. You must become to know your employees' be, know, and do attributes.
You must have a honest understanding of who you are, what you know, and what you can do. Also, note that it is the followers, not the leader who determines if a leader is successful. If they do not trust or lack confidence in their leader, then they will be uninspired. To be successful you have to convince your followers, not yourself or your superiors, that you are worthy of being followed.
You lead through two-way communication. Much of it is nonverbal. For instance, when you "set the example," that communicates to your people that you would not ask them to perform anything that you would not be willing to do. What and how you communicate either builds or harms the relationship between you and your employees.
All are different. What you do in one situation will not always work in another. You must use your judgment to decide the best course of action and the leadership style needed for each situation. For example, you may need to confront an employee for inappropriate behavior, but if the confrontation is too late or too early, too harsh or too weak, then the results may prove ineffective.
If you are a leader who can be trusted, then those around you will grow to respect you. To be such a leader, there is a Leadership Framework to guide you:
- BE KNOW DO
- BE a professional. Examples: Be loyal to the organization,take personal responsibility.
- BE a professional who possess good character traits. Examples: Honesty, competence, candor, commitment, integrity, courage, straightforwardness, imagination.
- KNOW the four factors of leadership - follower, leader, communication, and situation.
- KNOW yourself. Examples: strengths and weakness of your character, knowledge, and skills.
- KNOW human nature. Examples: Human needs, emotions, and how people respond to stress.
- KNOW your job. Examples: be proficient and be able to train others in their tasks.
- KNOW your organization. Examples: where to go for help, its climate and culture, who the unofficial leaders are.
- DO provide direction. Examples: goal setting, problem solving, decision making, planning.
- DO implement. Examples: communicating, coordinating, supervising, evaluating.
- DO motivate. Examples: develop moral and esprit in the organization, train, coach, counsel.
Every organization has a particular work environment, which dictates to a considerable degree how its leaders respond to problems and opportunities. This is brought about by its heritage of past leaders and its present leaders.
Goals, Values, and Concepts
Leaders exert influence on the via three types of actions:
- The goals and performance standards they establish.
- The values they establish for the organization.
- The business and people concepts they establish.
Successful organizations have leaders who set high standards and across the entire spectrum, such as strategies, market leadership, plans, meetings and presentations, productivity, quality, and reliability.
Values reflect the concern the organization has for its employees, customers, investors, vendors, and surrounding community. These values define the manner in how business will be conducted.
define what products or services the organization will offer and the methods and processes for conducting business.
These goals, values, and concepts make up the organization's "personality" or how the organization is observed by both outsiders and insiders. This personality defines the roles, relationships, rewards, and rites that take place.
There are two distinct forces that dictate how to act within an organization: .
Each organization has its own distinctive culture. It is a combination of the founders, past leadership, current leadership, crises, events, history, and size.
The climate is the feel of the organization, the individual and shared perceptions and attitudes of the organization's members. While the culture is the deeply rooted nature of the organization that is a result of long-held formal and informal systems, rules, traditions, and customs; climate is a short-term phenomenon created by the current leadership. Climate represents the beliefs about the "feel of the organization" by its members. This individual perception of the "feel of the organization" comes from what the people believe about the activities that occur in the organization. These activities influence both individual and team motivation and satisfaction, such as:
- How well does the leader clarify the priorities and goals of the organization? What is expected of us?
- What is the system of recognition, rewards, and punishments in the organization?
- How competent are the leaders?
- Are leaders free to make decision?
- What will happen if I make a mistake?
Organizational climate is directly related to the leadership and management style of the leader, based on the values, attributes, skills, and actions, as well as the priorities of the leader. Compare this to "ethical climate" -- the "feel of the organization" about the activities that have ethical content or those aspects of the work environment that constitute ethical behavior. The ethical climate is the feel about whether we do things right; or the feel of whether we behave the way we ought to behave. The behavior (character) of the leader is the most important factor that impacts the climate.
On the other hand, culture is a long-term, complex phenomenon. Culture represents the shared expectations and self-image of the organization. The mature values that create "tradition" or the "way we do things here." Things are done differently in every organization. The collective vision and common folklore that define the institution are a reflection of culture. Individual leaders cannot easily create or change culture because culture is a part of the organization. Culture influences the characteristics of the climate by its effect on the actions and thought processes of the leader. But, everything you do as a leader will effect the climate of the organization.
Leadership models help us to understand what makes leaders act the way they do. The ideal is not to lock yourself in to a type of behavior discussed in the model, but to realize that every situation calls for a different approach or behavior to be taken. Two models will be discussed, the Four Framework Approach and the Managerial Grid.
Four Framework Approach.
Structural Framework. In an effective leadership situation, the leader is a social architect whose leadership style is analysis and design. While in an ineffective leadership situation, the leader is a petty tyrant whose leadership style is details. Structural Leaders focus on structure, strategy, environment, implementation, experimentation, and adaptation.
Human Resource Framework. Human Resource Leaders believe in people and communicate that belief; they are visible and accessible; they empower, increase participation, support, share information, and move decision making down into the organization.
Political Framework. Political leaders clarify what they want and what they can get; they assess the distribution of power and interests; they build linkages to other stakeholders, use persuasion first, then use negotiation and coercion only if necessary.
Symbolic Framework. In an effective leadership situation, the leader is a prophet, whose leadership style is inspiration. While in an ineffective leadership situation, the leader is a fanatic or fool, whose leadership style is smoke and mirrors.
Symbolic leaders view organizations as a stage or theater to play certain roles and give impressions; these leaders use symbols to capture attention; they try to frame experience by providing plausible interpretations of experiences; they discover and communicate a vision.
The Blake and Mouton Managerial Grid use two axes:
- "Concern for people" is plotted using the vertical axis
- "Concern for task" is along the horizontal axis.
Most people fall somewhere near the middle of the two axes. But, by going to the extremes, we come up with four types of leaders:
- Authoritarian (9 on task, 1 on people)
- Team Leader (9 on task, 9 on people)
- Country Club (1 on task, 9 on people)
- Impoverished (1 on task, 1 on people).
Authoritarian Leader. (high task, low relationship). People who get this rating are very much task oriented and are hard on their workers (autocratic). There is little or no allowance for cooperation or collaboration. Heavily task oriented people display these characteristics: they are very strong on schedules; they expect people to do what they are told without question or debate; when something goes wrong they tend to focus on who is to blame rather than concentrate on exactly what is wrong and how to prevent it; they are intolerant of what they see as dissent (it may just be someone's creativity), so it is difficult for their subordinates to contribute or develop.
Team Leader. (high task, high relationship). This type of person leads by positive example and endeavors to foster a team environment in which all team members can reach their highest potential, both as team members and as people. They encourage the team to reach team goals as effectively as possible, while also working tirelessly to strengthen the bonds among the various members. They normally form and lead some of the most productive teams.
Country Club Leader. (low task, high relationship). This person uses predominantly reward power to maintain discipline and to encourage the team to accomplish its goals. Conversely, they are almost incapable of employing the more punitive coercive and legitimate powers. This inability results from fear that using such powers could jeopardize relationships with the other team members.
Impoverished Leader. (low task, low relationship). A leader who uses a "delegate and disappear" management style. Since they are not committed to either task accomplishment or maintenance; they essentially allow their team to do whatever it wishes and prefer to detach themselves from the team process by allowing the team to suffer from a series of power struggles.
The most desirable place for a leader is the Team Leader. However, do not entirely dismiss the other three. Certain situations might call for one of the other three to be used at times.
The Process of Great Leadership
The road to great leadership that is common to successful leaders:
- Challenge the process - First, find a process that you believe needs to be improved the most.
- Inspire a shared vision - Next, share you vision in words that can be understood by your followers.
- Enable others to act - Give them the tools and methods to solve the problem.
- Model the way - When the process gets tough, get your hands dirty. A boss tells others what to do...a leader shows that it can be done.
- Encourages the heart - Share the glory with your followers' heart, while keeping the pains within your own.
Many of the images associated with leadership have their roots in conflict. It is the stuff of generals who outwit their opponents, politicians who convince and channel groups into action, and people who take control of a crisis. We are directed to special individuals like Gandhi or Joan of Arc; Napoleon or Hitler. The stories around such people seem to show that there are moments of crisis or decision where the actions of one person are pivotal. They have a vision of what can, and should be, done and can communicate this to others. When these are absent there can be trouble. Quality of leadership is, arguably, central to the survival and success of groups and organizations. As The Art of War, the oldest known military text (circa 400 BC), puts it, 'the leader of armies is the arbiter of the people's fate, the man on whom it depends whether the nation shall be in peace or in peril' (Waging war).
But what is leadership? It seems to be one of those qualities that you know when you see it, but is difficult to describe. There are almost as many definitions as there are commentators. Many associate leadership with one person leading. Four things stand out in this respect. First, to lead involves influencing others. Second, where there are leaders there are followers. Third, leaders seem to come to the fore when there is a crisis or special problem. In other words, they often become visible when an innovative response is needed. Fourth, leaders are people who have a clear idea of what they want to achieve and why. Thus, leaders are people who are able to think and act creatively in non-routine situations – and who set out to influence the actions, beliefs and feelings of others. In this sense being a ‘leader’ is personal. It flows from an individual’s qualities and actions. However, it is also often linked to some other role such as manager or expert. Here there can be a lot of confusion. Not all managers, for example, are leaders; and not all leaders are managers.
In the recent literature of leadership (that is over the last 80 years or so) there have been four main ‘generations’ of theory:
It is important, as John van Maurik (2001) has pointed out, to recognize that none of the four ‘generations’ is mutually exclusive or totally time-bound.
Although it is true that the progression of thinking tends to follow a sequential path, it is quite possible for elements of one generation to crop up much later in the writings of someone who would not normally think of himself or herself as being of that school. Consequently, it is fair to say that each generation has added something to the overall debate on leadership and that the debate continues. (van Maurik 2001)
This fourfold division of ‘modern’ (management) leadership can go under different titles (e.g. we might discuss charismatic rather than transformational leadership), and there are other possible candidates e.g. skill based approaches and self-management or shared leadership (discussed elsewhere on these pages). However, these four formations can be seen as sharing some common qualities and we can approach them as variations of the ‘classical’ model of leadership.
Leaders are people, who are able to express themselves fully, says Warren Bennis. 'They also know what they want', he continues, 'why they want it, and how to communicate what they want to others, in order to gain their co-operation and support.’ Lastly, ‘they know how to achieve their goals'. But what is it that makes someone exceptional in this respect? As soon as we study the lives of people who have been labeled as great or effective leaders, it becomes clear that they have very different qualities. We only have to think of political figures like Nelson Mandela, Margaret Thatcher and Mao Zedong to confirm this.
Instead of starting with exceptional individuals many turned to setting out the general qualities or traits they believed should be present. Surveys of early trait research by Stogdill (1948) and Mann (1959) reported that many studies identified personality characteristics that appear to differentiate leaders from followers. However, as Peter Wright has commented, ‘others found no differences between leaders and followers with respect to these characteristics, or even found people who possessed them were less likely to become leaders’. Yet pick up almost any of the popular books on the subject today and you will still find a list of traits that are thought to be central to effective leadership. The basic idea remains that if a person possesses these she or he will be able to take the lead in very different situations. At first glance, the lists seem to be helpful (see, for example, Exhibit 1). But spend any time around them and they can leave a lot to be desired.
Exhibit 1: Gardner’s leadership attributes
John Gardner studied a large number of North American organizations and leaders and came to the conclusion that there were some qualities or attributes that did appear to mean that a leader in one situation could lead in another. These included:
Physical vitality and stamina
Intelligence and action-oriented judgment
Eagerness to accept responsibility
Understanding of followers and their needs
Skill in dealing with people
Need for achievement
Capacity to motivate people
Courage and resolution
The first problem is that the early searchers after traits often assumed that there was a definite set of characteristics that made a leader - whatever the situation. In other words, they thought the same traits would work on a battlefield and in the staff room of a school. They minimized the impact of the situation (Sadler 1997). They, and later writers, also tended to mix some very different qualities. Some of Gardner’s qualities, for example, are aspects of a person's behavior, some are skills, and others are to do with temperament and intellectual ability. Like other lists of this nature it is quite long - so what happens when someone has some but not all of the qualities? On the other hand, the list is not exhaustive and it is possible that someone might have other ‘leadership qualities’. What of these?
More recently people have tried looking at what combinations of traits might be good for a particular situation. There is some mileage in this. It appears possible to link clusters of personality traits to success in different situations, as Stogdill has subsequently suggested. However, it remains an inexact science!
One of the questions we hear most often around such lists concerns their apparent ‘maleness’ (e.g. Rosener 1997). When men and women are asked about each other’s characteristics and leadership qualities, some significant patterns emerge. Both tend to have difficulties in seeing women as leaders. The attributes associated with leadership on these lists are often viewed as male. However, whether the characteristics of leaders can be gendered is questionable. If it is next to impossible to make a list of leadership traits that stands up to questioning, then the same certainly applies to lists of gender specific leadership traits!
