CH-4-7 Managing Decision Making – Fundamentals of Management : Chapter Notes

This Document Contains Chapters 4 to 7 Chapter 4 Managing Decision Making CHAPTER SUMMARY This chapter deals with managerial decision making and problem solving. As noted in Chapter 1, decision making relates to all management functions. However, it most closely relates to planning, so we discuss it here in the planning section of the book. LEARNING OUTCOMES After studying this chapter, students should be able to: 1. Define decision making and discuss types of decisions and decision-making conditions. 2. Discuss rational perspectives on decision making, including the steps involved. 3. Describe the behavioral aspects of decision making. 4. Discuss group and team decision making, including its advantages and disadvantages and how it can be more effectively managed. The chapter opening case profiles the quest of Paul Katzeff, the founder of Thanksgiving Coffee Co. to bring public attention to the American embargo on Cuban products. Many of Katzeff’s competitors sell Cuban coffee although such coffees are not from Cuba. Katzeff doesn’t do that but, instead, sells “End the Embargo Coffee” to bring awareness to American policy and also uses part of the proceeds to help humanitarian organizations. Management Update: The company’s website http://www.thanksgivingcoffee.com/ provides details about the various activities that the company is involved in and the company’s blog site makes for an interesting read. Management Update: The Obama administration’s December 2014 announcement of plans to restore diplomatic relations with Cuba may provide interesting opportunities for managers alert to regulatory changes. LECTURE OUTLINE I. The Nature of Decision Making A. Decision Making Defined Decision making is the act of choosing one alternative from among a set of alternatives. The decision-making process includes recognizing and defining the nature of a decision situation, identifying alternatives, choosing the “best” alternative, and putting it into practice. Teaching Tip: Make sure students see the subtle distinctions between decision making and the decision-making process. B. Types of Decisions A programmed decision is one that is fairly structured or recurs with some frequency (or both). Teaching Tip: Provide students with an example of a school-related programmed decision that affects them. For example, course offerings, enrollment limits, and exam schedules are often set using programmed decision rules. Extra Example: Walmart is another example of a firm that relies heavily on programmed decision making. Whenever inventory levels of various products drop below a predetermined level, replacements are automatically ordered. Nonprogrammed decisions are relatively unstructured and occur much less often than a programmed decision. Group Exercise: Ask student groups to identify three examples each of programmed and nonprogrammed decisions that they have recently made or been affected by. C. Decision-Making Conditions 1. Decision making under certainty occurs when the decision maker knows with reasonable certainty what the alternatives are and what conditions are associated with each alternative. Teaching Tip: Stress the fact that few management decisions are actually made under a condition of certainty. For example, it is impossible to know with certainty what competitors will do, what new technology will be developed, and so forth. 2. Decision making under risk occurs when the availability of each alternative and its potential payoffs and costs are all associated with probability estimates. 3. Decision making under uncertainty occurs when the decision maker does not know all the alternatives, the risks associated with each, or the consequences each alternative is likely to have. Global Connection: Much of the foreign expansion that firms are doing today is characterized by uncertainty. For example, point out to students how social, political, and economic risk in foreign markets all contribute to uncertainty. Group Exercise: Break students up into small groups. Have each group identify examples they have recently faced that illustrate each decision-making condition. II. Rational Perspectives on Decision Making A. The Classical Model of Decision Making The classical decision model is a prescriptive approach that tells managers how they should make decisions. It assumes that managers are logical and rational and that their decisions will be in the best interests of the organization. Teaching Tip: Be sure to note the distinction between classical decision making, as discussed here, and the classical management perspective covered in Chapter 1. B. Steps in Rational Decision Making Rational decision making keeps the decision maker focused on facts and logic and helps guard against inappropriate assumptions and pitfalls. Teaching Tip: Note the details in Table 4.1. The table shows the general steps involved in the rational decision-making process and provides examples of each step. Interesting Quote: Charles Knight, former CEO of Emerson Electric, constantly stressed the need to be rational, logical, and