As the early researchers ran out of steam in their search for traits, they turned to what leaders did - how they behaved (especially towards followers). They moved from leaders to leadership - and this became the dominant way of approaching leadership within organizations in the 1950s and early 1960s. Different patterns of behaviors were grouped together and labeled as styles. This became a very popular activity within management training – perhaps the best known being Blake and Mouton’s Managerial Grid (1964; 1978). Various schemes appeared, designed to diagnose and develop people’s style of working. Despite different names, the basic ideas were very similar. The four main styles that appear are:
Concern for task. Here leaders emphasize the achievement of concrete objectives. They look for high levels of productivity, and ways to organize people and activities in order to meet those objectives.
Concern for people. In this style, leaders look upon their followers as people - their needs, interests, problems, development and so on. They are not simply units of production or means to an end.
Directive leadership. This style is characterized by leaders taking decisions for others - and expecting followers or subordinates to follow instructions.
Participative leadership. Here leaders try to share decision-making with others.(Wright 1996)
Many of the early writers that looked to participative and people-centered leadership argued that it brought about greater satisfaction amongst followers (subordinates). However, as Sadler (1997) reports, when researchers really got to work on this it didn’t seem to stand up. There were lots of differences and inconsistencies between studies. It was difficult to say style of leadership was significant in enabling one group to work better than another. Perhaps the main problem, though, was one shared with those who looked for traits (Wright 1996). The researchers did not look properly at the context or setting in which the style was used. Is it possible that the same style would work as well in a gang or group of friends, and in a hospital emergency room? The styles that leaders can adopt are far more affected by those they are working with, and the environment they are operating within, than had been originally thought.
Researchers began to turn to the contexts in which leadership is exercised - and the idea that what is needed changes from situation to situation. Some looked to the processes by which leaders emerge in different circumstances - for example at moments of great crisis or where there is a vacuum. Others turned to the ways in which leaders and followers viewed each other in various contexts - for example in the army, political parties and in companies. The most extreme view was that just about everything was determined by the context. But most writers did not take this route. They brought the idea of style with them, believing that the style needed would change with the situation. Another way of putting this is that particular contexts would demand particular forms of leadership. This placed a premium on people who were able to develop an ability to work in different ways, and could change their style to suit the situation.
What began to develop was a contingency approach. The central idea was that effective leadership was dependent on a mix of factors. For example, Fred E. Fiedler argued that effectiveness depends on two interacting factors: leadership style and the degree to which the situation gives the leader control and influence. Three things are important here:
The relationship between the leaders and followers. If leaders are liked and respected they are more likely to have the support of others.
The structure of the task. If the task is clearly spelled out as to goals, methods and standards of performance then it are more likely that leaders will be able to exert influence.
Position power. If an organization or group confers powers on the leader for the purpose of getting the job done, then this may well increase the influence of the leader. (Fiedler and Garcia 1987)
Models like this can help us to think about what we are doing in different situations. For example, we may be more directives where a quick response is needed, and where people are used to being told what to do, rather than having to work at it themselves. They also found their way into various management training aids – such as the development of Mouton and Blake’s managerial grid by Reddin (1970; 1987) that looked to the interaction of the characteristics of the leader, the characteristics of the followers and the situation; and Hersey and Blanchard’s (1977) very influential discussion of choosing the appropriate style for the particular situation.
Exhibit 2: Hersey and Blanchard (1977) on leadership style and situation
Hersey and Blanchard identified four different leadership styles that could be drawn upon to deal with contrasting situations:
Telling (high task/low relationship behavior). This style or approach is characterized by giving a great deal of direction to subordinates and by giving considerable attention to defining roles and goals. The style was recommended for dealing with new staff, or where the work was menial or repetitive, or where things had to be completed within a short time span. Subordinates are viewed as being unable and unwilling to ‘do a good job’.
Selling (high task/high relationship behavior). Here, while most of the direction is given by the leader, there is an attempt at encouraging people to ‘buy into’ the task. Sometimes characterized as a ‘coaching’ approach, it is to be used when people are willing and motivated but lack the required ‘maturity’ or ‘ability’.
Participating (high relationship/low task behavior). Here decision-making is shared between leaders and followers – the main role of the leader being to facilitate and communicate. It entails high support and low direction and is used when people are able, but are perhaps unwilling or insecure (they are of ‘moderate to high maturity’ (Hersey 1984).
Delegating (low relationship/low task behavior). The leader still identifies the problem or issue, but the responsibility for carrying out the response is given to followers. It entails having a high degree of competence and maturity (people know what to do, and are motivated to do it).
Aside from their very general nature, there are some issues with such models. First, much that has been written has a North American bias. There is a lot of evidence to suggest cultural factors influence the way that people carry out, and respond to, different leadership styles. For example, some cultures are more individualistic, or value family as against bureaucratic models, or have very different expectations about how people address and talk with each other. All this impacts on the choice of style and approach.
Second, as we saw earlier, there may be different patterns of leadership linked with men and women. Some have argued that women may have leadership styles that are more nurturing, caring and sensitive. They look more to relationships. Men are said to look to task. However, there is a lot of debate about this. We can find plenty of examples of nurturing men and task-oriented women. Any contrasts between the style of men and women may be down to the situation. In management, for example, women are more likely to be in positions of authority in people-oriented sectors – so this aspect of style is likely to be emphasized.
Third, as Bolman and Deal (1997) comment, like Blake and Mouton before them, writers like Hersey and Blanchard focuses mainly on the relationship between managers and immediate subordinates, and say little about issues of structure, politics or symbols.
Burns (1977) argued that it was possible to distinguish between transactional and transforming leaders. The former, ‘approach their followers with an eye to trading one thing for another (1977), while the latter are visionary leaders who seek to appeal to their followers ‘better nature and move them toward higher and more universal needs and purposes’ (Bolman and Deal 1997). In other words, the leader is seen as a change agent.
The transactional leader:
Recognizes what it is that we want to get from work and tries to ensure that we get it if our performance merits it.
Exchanges rewards and promises for our effort.
Is responsive to our immediate self interests if they can be met by getting the work done.
The transformational leader:
Raises our level of awareness, our level of consciousness about the significance and value of designated outcomes, and ways of reaching them.
Gets us transcend our own self-interest for the sake of the team, organization or larger polity.
Alters our need level (after Maslow) and expands our range of wants and needs.
Bass (1985) was concerned that Burns (1977) set transactional and transforming leaders as polar opposites. Instead, he suggests we should be looking at the way in which transactional forms can be drawn upon and transformed. The resulting transformational leadership is said to be necessary because of the more sophisticated demands made of leaders. Mr. van Maurik (2001) argues that such demands ‘centre around the high levels of uncertainty experienced by leaders, their staff and, indeed, the whole organization… today’. He goes on to identify three broad bodies of writers in this orientation. Those concerned with:
Team leadership e.g. Meredith Belbin.
The leader as a catalyst of change e.g. Warren Bennis, James Kouzes and Barry Posner, and Stephen R. Covey.
The leader as strategic visionary e.g. Peter Senge
The dividing lines between these are a matter for some debate; the sophistication of the analysis offered by different writers’ variable; and some of the writers may not recognize their placement – but there would appear to be a body of material that can be labeled transformational. There is strong emphasis in the contemporary literature of management leadership on charismatic and related forms of leadership. However, whether there is a solid body of evidence to support its effectiveness is an open question. Indeed, Wright (1996) concludes ‘it is impossible to say how effective transformational leadership is with any degree of certainty. We will return to some questions around charisma later – but first we need to briefly examine the nature of authority in organizations (and the relationship to leadership).
Frequently we confuse leadership with authority. To explore this we can turn to Heifetz’s (1994) important discussion of the matter. Authority is often seen as the possession of powers based on formal role. In organizations, for example, we tend to focus on the manager or officer. They are seen as people who have the right to direct us. We obey them because we see their exercise of power as legitimate. It may also be that we fear the consequences of not following their orders or ‘requests’. The possibility of them sacking, demoting or disadvantaging us may well secure our compliance. We may also follow them because they show leadership. As we have seen, the latter is generally something more informal - the ability to make sense of, and act in, situations that are out of the ordinary. In this way, leaders don’t simply influence; they have to show that crises or unexpected events and experiences do not faze them. Leaders may have formal authority, but they rely in large part on informal authority. This flows from their personal qualities and actions. They may be trusted, respected for their expertise, or followed because of their ability to persuade.
Leaders have authority as part of an exchange: if they fail to deliver the goods, to meet people’s expectations, they run the risk of authority being removed and given to another. Those who have formal authority over them may take this action. However, we also need to consider the other side. Followers, knowingly or unknowingly, accept the right of the person to lead – and he or she is dependent on this. The leader also relies on ‘followers’ for feedback and contributions. Without these they will not have the information and resources to do their job. Leaders and followers are interdependent.
People who do not have formal positions of power can also enjoy informal authority. In a football team, for example, the manager may not be the most influential person. It could be an established player who can read the game and energize that colleagues turn to. In politics a classic example is Gandhi – who for much of the time held no relevant formal position – but through his example and his thinking became an inspiration for others.
Having formal authority is both a resource and a constraint. On the one hand it can bring access to systems and resources. Handled well it can help people feel safe. On the other hand, formal authority carries a set of expectations – and these can be quite unrealistic in times of crisis. As Heifetz puts it, ‘raise hard questions and one risks getting cut down, even if the questions are important for moving forward on the problem’ (1994). Being outside the formal power structure, but within an organization, can be an advantage. You can have more freedom of movement, the chance of focusing on what you see as the issue (rather than the organization’s focus), and there is a stronger chance of being in touch with what people are feeling ‘at the frontline’.
Before moving on it is important to look at the question of charisma. It is so much a part of how we look at leadership but is such a difficult quality to tie down. Charisma is, literally, a gift of grace or of God (Wright 1996). Max Weber, more than anyone, brought this idea into the realm of leadership. He used ‘charisma’ to talk about self-appointed leaders who are followed by those in distress. Such leaders gain influence because they are seen as having special talents or gifts that can help people escape the pain they are in (Gerth and Mills 1991).
When thinking about charisma we often look to the qualities of particular individuals - their skills, personality and presence. But this is only one side of things. We need to explore the situations in which charisma arises. When strong feelings of distress are around there does seem to be a tendency to turn to figures that seem to have answers. To make our lives easier we may want to put the burden of finding and making solutions on someone else. In this way we help to make the role for ‘charismatic leaders’ to step into. They in turn will seek to convince us of their special gifts and of their solution to the crisis or problem. When these things come together something very powerful can happen. It doesn’t necessarily mean that the problem is dealt with - but we can come to believe it is. Regarding such leaders with awe, perhaps being inspired in different ways by them, we can begin to feel safer and directed. This can be a great resource. Someone like Martin Luther King used the belief that people had in him to take forward civil rights in the United States. He was able to contain a lot of the stress his supporters felt and give hope of renewal. He articulated a vision of what was possible and worked with people to develop strategies. But there are also considerable dangers.
Charisma involves dependency. It can mean giving up our responsibilities. Sadly, it is all too easy to let others who seem to know what they are doing get on with difficult matters. By placing people on a pedestal the distance between ‘us’ and ‘them’ widens. They seem so much more able or in control. Rather than facing up to situations, and making our own solutions, we remain followers (and are often encouraged to do so). There may well come a point when the lie implicit in this confronts us. Just as we turned to charismatic leaders, we can turn against them. It could be we recognize that the ‘solution’ we signed up to has not made things better. It might be that some scandal or incident reveals the leader in what we see as a bad light. Whatever, we can end up blaming, and even destroying, the leader. Unfortunately, we may simply turn to another rather than looking to our own capacities.
4.2. HOW TO CREATE LEADERS
4.2.1. Leadership Defined
Basically, leadership is getting people to follow you. The moral and ethical considerations of leading are beyond the scope of this article, but their importance cannot be overstated. Unfortunately, much leadership is designed around a control/authority model. Many leaders, even the brightest, figure out what has to happen with things in the company, tell people what is needed for the desired results and then expect things to happen-a gross simplification of the process. You would be surprised how many leaders lead this way. In light of the psychological reality that people only do what they want to do, the current approach means that people follow and work only as hard as is necessary to avoid the consequences of disobedience. However, leadership can be a whole lot more than charting out a business strategy that others happen to follow.
The most skilled leaders ask themselves, "What can I say or do to get my followers to cause them to do what I need them to do?" The best leaders cause maximum follower ship. The art of causing follower ship is founded on a few deceptively simple principles. One of the most important of these is that people do what their minds and emotions tell them to do, not necessarily what the leader says to do. A second principle is that the follower provides the motivation. No leader can motivate others. They can only cause followers to motivate themselves. While this may seem like semantics, it is a subtle but profound shift in understanding true leadership. In short, the accomplished leader becomes adept at reading and feeding their followers' needs in a way that optimizes the organization's success.
Since leading is basically a psychological process and skill, leaders who learn and practice the latest in leadership technology will be much more effective.
And leadership skills, like management skills, can be learned and improved. However, learning the subtle technology of leadership requires dissatisfaction with the status quo, a belief that one's leadership could be better. Learning leadership means facing the inevitable discomfort of hearing negative feedback, the discipline of trying new approaches and the awkwardness of new behaviors. Yet, the rewards far outweigh the costs. Releasing the energy and motivation of your followers opens new opportunities and inevitably results in bottom line improvements. I've consistently seen productivity improve over 30 percent where an organization's leaders focused on improving their leadership and its impact on the human system.
If leadership can be taught (and it can), it can also be managed. The most progressive and successful companies are managing leaders and leadership systematically as a strategic weapon. Of course, what constitutes good leadership is context - and company – s sensitive. However, there are certain principles and models that will help you develop a robust leadership system. At Farr Associates, we develop leadership systems for clients at five levels: the individual, small group relationships, teams, company-wide and intra-company. Different leadership technology is called for at each level. Some companies will not necessarily have to manage leadership at all levels to get a significant impact in their bottom-line. I encourage you to go out and investigate what make the best sense for your organization.
The best leaders will also manage their own leadership by incorporating the three basic types of leadership-directional, implementation and interpersonal-into their thinking process. Directional leadership is strategic leadership. It is all about determining where the organization should go. Implementation leadership involves determining how the organization will make it to wherever it is headed. Interpersonal leadership involves the process of getting human resources behind organizational goals and objectives. You should integrate these three types of leadership successfully and holistically in a way that best serves followers and the organization.
Three Leadership Rules to Remember
Rule 1: You must have or develop the skill, and take the time to find out what is in the follower's mind concerning his situation and how he perceives you.
In particular, you must know what he perceives as negative. Since sensible followers are reluctant to say negative things to anyone who has power over their work lives, mapping out negative perceptions takes a good deal of leader skill. A leader can break down any reluctance to give feedback by supporting the efforts of followers to work in a way that satisfies both themselves and their company. A good leader knows and consistently uses some of the many techniques for learning follower's needs and assessing how they experience their environment. Leaders need to create and manage a system of feedback loops that keep them in permanent touch with follower mindset so they lead professionally with maximum impact.
Rule 2: To be a powerful leader, you must present your "leaderself" to others, rather than your natural self. Good leaders do not always do what comes as a natural expression of their personalities. Instead, they come from a leaderself that is designed and created to do exactly the leadership behavior called for by the situation. They fit the leader role rather than make the role fit them. It is amazing how much poor leadership occurs because leaders do what comes naturally from their personalities rather than what is needed to be effective.
Rule 3: To create an effective leaderself, you must operate from self-awareness rather than from an automatic mind. For many leaders, this is unbelievably difficult, because they are unaware of much of what they do and of the perceptions they create in others. They act on automatic, focusing attention on what they want to cause in their business, with little or no thought on what they want the follower to cause them selves to do. They lead with too much focus on what they want done, rather than from an awareness of followers' mindset. Often, the personality traits that make for effective managers can make them terrible leaders, especially once their role expands beyond leadership based on their personal charisma and implementation skills.
Principles of Leadership
To help you be, know, and do, follow these eleven principles of leadership (later sections will expand on gaining an insight into these principles and providing tools to perform them):
- Know yourself and seek self-improvement. In order to know yourself, you have to understand your be, know, and do, attributes. Seeking self-improvement means continually strengthening your attributes. This can be accomplished through reading, self-study, classes, etc.
- Be technically proficient. As a leader, you must know your job and have a solid familiarity with your employees' jobs.
- Seek responsibility and take responsibility for your actions. Search for ways to guide your organization to new heights. And when things go wrong, they will sooner or later, do not blame others. Analyze the situation, take corrective action, and move on to the next challenge.
Make sound and timely decisions. Use good problem solving, decision making, and planning tools.
Set the example. Be a good role model for your employees. They must not only hear what they are expected to do, but also see.
Know your people and look out for their well-being. Know human nature and the importance of sincerely caring for your workers.
Keep your people informed. Know how to communicate with your people, seniors, and other key people within the organization.
Develop a sense of responsibility in your people. Develop good character traits within your people that will help them carry out their professional responsibilities.
Ensure that tasks are understood, supervised, and accomplished. Communication is the key to this responsibility.
Train your people as a team. Although many so called leaders call their organization, department, section, etc. a team; they are not really teams...they are just a group of people doing their jobs.
Use the full capabilities of your organization. By developing a team spirit, you will be able to employ your organization, department, section, etc. to its fullest capabilities
Factors of leadership
The four major factors of leadership are the:
Follower - Different people require different styles of leadership. For example, a new hire requires more supervision than an experienced employee. A person with a poor attitude requires a different approach than one with a high degree of motivation. You must know your people! The fundamental starting point is having a good understanding of human nature: needs, emotions, and motivation. You must know your employees' be, known, and do attributes.
Leader - You must have a honest understanding of who you are, what you know, and what you can do. Also, note that it is the followers, not the leader who determines if a leader is successful. If a follower does not trust or lacks confidence in her leader, then she will be uninspired. To be successful you have to convince your followers, not yourself or your superiors, that you are worthy of being followed.
Communication - You lead through two-way communication. Much of it is nonverbal. For instance, when you "set the example," that communicates to your people that you would not ask them to perform anything that you would not be willing to do. What and how you communicate either builds or harms the relationship between you and your employees.
Situation - All situations are different. What you do in one leadership situation will not always work in another situation. You must use your judgment to decide the best course of action and the leadership style needed for each situation. For example, you may need to confront a employee for inappropriate behavior, but if the confrontation is too late or too early, too harsh or too weak, then the results may prove ineffective.
If you are a leader that can be trusted, then the people around you will learn to respect you. To be a good leader, there are things that you must be, know, and do. These fall under the Leadership Framework:
BE a professional. Examples: Be loyal to the organization, perform selfless service, and take personal responsibility.
BE a professional who possess good character traits. Examples: Honesty, competence, candor, commitment, integrity, courage, straightforward, imagination
KNOW the four factors of leadership - follower, leader, communication, and situation.
KNOW yourself. Examples: strengths and weakness of your character, knowledge, and skills.
KNOW human nature. Examples: Human needs and emotions, and how people respond to stress.
KNOW your job. Examples: be proficient and be able to train others in their tasks.
KNOW your organization. Examples: where to go for help, its climate and culture, who the unofficial leaders are
DO provide direction. Examples: goal setting, problem solving, decision making, planning
DO implement. Examples: communicating, coordinating, supervising, evaluating.
DO motivate. Examples: develop moral and esprit in the organization, train, coach, counsel.
James Kouzes and Barry Posner (1987, 1988) have identified specific attitudes and behaviors that outstanding leaders have in common. Exemplary leaders share the following five behavioral practices and ten commitments:
1. Exemplary leaders challenge the process. They are pioneers; they seek out new opportunities and are willing to change the status quo. They innovate, experiment, and explore ways to improve their organizations. Such leaders view mistakes as learning experiences and are prepared to meet any challenges that confront them. Challenging the process requires two leader commitments: (a) to search for opportunities and (b) to experiment and take risks.
2. Exemplary leaders inspire a shared vision. They look toward and beyond the horizon. They envision the future with a positive and hopeful outlook. Exemplary leaders are expressive; their genuine natures and communication skills attract followers. They show others how mutual interests can be met through commitment to a common purpose. Inspiring a shared vision requires leaders to commit to (a) envisioning the future and to (b) enlisting the support of others.
3. Exemplary leaders enable others to act. They instill followers with spirit-nurturing relationships based on mutual trust. Exemplary leaders stress collaborative goals. They actively involve others in planning and permit others to make their own decisions. These leaders make sure that their followers feel strong and capable. Enabling others to act requires two leader commitments: (a) to fostering collaboration and (b) strengthening others.
4. Exemplary leaders model the way. They are clear about their values and beliefs. Exemplary leaders keep people and projects on course by consistently behaving according to these values and by modeling the behaviors that they expect from others. They plan thoroughly and divide projects into achievable steps, thus creating opportunities for small wins. Through their focus on key priorities, such leaders make it easier for others to achieve goals. To model the way requires leaders to commit to (a) setting an example and (b) planning small wins.
5. Exemplary leaders encourage the heart. They encourage people to persist in their efforts by recognizing accomplishments and contributions to the organization's vision. They let others know that their efforts are appreciated and they express pride in their team's accomplishments. Exemplary leaders find ways to celebrate achievements. They nurture team spirit, which enables people to sustain continued efforts. Encouraging the heart requires leaders to be committed to: (a) recognizing contributions and (b) celebrating accomplishments.
Speaking out and taking stand is one thing, but keeping an open ear is essential. Don't assume what students want. Go out and ask all types of students for feedback, not just friends or fellow organization members.
If you are passionate about the job issues, the enthusiasm will radiate to the rest of the community. A positive attitude and optimism will also go a long way to make the task both fun and effective.
Goals are important, but providing a comprehensive plan of action that explains how to reach those goals is even more so. Parking, campus housing and the lack of school spirit and the popular issues, but they are mentioned year after year during the campaigns. Be creative and take risks in order to find new ways of accomplishing those goals.
Students should be able to trust a leader to operate ethically and with their best interests at heart. Fulfilling campaign promises and goals in vital in maintaining student loyalty and confidence.
You should have a good understanding of the dynamics of student government, how the university operates and as much about different student organizations as possible. A leader should also lead by example in the classroom. If you are too busy with student government and neglected your studies, how can you be a representative of the students, who are here to work toward a degree?
The motivation to hold office should not be for an impressive resume or to satisfy the urge for attention - it should be about getting something positive done. There are true leaders, and then there are people who grab a leadership position as a stepping stone in their career.
4.2.2. Orienting New Members
Developing and conducting an organizational recruitment campaign is very important. Yet, as we all know, retaining these new members is another matter entirely. All too frequently groups skip any form of orientation and place their new recruits directly on committees or organizational projects. Although involvement is crucial to the longevity of the group, understanding the organization's goals, objectives, structures, norms and taboos is equally as important. By taking the time to orient new members to the privileges and responsibilities of membership you create a more educated membership - people who can and will make significant contributions to the organization.
A Successful Organization Orientation Program Should Include:
- The rights and responsibilities of members
- Organizational governance, operating policies and procedures
- Organizational history, traditions and programs
- Assimilation of new members into the organization
- An overview of campus services, activities and programs for student organizations
- Information about any support groups or affiliations the group may have
The purpose of any new member orientation program is to acquaint your recruits to the organization and to each other. Knowing the ins and outs of the group is only one part of being in an organization. It is important to note that people join groups for many reasons: they want to get involved, learn new skills, make friends and have a good time. For this reason it is important to structure time for the members to get to know each other and to develop personal relationships and commitments.
This section of the orientation process should cover the organization's history, purpose and structure. If there are written records, give everyone a copy. Be sure to include organizational charts, officer job descriptions, and a membership list. Have the new members included on this list.
Get your members, returning and newly recruited, excited about the group. Provide time for them to meet each other to share ideas and expectations. Below is a good exercise designed to accomplish that goal.
Have the group break into groups of experienced and new members to discuss the following:
a) Experienced Members
- If you had last year to do over again how would you do it differently?
- What advice would you offer to the new members?
- What accomplishment(s) are you most proud of?
b) New Members
- What would you like this organization to mean to you one year from now?
- What would you like to ask the experienced members of the organization?
- What goals would you like to accomplish this year?
- What problems do you anticipate and how would you solve them?
Spend at least fifteen minutes in your group discussing these questions. When time is up gather together as one group and report what you discussed. It is usually most effective to have the experienced members report first, followed by the new members.
It is also very important to find out what the new members' interests are and what skills they bring to the group. Using this information, try to give them tasks which will successfully use their talents and give them a reason to be committed. Whenever possible, recognize members' accomplishments both publicly and privately.
By including the above suggestions in your new member orientation program you will discover that you have built group cohesion. By following these tips you will ensure:
- Members know the organization and are able to articulate its purpose.
- Members understand their rights and responsibilities to self and organization.
- Members have leadership and discipline.
An article in the November 2003 issue of Association Management, published by the American Society of Association Executives, identifies 10 communication tips that make for effective leadership, especially in hard times.
- Think before speaking. In tough times people will not only hold onto every word a leader says, but they will also expend energy to sort out precisely what leaders are not saying. Leaders need to tailor the message so that a clear picture of the issues is presented to the audience in a meaningful and controlled way.
- Stay focused by combining the short- and long-term pictures. Leaders need to be effective at sorting through the real issues. By pointing out past challenges and using specific examples to underscore their message, leaders remind others that they will pull through this time as well as in the past.
- Handle emotions effectively. Leaders need to be fluid. Leaders cannot leave or display how angry or frustrated they are. If they do, they become part of the problem.
- Be hopeful, instill hope, and do something. Leaders need to link their messages to the broader mission or vision of the organization. Leaders need to present a clear plan of how they can achieve desired end results. Leaders need to offer a positive approach for dealing with bad news.
- Recognize that quality gossip is good. When bad news needs to be delivered, people appreciate an informal heads-up in advance of a more formal gathering. This provides an opportunity for people to talk among themselves and to console each other and maybe even come up with some effective tactics.
- Be transparent when answering questions. Use simple language, address issues upfront and be willing to admit unfamiliarity or ignorance of certain questions.
- Point out successes in a timely manner. Leaders need to not only announce any successes, but link the success to the goal or vision of the organization.
- Follow through on commitments. One essential way to build and foster trust is to follow through on commitments, particularly as they relate to the vision and mission of the organization.
- Listen well. Listen for more than what’s being said; pay attention to what’s not being said and try to spot unspoken expectations that are not clearly communicated verbally or in writing. It’s about picking up on what people are thinking, how they are acting and what they are not necessarily verbalizing.
- Avoid surprises. Keep everyone informed and up to date on issues and address questions before they become problems.
The most important issue in being a success leader is being a person that others want to follow. Every action you take during your career in an organization helps determine whether people will one day want to follow you.
4.2.3. Team Organization
Over the years, Perry has seen the symptoms of poor team organization. Some projects have too many leaders, leaving only a few people to do the work and making coordination difficult. Other projects have too many layers of management, impeding effective communication; team members become frustrated, waiting for all the leaders to reach agreement or gain approvals. To augment frustration levels, tasks frequently are unclear, lacking definitions of roles and responsibilities. Good organization makes sense; yet project managers often give too little attention to organizing their group.
Frequently, teams are an assembly of people and nothing more. Some project managers fear alienating people by setting up a project organization. Others lack an appreciation for its contribution to project success. Still others have a preference for an unofficial organizational structure.
Through the function of organization, Perry can realize many advantages. His team can operate more efficiently, since responsibilities and reporting relationships will be clearly defined. It can operate more effectively, because each person will know what is expected of him or her. The team has higher morale, because roles and reporting relationships will be clear which in turn reduces the opportunities for conflict.
Ten Prerequisites for Effective Organization
Perry must satisfy some preliminary requirements to build a formal organization, especially one that handles medium to large projects like his:
1. He must know the project goals. This knowledge will help to determine how to best arrange his resources.
2. He must know all the players. This knowledge will help him to determine who will support him directly and who will provide ad hoc support.
3. He must understand the political climate. Although the team may be temporary, the project may be around for a long time.
4. He must receive preliminary concurrence on the project organization from all the major players
5. He must determine the appropriate span of control. This means determining how many people he can effectively manage before establishing an additional layer of management (e.g., appointing team leaders).
6. He must publish the organization chart as early as possible. This action will clarify roles early and reduce the opportunity for conflict. It will also make assigning responsibilities easier.
7. He must consider how much autonomy to grant people on the project. This will depend on how much control he wants to maintain. If he wants tight control, he will limit the autonomy he grants to project participants.
8. He must consider issues of authority, responsibility, and accountability. How much authority will he have and how much can he grant? How much responsibility can he relinquish and still be accountable for the results?
9. He must consider how to group the functions of the project team. Should he mix them or segregate them? If the latter, how will he encourage information sharing, communication, and teaming?
10. He must identify the line and staff functions. The goal of the project will help determine the positions. Line functions contribute directly to the results; these are typically people on the core team. Staff functions do not contribute directly to the results and ordinarily they are not part of the core team.
Types of Organizational Structure
There are two basic types of organizational structures for a project: task force and matrix. The task force structure is shown in Exhibit 1.
The task force is a group of people assembled to complete a specific goal. The team is completely focused on that goal and, consequently, devotes its entire energies to its accomplishment. By its very nature, task forces are temporary; the team is disassembled once the goal is accomplished. It also usually operates autonomously, with its own budget and authority.
Exhibit 4.1. Task force structure.
The task force has the advantage of giving visibility to a project. It isolates team members from organizational myopia and frees them from daily administration. It enables creativity and experimentation within the confines of the goal and scope of the project.
Despite these advantages, Perry does not like the task force structure, at least for the Smythe Project. Since a task force would last for only a fixed duration, there’s a danger that few people would have loyalty to the project and stay the course. As the project experiences difficulties, some people might depart early, leaving it vulnerable to schedule slippages and lapses in quality.
As the project grows, too, it can become too independent, “stealing” people from other projects. Other organizations and projects are robbed of badly needed expertise. As a project ends, the task force may experience severe morale problems, as people scramble for new jobs before completing their responsibilities.
It is not uncommon for a project to experience lapses in quality as a result.
Keeping these shortcomings in mind, Perry agrees with his boss that a matrix structure is best for the Smythe Project. A matrix structure obtains resources from functional organizations and also shares those people with other projects. For command and control purposes, people report to their functional managers but support one or more project managers. A generic matrix structure is shown in Exhibit 4.1 and the one for the Smythe wedding is shown in Exhibit 4.2.
The matrix structure offers several advantages. It allows for sharing people with heavy expertise among several projects. People don’t need to look for a new job as the project concludes. The project manager can acquire people with the right skills at the right time, thereby reducing the need to keep people on when they are not needed; this helps keep the cost lower. The matrix structure also gives senior management flexibility in changing the scope or stopping the project owing to different market conditions.
Perry realizes, though, that a matrix structure presents challenges. It makes planning difficult, especially if projects are sharing resources. Often, he must negotiate with functional and other managers to obtain people’s help.
Exhibit 4.2. Matrix structure.
A matrix structure can wreak havoc on morale, too. Team members on multiple projects may be forced to determine which project to give attention to. Sometimes the competition is so keen that individuals become pawns in a power struggle among functional and project managers. That struggle can last a long time, adding to team angst. Finally, the matrix structure often violates the unity-of-command principle (a single superior to who subordinates report).
To tackle these challenges, Perry recognizes the stress a matrix structure places on team members. He will coordinate closely with functional and other project managers to facilitate availability and try to integrate his project with other projects. He will encourage greater communication, information sharing, and bonding.
Finally, he will stress flexibility; change is a way of life in the matrix environment, since priorities and resource availabilities constantly change.
Recent advances in information systems have brought unparalleled changes to business, not just technically but also in managing projects. These changes include e-mail, the Internet, groupware, and client-server technology. Technologies such as these have enabled team members to work autonomously at remote locations during all time periods (e.g., mornings, evenings). But a project team may never meet face-to-face with some people and will only interact electronically. That is the nature of virtual teams.
There are many advantages to a virtual team. It reduces the need for expensive facilities. Team members feel greater freedom, working with less supervision. A side benefit is a flatter organization chart, too.
While sounding like a dream come true, reality may provide a different picture. Virtual teams can pose tough challenges. The first is how to provide support for these virtual team members. There are issues concerning hardware and software, plus administrative matters such as accessibility to the project library and ways of collecting information nonelectronically.
Second is how to overcome the purported loneliness that affects some virtual team members. Many work alone, in remote geographical locations. Their opportunities for social interaction and camaraderie are limited.
Third is the challenge of coordinating the activities of team members. With members geographically dispersed and in different time zones, coordination can be a nightmare. Since oversight is difficult, project managers cannot closely monitor work. Similarly, communication usually involves more than e-mail. There must be a way to discuss major project activities.
Some ways to handle these challenges include:
• Conducting frequent face-to-face meetings and holding social gatherings
• Developing objective ways to measure performance and completion criteria
• Empowering people to assume responsibility and accountability for results
• Establishing time commitments for team members to respond to each other
• Providing a standard suite of hardware and software tools
Special Weapons and Tactics (SWAT) teams are a growing presence in project management. These are small groups of individuals who are experts not just in project management but also in other subjects. In the sense that their objective is to move quickly to complete their mission and pull out, these groups are like the police SWAT teams from which they get their name. Specifically, a project SWAT team must quickly set up the appropriate project management and technical disciplines at the beginning of a project. Once the disciplines have been established, the team relinquishes control to a project manager and his group, who are responsible for completing the project.
SWAT team work is intense. By the time its work is completed, it will have developed and implemented a complete project plan, from estimates to schedules.
Although hard skills (e.g., expertise with software and hardware) are important, soft skills are important, too.
For example, SWAT team members must solicit buy-in for their work. Active listening, facilitation, communication, and teaming skills are extremely important. Also important is the ability to keep calm under pressure and a willingness to share equipment, expertise, or information.
To use SWAT teams effectively:
1. Obtain support for the work of a SWAT team by follow-on teleconferencing sessions; otherwise, the team’s effort will be wasted.
2. Be aware that working on a SWAT team can cause burnout. Morale and energy levels can plummet.
3. Provide constant training for SWAT team members. They must keep abreast of technologies in order to provide state-of-the-art expertise. Cross-training can help, but only so far.
4. Select people for the SWAT team who can handle ambiguity. Members must be willing to tackle projects when goals and deliverables are ill defined.
Self-Directed Work Teams
In recent years, a different approach to building teams has emerged, called a Self-Directed Work Team (SDWT). SDWT’s are teams that have considerable autonomy while building a product or delivering a service. It is a group of professionals sharing responsibility for results.
These teams are cross-functional, meaning that people with different disciplines and backgrounds work together to achieve a common goal. The team decides everything, from setting priorities to allocating resources. Other actions include selecting people, evaluating performance, and improving processes. The key characteristic is the autonomy to make decisions without supervisory approval.
Several trends are pushing toward the SDWT concept because these teams:
• Create flatter organizations
• Empower employees
• Encourage greater teaming
• Encourage people to have a more general background
• Enlarge spans of control
SDWT’s are excellent candidates for applying project management ideas. Since the entire team is responsible for the results, all members must help lead, define, plan, organize, control, and close the project. The tools and techniques of project management enable teams to do that.
A team is more than just a group of people doing work. It is an assembly of individuals with diverse backgrounds who interact for a specific purpose. The idea is to capture and direct the synergy generated by the group to efficiently and effectively achieve a goal. Throughout the years, Perry has witnessed many signs of ineffective teams.
Characteristics of Poor Teams
• No processes for gaining consensus or resolving conflicts. Team squabbles and overt and covert discussions are ongoing occurrences, making cooperation difficult, even impossible.
• Team members who lack commitment to the goal. No one has an emotional attachment to the goal.
• No camaraderie or esprit de corps. The players do not feel that they are part of a team. Instead, everyone acts in his or her own interests.
• Lack of openness and trust. Everyone is guarded, protective of his or her own interests. Openness and truthfulness are perceived as yielding to someone, giving a competitive advantage, or exposing vulnerabilities.
• Vague role definitions. The reporting structures and responsibilities are unclear, causing conflicts. Territorial disputes and power struggles occur often.
• No commonality or cohesiveness. The team is an unorganized grouping of people. No one feels a sense of community or brotherhood. No common ground exists other than to meet periodically to work. This results in lost synergy.
• Conformity and mind protection. Insecurity permeates people for fear of being different or ostracized. People do not speak or share information unless it reinforces behavior or thoughts.
• Low tolerance for diversity. The pressure to conform is so intense that anyone different in thinking or work style is ostracized or not taken seriously. Whistle-blowers and creative types, for instance, may be viewed with suspicion. Under such circumstances no opportunity is available to capitalize on people’s strengths and address their weaknesses.
• Insufficient resources. Whether its people, equipment, supplies, facilities, time, or money, insufficient resources make teams ineffective. The situation can also lead to squabbling, dissention, even revolts. If resources are not distributed in an objective, meaningful manner, then differences can magnify into severe conflicts. Members of the team can quickly become polarized.
• Lack of management support. If team members perceive—whether justifiably or not—that management is not supportive of the project, then motivation can plummet. People will feel that the work is not valuable, at least to the organization.
• Listless team members. The goals are vague or nonexistent. Even if the goals are defined, no one, including the project manager, seems to focus on them. Instead, everyone is aimless.
• Discontinuity between individual expectations and group expectations. There is a misalignment between the two, with the latter not valuing the former. A symbiotic relationship between the two just does not exist.
An ineffective team is conflict ridden, filled with distrust, unfocused, and reeking of negative competition.
These conditions manifest themselves in high turnover and absenteeism, considerable frustration levels, poor communication, no esprit de corps, and intolerance.
Perry wants, of course, a project team with desirable characteristics:
Characteristics of Effective Teams
• Acceptance of new ideas and objective evaluation of them
• Sustained common norms, values, and beliefs without excessive conformity
• Synergy through mutual support
• Loyalty and commitment to the project
• Focus on end results
• A trusting, open attitude
• Ability to gain consensus and resolve conflicts
• High morale and esprit de corps
• Information and resources sharing
Perry knows all too well that a team with these characteristics is difficult to achieve. Yet he also knows that such characteristics will not arise unless he takes action. There are seven actions that he takes to engender such characteristics:
1. He sets the example. He not only espouses certain values and beliefs but also exercises them. He wants people to be trustful and open, so he is trustful and open. He expects people to be committed, so he is committed. In other words, he “walks the talk.”
2. He encourages communication—oral, written, and electronic. He knows that communication is more than writing memos, standing in front of a team, or setting up a Web site. It requires sharing information in an open and trusting manner, holding frequent meetings (status reviews and staff), publishing a project manual, defining acronyms and jargon, employing technology as a communications tool, and encouraging task interdependence.
3. He has the team focus on results. They direct all their energies toward achieving the vision. Whether he or the team makes a decision, it is made in the context of achieving the vision. Perry constantly communicates the vision and establishes change control and problem-solving processes.
4. He engenders high morale and esprit de corps by developing and maintaining the energy that comes from teaming. He knows, however, that he must continually nurture that energy to keep it flowing. So he empowers team members, encourages consensus building and win-win solutions, increases task interdependence, matches the right person with the right task, and teams people with complementary work styles.
5. He builds commitment to the vision and the project. Throughout the project cycle, team commitment can rise or fall. Ideally, Perry wants to achieve the former. Ways to do that include matching people’s interests with tasks, encouraging participative decision making, empowering people, seeking input and feedback, assigning people with responsibility for completing deliverables, and keeping the project in the forefront of everyone’s mind.
6. He lays the groundwork for synergy. A team is more than the sum of its members. But synergy requires cooperation. Ways to obtain cooperation include providing cross-training so that people understand each other’s roles and responsibilities, clearly defining roles and responsibilities, determining each team member’s strengths and weaknesses and making assignments that capitalize on the former, and having groups within the team be accountable for a complete work unit (e.g., subproduct or deliverable).
7. He encourages greater diversity in thinking, work style, and behavior. Always mindful of the danger of groupthink, Perry encourages different thoughts and perspectives. He is especially aware of the multicultural environment of the Smythe Project. The project culminates in Italy and, therefore, requires working with people from another country. The Smythe family also has many friends around the world who will attend the wedding. To ensure receptivity to diversity, Perry uses cross-training and job rotation to broaden people’s understanding of each other, encourages experimentation and brainstorming to develop new ideas and keep an open mind, seeks task interdependence to encourage communication, and nurtures a continuous learning environment.
With globalization of the economy in general and the Smythe Project in particular, Perry recognizes that the challenge of leading a diversified team has never been greater. The team members have a variety of backgrounds, including race, ethnicity, and religion. Leading a team in such an environment requires heightened sensitivity to different values, beliefs, norms, and lifestyles.
Perry understands that people vary in their concept of time, ways of doing business, styles of management and leadership, and views of how the world functions. He also understands that differences exist in the meaning of words (semantics), interpretation of expressions (body language), perception of priorities, and definition of team building. Needless to say, all this diversity adds complexity to the planning, coordination, and control of the project. He knows, however, that he can deal with diversity in several ways.
1. He sets the example by embracing diversity. Through research, background reviews, interviews, and the like, Perry learns about the diverse backgrounds of the people and encourages everyone to do the same.
2. He is patient when dealing with people of a different background. He remains conscious of different values and beliefs, for example, and accounts for them when leading the project.
3. He overcomes the temptation to stereotype. That is, he avoids generalizing about people based on one characteristic. He also tackles stereotyping by team members. An effective approach is to have people with different backgrounds work together. He can also have the team, with himself, attend diversity training to understand and respect differences.
4. He has empathy for other people’s experiences. The word is empathy, not sympathy, since the latter connotes patronization and condescension. He attempts to appreciate, for example, the difficulties in reconciling different perceptions of time.
5. He encourages feedback. He is especially mindful to obtain feedback from people whose cultural background is dramatically different from his own or from the rest of the team. This lessens the tendency for the team to split into subgroups.
What Is Your Team-Building Style?
Decide-X, a Bellevue, Washington, company, provides a scientific tool—also called Decide-X—to measure how much information a person needs before reaching a decision.
According to Decide-X, people deal with team-building situations in ways that reflect their needs and desires, as well as their preferences in dealing with direction, change, details, and other characteristics of a work situation. There are four primary styles:
• Reactive Stimulators thrive on action and the immediate. They prefer situations or projects that are fast-moving and have lots of pressure.
• Logical Processors thrive on logical detail while maintaining focus. They prefer situations and projects with organizational structure.
• Hypothetical Analyzers like to solve problems using decomposition to unravel complexity. They prefer situations and projects that provide a relatively slow pace to perform analysis.
• Relational Innovators deal in ideas from a big-picture perspective and find relationships or patterns. They prefer situations and projects that involve blue-skying and move at a pace that allows them to do that.
From a project management perspective, the Decide-X tool is very useful. Different combinations of styles on a project team can influence the level of detail that goes into making a decision and how quickly it is done. For example, if you put a Reactive Stimulator and a Relational Innovator on a task, the questions will arise:
- Will decisions be made quickly with little attention to detail (as may be needed), or will they be made much more slowly, to allow for exploration of detail?
- Will the Reactive Stimulator and Relational Innovator cooperate, or will they conflict?
Decide-X differs from other approaches, which focus only on the individual, because it looks at the interactions of people.
4.3.1. The Will to Work
What one would like to do is to create a working environment in which people like working and in which people work well, a working environment, which helps to enrich the life of those who work. One would like to satisfy the requirements of those who work and of those who employ as well as the requirements of the community as a whole.
It could be that 'motivating' seems such a complicated subject because it deals with people and people are all different. But when people are all different then the one thing they have in common is that they are all different and that is a good starting point. A simple model of motivation is illustrated in exhibit 4.3.1.
Much has been written about motivation. When determining the motivation of those who direct in the United Kingdom it seemed to take as long to read up on the background of what is commonly called 'motivation' and summaries it in a few short paragraphs as it took to carry out the rest of the investigation.
Exhibit 4.3.1. A simple model of motivation.
'Motivation' views the commitment of the individual to work and to his workplace from the point of view of factors originating within him, from the point of view of individual needs, likes and preferences.
But one cannot talk about 'motivation' or 'motivating' as such without clearly stating what one is attempting to persuade people to do (exhibit 4.3.2). The salesman is not just 'motivating' but aims to persuade his prospective customers to make the purchase. Management is not just 'motivating' but is aiming to persuade its employees to increase output and/or to reduce costs so as to improve profitability.
Exhibit 4.3.2. Hierarchy of Needs.
We see that 'motivation' is closely concerned with the center of controversy, with the sharing out of income and wealth between those who work and those who employ. There is at present considerable danger of the whole subject coming into disrepute as some employers attempt to use it to persuade employees to increase profits without corresponding gains for the employees themselves.
But there are other ways of looking at the will to work, namely from the point of view of the individual and from that of the community. Consider the point of view of the individual. Some time ago I wrote about some of the incentives necessary to motivate professional employees to higher productivity. I then said that frustration arises from the work they are asked to do, from the way in which it is organized, from the lack of incentive to do well. What was needed was to utilize the potential of those who are not working at full capacity and ability, and to provide corresponding incentive payments for professional experience and excellence, in other words for knowledge, skill and experience.
So what we are looking at is the reaction of those who are employed to the impact of the style of management at work, that is to the way in which they are being treated at work, to the responsibility which they carry, to the extent to which work is imposed on them, to the extent and way in which they are rewarded for the work they do.
4.3.2. Payment by Results, Productivity Bargaining and Profit Sharing
Employees are paid with money and can be seen to be working for money. Hence pay can be related to output, the so-called payment- by-results system. Management provides incentives, management rewards effort.
In any kind of payment-by-results system, the fundamental considerations are how the workers' pay depends on the output achieved and on the extent to which he shares in the increased value he produces.
It seems that in the Unites States roughly 10% of employees respond to incentive schemes. The other 90% hold back, restricting output in response to the style of management, perhaps because increased rate of output with resulting increased earnings in the past soon resulted in the rates being cut back so that workers had to work at the higher rate but gained less, or because inflation eroded the value of their earnings.
However, there is little point in paying according to increased production when the rate of production is determined by the speed of the assembly belt or by the process, since these are not under the direct control of the worker. This is happening more frequently in highly industrialized societies, say when considering automated production lines or when introducing robotics computer-controlled processes.
Where payment by results cannot be applied because the process is already highly controlled or operating at fixed speed then productivity bargaining is used which aims to introduce economies by different methods of working, sharing the gains with the work force in some negotiated proportion.
Increasing productivity means more than increasing output, means that capital equipment and men are more fully utilized, that goods are being produced more cheaply because overheads are lower in addition to the lower capital cost per unit produced.
But the argument again is about the extent to which the additional profits are shared between management and employees.
However, the reward of company directors:
- 'Should relate to work done and to responsibility carried. Remuneration should depend on results, based on profit, through profit-sharing. The aim should be to motivate towards better performance.' and
- 'Directors consider they could share in the capital growth of the company, through share ownership and by way of share purchase and option schemes. Share ownership is regarded as assisting direct involvement while providing incentive through dividends and capital gain.'
The result aimed at is profit and the incentive is a share of the results obtained. Those who run organizations themselves would like to have a share in the enterprise, feel that common ownership assists involvement.
Sisk looks in some detail at whether there is a relationship between 'job satisfaction' and productivity. Herzberg considers that 'feelings of self-improvement, achievement, and the desire for the acceptance of greater responsibility' are more important than money for persuading people to increase productivity. He interviewed American engineers and accountants and on the whole they appear to have been quite frustrated. Sisk says that 'job satisfaction is but one of several factors making up the complex of needs ... and, as yet, there is no demonstrable relationship between job satisfaction and productivity'.
This means that there are other additional factors, which need to be considered.
Remuneration, Job Satisfaction and Motivation
An investigation into the motivation of company directors isolated motivating factors from those, which were dissatisfying. All the factors are money factors; consist of material rewards. Directors first and foremost work for remuneration and want a greater share of the benefits of ownership.
Interesting is that the question of job satisfaction just did not arise to any significant extent. On the whole the directors were satisfied with the work they were doing. Generally in position of considerable responsibility, they are aware that success or failure of the enterprise they direct depends on the decisions they make and that others are aware of this. Hence they may well be working for the greater power and luxury which wealth brings.
Herzberg considered job satisfaction was motivating but that money is not. But we have just seen that at least as far as directors are concerned, money is motivating and job satisfaction is not.
Directors have all the job satisfaction they need or want. They carry considerable responsibility and success often depends on individual effort. They have nicely and often luxuriously furnished offices, dine in the directors' dining room, have the benefit of a company car and last but not least work with pleasant colleagues in a pleasant way. It is because they have all the job satisfaction they want that money is important to them.
The American accountants and engineers investigated by Herzberg were, like other American professional employees and managers, considerably frustrated with the style of management and hence the importance of self-improvement, achievement, and the desire for greater responsibility as motivating factors. Money is of secondary importance to those who are frustrated but the need for job satisfaction is felt according to the degree of their frustration.
One wants that which one does not have, one works to achieve that which one needs and this could be either job satisfaction or money. The devout minister may leave his congregation and work in industry or teach because his pay as a minister is too low; the nurse will go on strike for the same reason. In both cases we see that job satisfaction in itself is not enough if one is paid too little. The teacher will go on strike for extra pay although teaching also can be very satisfying work. On the other hand the engineer may be so frustrated with the work he is doing, with the way the company's work is organized and with the way people work together at his place of work, that he will find another job even if this means a drop in income.
If one assumes that the worker is only working for the money he earns, then payment by results on its own would seem logical. But if money is important only up to the point where basic needs are satisfied then job satisfaction becomes more important. Both job satisfaction and money are needs dependent on which one of these one is deprived of or is looking for.
Hence the following definition of 'motivation', of what people will work to achieve:
'Motivation towards better performance depends on the satisfaction of needs for responsibility, achievement, recognition and growth.
Needs are felt, and their intensity varies from one person to another and from time to time, and so does the extent to which they are motivating.
Behavior is learned, earned reward encourages even better performance, thus reinforcing desired behavior.'
It is what one does not have that one wants, one works to achieve that which one needs. Hence if we know what people need and want then we know what they will work for, and like working for, and so work well to achieve.
Attaining goals leads to feelings of self-respect, strength and confidence.
Few people are able to continue a pattern of achievement and success without the added encouragement provided by others recognizing their achievements.
Continued failure and frustration and defeat can result in feelings of inadequacy and a withdrawal from competitive situations.
Persistent lack of rewards leads to a view of society as being hostile and unrewarding.
It is what one does not have that one wants, one works to achieve that which one needs.
Needs and Wants People Strive to Achieve
We have seen that the professional employee's pay increases with age. It does so because he absorbs and applies experience, because he then has the opportunity to use his enlarged knowledge and experience by working at a higher level, being paid more correspondingly. The rate at which his pay increases depends not only on his ability but also on the work and positions open to him, on the scope and opportunity provided by his employer or by the work he can find.
Hence what the individual wants and expects from the job, from the management, is to be given challenging work, to be backed by management and colleagues in carrying it out, and then to be rewarded by being given the chance to utilize the experience gained by being given the opportunity to work at a higher level with correspondingly higher pay.
The individual will generally progress according to a specific remuneration 'grade line' of his own. Remuneration grade lines give the norm for individuals of a particular trade or profession at their own level of ability and success. When an individual's level of working and income drop below his line then he is falling behind colleagues of his own age doing similar work elsewhere and feels this and becomes frustrated. Frustration on the part of an individual, and his finally leaving the work unit, are both detrimental to the performance of the work unit.
Progress according to these remuneration grade lines is the norm, is the way in which others doing similar work at the same age are in fact progressing.
The individual becomes aware of and assesses any changes away from his remuneration grade line. Moving up and moving down are felt to be promotion and demotion, respectively, relative to colleagues of same age working in the same profession at the same level. Those progressing according to their remuneration grade line are fulfilling their expectation, those improving their position feel that they are doing well; both generally feel satisfied with their own progress relative to their colleagues.
People are aware of their own position in the community, of the pecking order and of their place in it. Changes are noticed and felt. Indeed people are often intensely concerned about the threat of increasing differentials and about whether they are moving up or down, gaining or losing.
In other words, people strive to maintain their position, in this way striving to receive their share of the increasing national income and wealth.
In addition people are both aware of and concerned about the large differences in the standard of living, which exist between different countries. Their commitment to their own community depends on the style of management and on the success of the community, depends on the extent to which the community serves them and satisfies their needs. In other words, people will strive for the community to the extent to which they see it as satisfying their needs or as a means for satisfying their needs.
Hence we can now look at the range of needs and wants people strive to achieve.
First there are certain basic needs which have to be satisfied if people are to exist and survive, such as:
- Shelter and food, clothing and warmth,
- Affection and esteem,
- Friendly and trustful co-operation and companionship,
- Security from external threats (i.e. protection from attack).
Then other needs make themselves felt, such as:
- Independence from domination by others (e.g. because of need).
- Security from internal threats.
- Housing, education, good health.
- Help when in need.
- Constructive leisure activities.
To which we can add the ones we have just discussed, namely:
- Challenging work, which means scope to work at increasing levels of skill and usefulness and thus of pay, to the maximum of one's ability.
- Maintaining and the chance for improving, one's position relative to colleagues.
- Recognition of success by others (leads to feeling of self- respect, strength and confidence).
- Fair share of the national income and wealth.
- Fair share of the international income and wealth.
These then are the needs and wants people strive to achieve, indeed struggle to achieve. People will co-operate with each other, will work hard and well to satisfy these needs and gain much satisfaction from doing so.
4.3.3. The Struggle for Independence and a Good Life
Now if you look again at the list of needs and wants then the one thing which stands out is that they are not special. This is what people need and want, this is what people are striving to achieve and nowadays this people could have. And yet all around we see people struggling at the different stages to achieve the next step.
That progress arises only as the result of struggle is expressed in many different ways. Consider it from the point of view of the workplace. No matter how paternal the company, the employees know that whatever they are getting arises from the self-interest of the employer and is likely to be the result of confrontation and of a balance between negotiating strengths. And yet commitment to the objectives of the owners and directors, for example a company's objectives, comes from the extent to which the company serves its employees, comes from the extent to which it helps them to achieve their needs and wants.
We saw again and again, in the reports on the style of management and on work and pay, that there is no real conflict of interest between those who lead and those who work. What we saw was that what is good for the employees is good for the owners, that what is good for the people is good for the leadership, that what benefits the people also benefits the leadership.
When co-operation pays so handsomely, how come that we see so much confrontation and struggle, how come that all around us we see progress being achieved only as the result of struggle.
What stands out is that the confrontation is not between employers and employees, between management and labor, between state and citizens since there are companies, enterprises and administrations which have the backing and co-operation of those who work with and for them. The confrontation and struggle appear to be against those who wish to run enterprises and wish to organize society on authoritarian lines, appears to be a struggle against authoritarian minds.
There is a point of balance within each organization or administration and in the democracies this ranges from 'authoritarian' to the fully participative common ownership enterprise. However, to understand the causes of the confrontation and struggle, let us look at the confrontation between fully authoritarian owners or rulers and their employees or people; let us look at what people do to achieve their needs and wants by seeing what it is that people struggle for.
Authoritarian owners and rulers (no matter whether 'left' or 'right') wish to dominate and control employees and people for the sake of personal income, wealth and power. Employees and people counter this by behaving in ways, which encourage trustful co-operation and co-operate with each other.
The 'community' includes all and in this context people organize their affairs and administration on participative lines to safeguard their independence and to achieve their individual and common aims.
It is this, which underlies democracy, and authoritarian minds (examples being owners as well as rulers) confront and struggle with communal institutions so as to take them over and make them serve themselves instead of the people, instead of serving the policy-making body.
This means that the two sides confront each other not just at the place of work but in all communal institutions. It is because of this that people's needs and wants are achieved only as the result of struggle.
4.3.4. People Work Willingly for What They Need and Want
In the previous two sections we saw just what people need and want and strive to achieve and that their needs are only satisfied and that their wants are only achieved as the result of struggle, as the result of struggle for independence and a good life.
We also saw that the struggle takes place in all aspects of life and while the confrontation in, and the struggle for control of, communal institutions is discussed in more detail in appendix 1, we can now fit the parts together to form the complete picture.
The whole struggle is described and illustrated by figure 3 'Peoples' Needs and Wants, Achievements and Objectives: The Struggle for Independence and Good Life'. It lists the aims and methods of the authoritarian mind, of those who wish to oppress so as to exploit. It also lists what individuals are striving to achieve, that is their needs and wants. What we have seen is that people have to struggle all the way and the illustration also shows what has already been achieved in democratic countries and what remains to be achieved.
What I have described here is a list of needs and wants and thus policy aims, the successive achievement of which gives a sequence and a measure of noted and felt progress which should give a feeling of forward movement, growth and satisfaction.
However, one's resources are generally limited and one needs to decide how to allocate funds between main areas such as (a) economic growth, (b) national security, (c) an internal rising standard of living combined with (d) a liberalization from authority, towards greater freedom both in government and in the work place, combined with (e) ever greater participation in policy setting in government as well as in the work place.
The knowledge, methods, techniques and measures described in this set of reports enable one to obtain a favorable balance between the requirements of those who lead and those who work.
Independence for some may mean self-employment with guaranteed independence but for others may mean the right to work (employment) and pay.
People strive for satisfying work, for social security and for independence; want to be masters of their own destiny through self- employment. They would like the community to back the individual in this, the individual in turn contributing to the community so that it can help others and protect all.
One needs to be concerned about the value placed on different kinds of work, for example about the extent to which those who are well paid serve the rulers or owners instead of the community, about internal differentials and about the extent to which the style of management at the place of work and countrywide is authoritarian, not forgetting that in an emergency an authoritarian organization can work well but that precautions need to be taken at all times against the authoritarian mind taking over participative institutions and organizations.
One has to go beyond this and consider not only one's own position within one's own community but that of one's own community within the world at large, consider the extent to which some countries are exploiting others. We are not just concerned about an unequal division of land, of the means of production (i.e. capital) but need to include profiteering from raw materials. And this means that there have to be certain limits beyond which differentials may not be allowed to increase. This applies equally well between countries as it does within a country between different levels or occupations.
There are at present some important and crucial areas in which the community is under attack from within and where the community needs to defend itself to ensure its safety and to regain its strength. Some of these are discussed in the report, which deals with the question of social responsibility.
Motivation views the commitment of the individuals (we have to take into account that all the people are different) to work and to this workplace from the point of view of the factors originating within himself, from the point of view of individual needs, likes and preferences.
There are certain basic needs which have to be satisfied if people are to exist and to survive:
- -shelter and food, clothing and warmth;
- -affection and esteem;
- -friendly and trustful co-operation and companionship;
- -security from external threats (i.e. protection from attack).
Then other needs make themselves felt, such as:
- -independence from domination by others (e.g. because of need);
- -security from internal threats;
- -housing, education, good health;
- -help when in need;
- -constructive leisure activities.
To which we can add the followings:
-challenging work, which means scope to work at increasing levels of skill and usefulness and thus of pay, to the maximum of one's ability;
- -maintaining, and the chance for improving, one's position relative to colleagues;
- -recognition of success by others (leads to feeling of self- respect, strength and confidence);
- -fair share of the national income and wealth;
- -fair share of the international income and wealth.
After achieving one step of the needs, people will try to achieve more. This is the human nature. But this is a different matter because the people are different from one another and their needs are different. But for example if a worker is satisfied with the payment he receives after his work, maybe he will try to achieve (look) satisfaction in work.
We can try giving a definition of motivation, and try to understand what people will work for to achieve:
- Motivation towards better performance depends on the satisfaction of needs for responsibility, achievement, recognition and growth.
- Needs are felt, and their intensity varies from one person to another and from time to time, and so does the extent to which they are motivating.
- Behavior is learned, earned reward encourages even better performance, thus reinforcing desired behavior.
- It is what one does not have that one wants, one works to achieve that which one needs. Hence if we know what people need and want then we know what they will work for, and like working for, and so work well to achieve.
- Attaining goals leads to feelings of self-respect, strength and confidence.
- Few people are able to continue a pattern of achievement and success without the added encouragement provided by others recognizing their achievements.
- Continued failure and frustration and defeat can result in feelings of inadequacy and a withdrawal from competitive situations.
- Persistent lack of rewards leads to a view of society as being hostile and unrewarding.
- It is what one does not have that one wants, one works to achieve that which one needs
4.3.5. Payout policy in the 21st century
The world has changed since the 1950s, and dividend policy is no exception. In this paper, we survey and interview financial executives to better understand how payout policies are determined almost 50 years after Lintner’s study. Given the nature of the changes and the development in the field, we expand our analysis beyond dividends and investigate repurchases as well. Moreover, unlike Lintner, we have 40 years of theoretical work to guide our analysis, so our paper is able to shed some light on managers’ motives to pay out as well as on payout theories.
Despite extensive empirical work on payout policy and dividend policy in particular, the motives behind what is reported in many studies are still not well understood. For example, despite the growing popularity of repurchases (Grullon and Michaely, 2002) and the fact that dividends are being paid by fewer firms, some companies still pay substantial dividends. Why do some firms substitute repurchases for dividends and others do not? And at the same time, why have many public companies never paid dividends, and will they ever start? At the present time, academia does not fully understand total payout, let alone the recent shifts in the form of payout. In light of this, it is not surprising that Brealey and Myers (2002) list the “dividend controversy” as one of the ten most important unsolved d problems in finance.
We investigate these questions using a combination of field interviews and traditional surveys. By using these methods, we are able to address issues that traditional empirical work based on large archival data sources cannot. Another unique aspect of our survey is that we ask many identical questions about both dividends and repurchases, which allows us to compare and contrast the important factors for each form of payout. Overall, our field interviews and surveys provide a benchmark describing where academic research and real-world dividend policy are consistent and where they differ.
Our analysis indicates that maintaining the dividend level is a priority on par with investment decisions. Thus, along this dimension, our results parallel Lintner’s in that managers express a strong desire to avoid dividends cuts, except in extraordinary circumstances. For firms that currently pay dividends, hesitancy to cut leads to dividends that are sticky, smoothed from year to year, and linked to permanent changes in profitability. Beyond maintaining the level of dividend per share, payout policy is a second-order concern for modern corporations, and is considered after investment and liquidity needs are met. In contrast to Lintner’s era, managers are more reluctant to increase dividends in tandem with earnings increases and they no longer view the target percentage of earnings paid out as dividends as the primary decision variable. Also in contrast to Lintner’s time, repurchases are now used extensively.
Managers view repurchase policy to be more flexible than dividend policy and make repurchase decision after investment decisions have been made. In addition to the desire for flexibility, there are several other factors that stand out as influencing repurchase policy. Some executives believe that they can time the market with their repurchase decisions, so they accelerate repurchases when they believe their stock price is low. CFOs also are very conscious of how repurchases affect earnings per share (consistent with the findings of Bens, Nagar, and Skinner (2002)). Finally, companies are likely to repurchase out of temporary earnings increases or when good investments are hard to find.
We also learn about when, if ever, firms that do not currently pay dividends or repurchase shares might begin to do so. Surprisingly, among firms that do not currently pay out, 70 percent say they never plan to initiate dividends, and more than half say they do not plan to repurchase shares. Among those that say they w ill pay out eventually, the overwhelming majority say they will use repurchases.
The most important factors influencing the decision to eventually pay out are equity undervaluation and extra cash (repurchases) and sustainable increases in earnings (dividends).
Executives also tell us that they believe that dividends and repurchases convey information to investors. However, as we document below, this information conveyance does not appear to be consciously related to signaling in the academic sense. Managers strongly reject the notion that they pay dividends as a costly signal to convey their firm’s true worth. They also do not believe that their dividend policy can be used to separate their firm from the competition. Overall, we find little support for both the assumptions and resulting predictions of signaling theories that are designed to explain payout policy, at least not in terms of the conscious decisions executives make about payout.
While there is some evidence that repurchases are being used to reduce excess cash holdings (consistent with Jensen’s (1986) free cash flow hypothesis), there is no evidence that managers use payout policy to attract a particular investor clientele that may monitor their actions (as in Allen, Bernardo and Welch, 2000). Executives believe that dividends are attractive to individual investors but that dividends and repurchases are equally attractive to institutions. In general, executives make no effort to use payout policy as a tool to alter the proportion of institutional investors among their investors. Thus, it is unlikely that dividend policy can be explained as a means of attracting institutional investors.
We find that the role played by taxes in determining payout policy is only of second-order importance. Managers are aware of the tax advantage of repurchases relative to dividends, especially for individual investors. Yet, they maintain that this is not an important factor in their decision about whether to pay dividends, to increase dividends, or even in the decision between payout in the form of repurchases or in dividends. A follow-up survey conducted in February 2003, after the Bush administration proposed to eliminate dividend taxation, reinforces the second order importance of differential taxation on payout policy. More than two-thirds of the executives on that survey say that elimination of dividend taxation would definitely not or probably not affect their dividend decisions.
Our main survey contains responses from 384 financial executives. The survey analysis is based on a moderately large sample and a broad cross-section of firms, which allows us to perform standard statistical tests. At the same time, the survey accommodates very specific and qualitative questions.
One advantage of the survey is that we can ask a large number of questions. In total, we gather information on approximately 125 questions.
In addition to the survey, we separately conduct 23 one-on-one interviews. The interviews complement the survey information along several dimensions. Interviews allow us to ask open-ended questions, so the respondent’s answers can dictate the direction of the interview (versus pre-chosen questions in the survey). Interviews also allow for give-and-take and clarifications, which are not possible with a traditional survey. Using the combination of the surveys and interviews, we are able to ask many questions, while at the same time gain a deep understanding of the factors that are most important to payout policy from the perspective of corporate financial managers.
The field study approach is not without potential problems. Surveys and interviews measure beliefs and not necessarily actions. In addition, field studies may face the objection that market participants do not have to understand the reason they do things for economic models to be valid (Friedman’s (1953) “as if” thesis). This may be particularly acute in our study because we ask corporate managers about both the assumptions and predictions of specific theories.
Friedman’s “as if” thesis basically says that it is unimportant whether the assumptions of a particular economic model are valid, or whether economic agents understand why they take certain actions, as long as the theory can predict the agents’ actions.
That is, the “as if” approach cannot address issues of cause and effect. One goal of our paper is to better understand why certain actions are taken, and therefore part of our analysis scrutinizes the “realism of the assumptions” that underpins many academic models.
Furthermore, the existing empirical evidence does not offer strong support for the current dividend theories (see Allen and Michaely (2002) for a survey of this literature). Hence, scrutiny of stated assumptions is important to theorists for two reasons. First, following Friedman, our results can potentially provide for an even wider range of assumptions than have been used so far, some of which might lead to improved predictability. Second, for those who favor more realistic assumptions, our ability to distill which assumptions are deemed important by managers, and thus relevant to their decisions, has the potential to lead to better explanatory models.
General information about the practice of payout policy
Payout decisions are part of the finance function of corporations. Typically, the CFO or Treasurer forms a dividend recommendation that is passed along to the CEO for approval. The recommendation that emerges from the CEO’s office is presented to the Board of Directors, usually for quick approval.
To some extent this indicates minimal boar d involvement in dividend decisions. This is reasonable because, as we describe below, corporations rarely make the type of aggressive or surprising changes in payout policy that would require board scrutiny.
Repurchases follow a similar approval process. One difference is that the board typically gives annual or semi-annual approval for the maximum amount of repurchases that can be made in the coming quarters or years. (Occasionally, under unusual market conditions, the board will give quick approval to raise this ceiling).
During the interviews, most managers indicate that their firms employ a mechanical open market repurchase strategy combined with a certain amount of judgment.
There are exceptions to this mechanical process, like when the executive thinks the company’s stock price is particularly low or liquidity dries up, in which case repurchases might be accelerated or delayed.
How important are payout decisions relative to investment and financing decisions?
It is clear from the interviews that most aspects of payout decisions are of second-order importance relative to the operating decisions of the firm. Though they would not phrase it this way, the executives feel that Modigliani and Miller (1958) and Miller and Modigliani (1961) were not far off in emphasizing that firm value is largely driven by operating decisions. Moreover, this viewpoint is apparently long-standing. On the survey, we asked the executives whether payout was as important today to the valuation of their companies, relative to 15 or 20 years ago. On a scale from –2 to +2, their answers averaged almost exactly zero, indicating no change in importance.
We also explicitly ask where payout decisions fit into the hierarchy of the investment and capital structure planning process. Financial executives view their chief objective as providing adequate capital and liquidity to allow their companies to make opportune and strategic investments. To fund these investments, they use a combination of profits and external capital. After these investments and external financing decisions are made and adequate cash is preserved to handle future contingencies, the companies then return capital to investors via dividends or repurchases. This depiction implies that payout decisions are of second or third order importance. However, there is one important exception.
The executives consider the continuation of the existing level of dividends as (nearly) untouchable, considering the preservation of dividends equal to, and in some cases more important than, investment decisions.
Are dividends and repurchases substitutes, complements, or neither?
In the interviews, executives indicate that they do not think in a direct and conscious way about whether repurchases substitute for dividends. For one thing, the possibility of cutting the level of dividends to increase repurchases is not even contemplated. For another, as we indicate below, dividends are thought of as primarily being paid from permanent cash flows, while repurchases might also emanate from temporary excess cash flows. It is also true, however, that many companies do not attempt to increase dividends at the same rate earnings growth, and the money that could have been dedicated to dividend increases is often instead used to repurchase shares. Therefore, repurchases are substituted for forgone increases in dividends, and in this sense the two forms of payout are substitutes.
This “repurchases in place of forgone dividends” substitution is to some extent confirmed by survey evidence. On the survey we ask what firms would do with the extra funds they would have if they cut dividends. The most popular answer, chosen by approximately one-third of the respondents, is that they would pay down debt. The second most popular answer was to repurchase shares (followed by invest more and perform mergers and acquisitions), which is consistent with the substitution of repurchases for dividends. However, this is a “one-way substitution.” When we ask what they would do with the extra funds from reducing repurchases, very few firms would choose to pay dividends, so there is almost no evidence of substitution away from repurchases towards dividends.
Finally, we ask firms what form of payout they would choose if they were hypothetically paying out for the first time. In the interviews, it was clear: once free of the tradition of paying dividends, most firms would emphasize repurchasing shares. That is, once all constraints are removed, they would substitute repurchases for dividends (i.e., many firms would replace existing dividends with repurchases if they felt they could).
Factors affecting payout policy
Our study has one significant (and unfair) advantage over Lintner’s. Namely, we can use the insights the profession has gained from 40 years of related theory and empirical work. Since Miller and Modigliani (1961) showed that corporate value is invariant to payout policy in perfect and frictionless capital markets, numerous theories have been put forth that demonstrate how payout policy can affect firm value if one or more of the Miller and Modigliani assumptions is violated. In this section, we present our findings within the context of these theories, to determine which are most consistent with management views in the 21st century. Within each theory, we discuss how various factors affect payout practice in general, and highlight when the implications differ between dividends and repurchases.
The relative tax disadvantage of dividends relative to repurchases is often cited as an explanation for the recent growth in the share of payout dedicated to repurchases (e.g., Grullon and Michaely, 2002). The executives we interviewed frequently cite tax inefficiency as a factor that causes them to favor repurchases over dividends. However, when we ask dividend-payers why they do not reduce dividends (or increase them less) because of tax inefficiency, it becomes clear that investor-level taxes are not a dominant factor. Several executives mention that despite the tax-disadvantage of dividends, for whatever reason, individual investors nonetheless prefer dividends. In addition, certain situations can exist for which dividends are not tax disadvantaged. In one case, the firm we interviewed was more than 80 percent owned by another public corporation, in which case dividends are not tax disadvantaged thanks to the dividends received deduction. In other cases, the primary investors in a company’s stock are taxed equally between dividends and capital gains.
Information, signaling, and stock prices
Miller and Modigliani (1961) assume complete and perfect capital markets and that all investors have the same knowledge. If insiders have better information about the firm’s future cash flows, many researchers suggest that dividends might convey information about the firm’s prospects. The first possibility is that dividends may simply convey information not previously known to the market; for example through the sources and uses of funds identity (e.g., Miller and Rock (1985)). Managers do not necessarily have an intention to signal – their action simply conveys information. Alternatively, according to several models, dividends can also be used explicitly and deliberately as a costly signal to change market perceptions concerning future earnings prospects (e.g., Bhattacharya (1979), Miller and Rock (1985), John and Williams (1985), Allen et. al. (2000)).
The questions we ask the survey participants address both types of issues. We ask CFOs whether they think there is some association between dividend changes (or repurchases) and information. We then further investigate whether they use dividends (or repurchases) as a signaling device.
Credit ratings and capital structure
An emerging trend identified from the interviews, but not documented by Lintner (1956), is that many firms pay close attention to the rating agencies and to their debt rating when they make payout decisions. Firms are reluctant to increase dividends or repurchase shares if that would reduce their debt ratings. In fact, some firms even consider cutting their dividend to prevent a rating downgrade.
This is especially true for companies with a financial division because a reduced rating might eliminate them from certain kinds of business or the CP market, as well as substantially increase their cost of capital. This also factors into why companies might not repurchase shares when the price is low: At that very moment they hoard cash in part to convince rating agencies that they can weather a negative spell.
One piece of survey evidence strongly supports the importance of managing debt (which in turn affects credit ratings) with payout policy. Figures 3A and 3B show that “pay down debt” is the most popular use of funds that would otherwise be used to repurchase or pay dividends. However managers do not claim to actively use repurchases or dividends to manage debt ratios. Approximately 25 percent of respondents say that they use dividends or repurchases as a tool to manage credit ratings. Notably, however, high debt firms are significantly more likely to use payout to manage credit ratings. Similarly, only 30.3 percent of firms say that they use repurchases to move their debt-to-equity ratio close to their desired ratio. This response is relatively more popular among large, highly-levered firms.
4.4. Communication in organization
4.4.1. Communication and the Manager’s Job
How important is communication? Consider this: Managers spend at least 80 percent of every working day in direct communications with others. In other words, 48 minutes of every hour is spent in meetings, on the telephone, or talking informally while waking around. The other 20 percent of a typical manager’s time is spent doing deskwork, most of which is also communication in the form of reading and writing.
Communication permeates every management function described in Chapter 1. For example, when managers perform the planning function, they gather information; write letters, memos, and reports and then meet with other managers to explain the plan. When managers lead, they communicate with subordinates to motivate them. When managers organize, they gather information about the state of the organization and communicate new structures to others. Communication skills are fundamental part of every managerial activity.
What is communication?
Before going further, let’s determine what communication is.
A professor at Harvard once asked a class to define communication by drawing pictures.
Most students drew a manager speaking or writing. Some placed “speech balloons” next to their characters; others showed pages flying from typewriter.
“No”, the professor told the class, “none of you have captured the essence of communication. He went on to explain that communications means “to share” – not “to speak” or “to write”.
Communication thus can be defined as the process by which information is exchanged and understood by to or more people, usually with the intent to motivate or influence behavior.
Communication is not just sending information. This distinction between sharing and proclaiming is crucial for successful management. A manager who does not listen is like a used – car salesperson who claims, “I sold a car – they just did not buy it.” Management communication is a two – way street that includes listening and other form of feedback.
Effective communication, in the words of one expert, is as follows:
When two people interact, they put themselves into each other’s shoes, try to perceive the world as the other person perceives it, try to predict how the other will respond. Interaction involves reciprocal role taking, the mutual employment of empathetic skills. The goal of interaction is the merger of self and other, a complete ability to anticipate, predict, and behave in accordance with joint needs of self and other. It is the desire to share understanding that motivates executives to visit employees on the shop floor or eat breakfast with them. The things managers learn from direct communications with employees shape their understanding of the corporation.
4.4.2. The Communication Process
Many people think that communication is simple because they communicate whit out conscious thought or effort. However, communication is usually complex, and the opportunities for sending or receiving the wrong message are innumerable. How often have you heard someone say, “But that’s not what I meant”? Have you ever received directions you thought were clear and yet still go lost? How often have you wasted time on misunderstood instructions?
To more fully understand the complexity of the communications process, note the key elements outlined in Exhibit 4.4.1. Two common elements in every communications situations are the senders and the receiver.
Exhibit 4.4.1. A Model of the Comunication Process.
The sender is anyone who wishes to convey the idea or concept to the others, to seek information, or to express a thought or emotion.
The receiver is the person to whom the message is sent. The sender encodes the idea by selecting symbols with which compose a message. The message is the tangible formulation of the idea that is sent to the receiver. The message is sent through a channel, which is the communication carrier. The channel can be a formal report, a telephone or a face to face meeting.
The receiver decodes the symbols to interpret meaning of the message.
Encoding and decoding are potential sources for communications errors, because knowledge, attitudes and background act as filters and create “noise” when translating from symbol to meaning. Finally feedback occurs when the receiver responds to the sender’s communication with a return message. Without feedback, the communication is one – way, with feedback, it is two – way (real communication – dialogue)
Feedback is a powerful aid to communication effectiveness, because it enables the sender to determine whether the receiver correctly interpreted the message.
Employers around the world watch the show and call in their questions and comments. The television is the channel trough which Treybig sends his encoded message. Employees decode and interpret the message and encode their feedback, which is sent through the channel of the telephone hookup.
The communication circuit is complete.
Similarly Tom Monaghan, president of Domino’s Pizza, maintains communication channels with employees when he fields complaints for two hours during a monthly “call in”. Monaghan also maintains toll free numbers with which employees call him directly.
4.4.3. Communicating Among People
The communication model in Exhibit 4.4.1 illustrates the components that must be mastered for effective communication. Communications can break down if sender and receiver do not encode or decode language in the same way. The selections of communication channels can determine whether the message is distorted by noise and interference. The listening skills of both parties can determine whether a message is truly shared. Thus, for managers to be effective communicators, they must understand how interpersonal factors interaction between people.
An important point for managers to understand is that perceptual differences are natural but can distort messages and create noise and interference for communications. Each person has a distinct personality and perceptual style hence each interprets messages in a personal way.
Managers should remember that words can mean different things to different people and should not assume they already know what the other person or the communication is about.
4.4.4. Communications Channels
Managers have to choice of many channels through which to communicate to other managers or employees.
A manager may discuss a problem face to face or use telephone, write a memo or letter, or put an item in a newsletter, depending on the nature of the message.
Recent research has attempted to explain how managers select communication channels to enhance communication effectiveness. The research has found that channels differ in their capacity to convey information. Just as a pipeline’s physical characteristic limit the kind and amount of liquid that can be pumped through it, a communication channel’s physical characteristics limit the kind and amount of information that can be conveyed among managers. The channels available to managers can be classified into a hierarchy based on information richness.
Channel richness the amount of information that can be transmitted during a communication episode. The hierarchy of channel richness is illustrated in Exhibit 4.4.2.
The capacity of an information channel is influenced by three characteristics:
- The ability to handle multiple cues simultaneously
- The ability to facilitate rapid, two – way feedback
- The ability to establish a personal focus for the communication.
Exhibit 4.4.2. Hierarchy of Channel Richness.
Face to face discussion is the richest medium because it permits direct experience, multiple information cues, immediate feedback, and personal focus. Face to face discussion facilitates the assimilation of board cues and deep, emotional understanding of the situation.
You can look someone in the eyes and you can tell by the look in his eyes or the inflection in his voice what the real problem or question or answer is.
Telephone conversations and interactive electronic media, such as video conferencing and electronic mail, lack the element of “being there.” Eye contact, gaze, blush, posture, and body language cues are eliminated. Written media are personalized, such as memos, notes, and letters can be personally focused, but they convey only the cues written on paper and slow to provide feedback.
Impersonal written data, including fliers, bulletins and standard computer reports, are the lowest in richness. These channels are not focused on a single receiver, use limited information cues and do not permit feedback.
Channel selection depends on whether the message is routine or non-routine.
Non-routine messages typically are ambiguous, concern novel events, and impose great potential for misunderstanding. Non-routine messages often are characterized by time pressure and surprise. Managers can communicate non-routine messages effectively only by selecting rich channels. On the other hand, routine communications are and straightforward.
Routine messages convey data or statistics or simply put into words what managers already agree on and understand.
Routine messages can be efficiently communicated through a channel lower in richness.
Written communication also should be use when the audience is dispersed or when communications is “official” and a permanent record is required.
Exhibit 4.4.3. Ten Keys to Effective Listening
4.4.5. Organizational Communication
Another aspect of management communication concerns the organization as a whole.
Organization-wide communications typically flow in three directions: - downward, upward and horizontally.
Managers are responsible for establishing and maintaining formal channels of communication in these three directions. Managers also use informal channels, which mean they get out of their offices and mingle with employees.
4.4.6. Formal Communication Channels
Formal communication channel are those that flow within the chain of command or task responsibly defined by the organization. The three formal channels and the types of information conveyed in each are illustrated in Exhibit 4.4.4.
Exhibit 4.4.4. Communication in Organizations.
4.4.7. Downward Communication
The most familiar and obvious flow of formal communication, downward communication,
Downward communication is the messages and information sent from top management to subordinates in a downward direction. The president of Tenneco, for example, sends bulletins to his vice – presidents who in turn send memos to their subordinates.
Ronald Del Mauro, CEO of Saint Barnabas Medical Center in Livingston, New Jersey, launched a series of quarterly “state of the hospital” addresses to employees. Using astonishing candor, Del Mauro and other executives attract a standing – room – only audience to the Center’s 500 – seat auditorium. Managers can communicate downward to employees through speeches, messages, in company publication, information leaflets tucked into pay envelopes, material on bulletin boards, and policy and procedure manuals.
Downward communications in an organization usually encompasses the following topics:
- Implementation of goals, strategies and objectives. Communicating new strategies and goals provides information about specific targets and expected behaviors. It gives directions for lower levels of the organization.
Job instructions and rationale. These are directives on how on to do a specific task and how the job relates to other organizational activities. Example: “Purchasing should other the bricks now so the work crew can begin construction of the building in two weeks.”
- Procedure and practices. These are messages defining the organization’s polic, rules, regulations, benefits and structural arrangements.
- Example: “After your firs 90 days of employment, you are eligible to enroll in our company – sponsored saving plan”.
- Performance feedback. These messages apprise how well individuals and departments are doing their jobs. Example: “Joe, your work on the computer network has greatly improved the efficiency of our ordering process “.
- Indoctrination. These messages are designed to motivate employees to adopt the company’s mission and cultural values and to participate in special ceremonies such as picnics and United Way campaigns.
The major problem with downward communication is drop off the distortion or loss of message content. Although formal downward communication are a powerful way to reach all employees, much information gets lost – 25 percent or so each time a message is passed from one person to the next. In addition, the message can be distorted if it travels a great distance from its originating source to the ultimate receiver.
4.4.8. Upward Communication.
Formal upward communication includes messages that flow from the lower to the higher levels in the organization’s hierarchy. Most organizations take pains to build in healthy channels for upward communication. Employees need to air grievances, report progress and provide feedback on management initiatives. Coupling a healthy of upward and downward communicating ensures that the communication circuit between managers and employees is complete. Five types of information communicated upward are:
- Problems and exceptions. These messages describe serious problems with and exceptions to routine performance in order to make senior managers aware of difficulties.
- Suggestions for improvement. These messages are ideas for improving task – related procedures to increase procedures to increase quality or efficiency.
- Performance reports. These messages include periodic reports that inform management how individuals and departments are performing.
- Grievances and disputes. These messages are employee complaints and conflicts that travel up the hierarchy for a hearing and possible resolution.
- Financial and according information. These messages pertain to costs accounts receivable, sales volume, anticipated profits, return on investment and other matters of interest to senior managers. Example: “Costs are 2 percent over budget, but sales are 10 percent ahead of target, so the profit picture for the third quarter is excellent”.
Many organizations make a great effort to facilitate upward communication.
Mechanism includes suggestion boxes, employee surveys, open – door polices management information system reports and face to face conversations between workers and executives.
For example, Ronald Del Mauro of Saint Barnabas Medical Center introduced a series of monthly breakfast meetings between himself and employees. Long Island Company initiated a series of focus groups that provide employees an opportunity to comfortably express their deepest concerns about their jobs to upper managers. A group meets at every six weeks and formless information directly to senior managers.
Despite these efforts, however, barriers to accurate upward communication exist. Managers may resist hearing about employee problems, or employees may not trust managers sufficiently to push information upward.
4.4.9. Horizontal Communication.
Horizontal communication is the lateral or diagonal exchange of messages across peers or coworkers. It may occur within or across departments. The purpose of horizontal communication is not only to inform but also to request support and coordinate activities. Horizontal communication falls into one of three categories:
Intradepartmental problem solving. These message take place between members of the same department and concern task accomplishment.
Example: “Betty can you help us figure out how to complete this medical expense report form?”
- Interdepartmental coordination. Interdepartmental messages facilitate the accomplishment of joint projects or tasks.
Example: “Bob please contact marketing and production and arrange a meeting to discuss the specifications for the new subassembly. It looks like we may not be able to meet their requirements.”
3. Staff advice to line departments. These messages often go from specialists in operation research, finance or computer service to line managers seeking help in these areas.
Example: “Let’s go talk to the manufacturing supervisor about the problem he’s having interpreting the computer reports.”
A manager spends at least 80% of its working time on a day in direct communication with others.
Management communications is a two – way street that includes listening and other form of feedback.
Communication is very complex and the massage transmitted could be wrong understood by the receiver. In a any communication we have a sander and a receiver. The sender transmit a information to the sender which can be a emotion, a thought which is convert in a message, the receiver receive the message and try to understand the message, by decoding the symbols and interpret the meaning of the message, and here can appear errors.
The message is sent through a channel, which is the communication carrier.
The channel can be a formal report, a telephone or a face to face meeting.
Communication can break down if sender and receiver do not encode or decode language in the same way.
Each person has a distinct personality and perceptual style hence each interprets messages in a personal way.
Communication channel are diverse. Manager has to choice the adequate communication channel to transmit information to the employers.
The capacity of an information channel is influenced by three characteristics:
- The ability to handle multiple cues simultaneously
- The ability to facilitate rapid, two – way feedback
- The ability to establish a personal focus for the communication.
Organization – wide communications typically flow in three directions: downward, upward and horizontally.
Downward communication refers at communication from managers to inferior employers from decisional power point of view.
Horizontal communication means to communicate with other colleague, employers with the same decisional power
Communication to a superior manager whit superior decisional power means upward communication.
As messages used in downward communication can be a performance feedback, or indoctrination.
In upward communication the following message are used:
- Problems and exceptions, suggestion for improvement, performance reports, grievances and disputes, financial and according information.
In horizontal communication made between coworkers the following messages appear:
- Intradepartamental problem solving
- Interdepartamental coordination
- Staff advice to line departments
Communication is the key in understanding in any domain of utilization, even in life. The real communication is “to shear” thought, emotions, feelings, by languages which are nothing else than instruments of communications.
Home Work I
Company (firm) - ½ page
- The object of activity (CAEN code)
- The center (the address)
- Used materials
- Delivery the merchandise
Layout- 1 page
- Mark the place of labor
Job description- 3 pages
- Critical description of a certain position (according to our choice- company/job)
Conclusions (leading, organizing, planning, motivation) - ½ page
Name, juridical form, localization, working time
The limited company name is: …….. S.R.L
………… S.R.L company is the Romanian juridical person, having the juridical form of limited responsibility concern. This one, progress the activity in conformity with Romanian lows and with the present statute.
The company localization is fixed at the only one associate residence, Romania, Brasov, street: ………. no. 15. The company localization can be changed only if the associates …………………… are agree. In order to extend the activities, the company can build, buy and rent other areas, by opening branches or subsidiaries inside or outside the country.
The company working time is unlimited, starting with the date when the company is subscribed in the Trade Register.
The activity objective of the company
The activity objective of the company is: the “…………. S.R.L” company has the main activity objective the repairing and reconditioning of the period cars.
The subscribed social capital verves at ……… bank, having the total sum of 30000 euro and the receipt no.134567 is divided in …. social parts, each one of 10000 euro.
The only one associate can increase the social capital.
The company administration
The only one administrator represents the company,
The company administrator has the following responsibilities:
-takes compulsory decisions concerning the company activity;
-represents the company in relations with the people, sign the papers, takes the whole company responsibility;
-is looking for the well functioning of the company and those patrimony;
-employ wage workmen and assigns those salaries regarding the legal dispositions, social insurance, work safety and so on;
-depose the asked situations and responds of that exactness;
The financier-economical exercise starts when the company is created. The company workers employ is done inside the organization scheme with individual working agreements, which are recorded at Working Room.
The administrator of the company determines the garrison rights and obligations.
The basic stock amortization is paid by applying the amortization norms to the basic stock acquisition values and are included depends the case.
From the basic stock acquisition values understands the sum of buying and other effectuated spends for running the basic stock.
The capital repair works will be effectuated on base of administrator decision.
The necessary basic stocks will be assured by including the respective spends, depends on case.
The company, through the administrator, will allow the audit in lions and will make annually the balance and the benefit and losses cost, seeing the methodological norms elaborated by the Finance Department.
PROTELCO S.R.L company, can be modified or dissolved if the only one associate wants.
Company dissolving is done in conditions and by taking care of procedures shown by law 31/1990.
The administrator of the company will take care by creating of the constitutional formalities, by the legal publication of the company foundation, by paying of whole taxes and casually spends in conformity with company record, accounting in those cont.
The company lawsuits with physical or juridical Romanian persons are of competence of the Romanian tribunal.
The lawsuits appeared in contractual reports between the company and the juridical persons can be resolved by arbitrate. In this case the only one associate can chose the competence of the arbitrate commission from Industry and Trading Room of Romania.
The lawsuits of the personal employed by the company are resoled in conformity with the own legislation from Romania.
This statute is filled with the legal dispositions referring at commercial companies.
6.1. Company staff:
- Total number of employs: …
- Administrative employs: …
- Service employs: ….
6.2. Placement sketch:
6.3. The main dealers of reserve parts and machines
The company is connected to the electrical power network, water and canalization of Brasov town.
6.4. Market information
6.4.1. Local market
In this moment, in Brasov is no company with the activity object of reconditioning the very old cars.
6.4.5. Main customers:
The ……….. Company S.R.L. has signed contracts with different clients which collects old cars and with some companies from ``……`` domain.
Next are presented the present costumers and potentials clients, knowing that the company purpose is to enlarge.
6.4.3. Competitors estimation
There are no competitors in Brasov country the domain of auto reconditioning and for painting and tinner, the service is well done.
Services and products promotions
The services promotion will be done at the begining with all the ways that doesn’t cost, and for those with costs, we assign a budget of 300 euro for the first year.
- Media advertising 300 euro
- Web site accomplishing free
- Services exhibition
- Handout conception, handled to
the specialized magazine free
- The capacity of the company
in founding new clients
- Challenging prices
- Stabile relations with the
Investment evaluation and of the monthly expense
Monthly expenses achieved with company maintenance are:
Rent 200 euro
Maintenance 100 euro
Electricity 300 euro
Phone bill 200 euro
Materials 700 euro
Salary fond 2500 euro
and advertising 300 euro
Oil 100 euro
Total spending 4125 euro/month
For this investition there were necessary the following:
ARO with it’s platform for car’s transport 7000 euro
Lathe 5000 euro
Air compresseur 3000 euro
Milling machine 4000 euro
Grinder machine 4000 euro
Paint pistole 100 euro
2 flexes 100 euro
Interior arrangement 350 euro
Brakes testing tools 2000 euro
Noxe testing tools 500 euro
Engine diagnoses tools 200 euro
Devices used in pulling up the car 1000 euro
Tools and other accessories 1000 euro
Welding device 300 euro
2 computers 700 euro
Audio system 200 euro
Resources 550 euro
Total spending of 30.000 euro/month.
To obtain the finance it needs to be done a bossow from the bank, for a period of 3 years and with an interest of 11 %.
D = C * (1+r)³ - C = 30000*(1+0.11)³ - 30000 = 11000 euro / 36 months
Month rate = 41000 / 36 months = 1139 euro / month
Month spending = 4125 euro + 1139 euro = 5264 euro / month
Month incomes > Month spending + Month spending * 10 %
Month incomes > 5264 + 5264 * 10 %
Month incomes > 5790 / month
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