dispassionate when making decisions. Recently, the firm decided to update and automate their back-office processes, such as engineering and sales, to match the efficiency the firm had already obtained in manufacturing. Ron Orcutt, an Emerson vice president, said, “We knew that automating our current, wasteful processes was not a good investment. Our experience in the factory also convinced us that a sound, rational approach could reduce the office cycle time.” 1. Recognizing and defining the decision situation is the first step in rational decision making and occurs when the individual recognizes that a decision is necessary. Then the problem must be defined clearly and fully. Extra Example: In the 1990s, Kmart defined its decision situation as a need to recover from a prolonged slump and to begin regaining lost sales and profits. 2. Identifying alternatives involves specifying the alternative courses of action that might be effective. Companies should look for both obvious and creative solutions. Extra Example: Kmart saw its primary options as (1) selling off its specialty store businesses to raise cash, (2) selling off its discount operations and concentrating on specialty retailing, or (3) maintaining the status quo. 3. Evaluating alternatives requires evaluating the alternatives generated in step 2. Each alternative should be evaluated according to its feasibility, satisfactoriness, and affordable consequences. Extra Example: Kmart evaluated each of its three options using the criteria discussed in the text. Option 1 was found to be feasible, satisfactory, and have affordable consequences. Option 2 was not feasible because no buyer would be likely to pay what the firm needed. Option 3 was feasible, but management knew that it was not satisfactory to shareholders. 4. Selecting an alternative is the crux of decision making. One can select the alternative with the highest combined level of feasibility, satisfactoriness, and affordable consequences, or one can optimize on one criterion. Extra Example: Based on its evaluation of the alternatives, Kmart made the decision to sell off its specialty stores. The plan was to use the cash generated by those sales to upgrade the firm’s discount stores and to try to become more competitive with Walmart. 5. Implementing the chosen alternative means taking action to put the chosen alternative into practice. Extra Example: The first things Kmart did to implement its chosen course of action were to spin off its OfficeMax and Sports Authority businesses and to sell its 21.5 percent stake in Coles Myer, an Australian retailer. The next step was to spin off Kmart’s other retailing operations—Borders, Waldenbooks, and Builders Square. The firm was now free to focus its attention and energies on its core business, discount retailing. However, even these strategic moves were not enough to help Kmart turn around its declining market position. The company merged with Sears in 2005 and is today a part of Sears Holding Corporation. In effect, two weakened companies (Kmart and Sears) decided that their best bet was to combine their resources. 6. Following up and evaluating the results is important to make sure that the chosen alternative has served its purpose. If it has not, corrective measures must be taken. Group Exercise: Have students research whether Kmart’s merger with Sears has improved its competitive position. C. Evidence-Based Management Evidence-based management (EBM) advocates a five-step process. First, face the hard facts. Second, be committed to basing decisions on facts. Third, treat your organization as an unfinished prototype. Fourth, Look for the risks and drawbacks in what people recommend. Finally, avoid basing decisions on untested beliefs, past solutions, or uncritical “benchmarking” of what winners supposedly do. III. Behavioral Aspects of Decision Making A. The Administrative Model In contrast to the classical model, the administrative model argues that decision makers have incomplete and imperfect information, are constrained by bounded rationality, and tend to “satisfice” when making decisions. Teaching Tip: Emphasize that the rational and administrative models of decision making are not mutually exclusive. Indeed, most decisions are made using ingredients from both models. 1. Bounded rationality suggests that decision makers are limited by their values and unconscious reflexes, skills, and habits. They are also limited by less-than-complete information and knowledge. 2. Satisficing is the tendency to search for alternatives only until one is found that meets some minimum standard of sufficiency. Decision makers satisfice when they do not conduct an exhaustive search for the best possible alternative. Discussion Starter: Ask if students think that satisficing is always a bad thing. In fact, so long as high-quality alternatives are being considered, satisficing is an efficient way to make decisions. Group Exercise: Have students examine their own personal choices regarding college and major in terms of bounded rationality and satisficing. B. Political Forces in Decision Making A coalition is an informal alliance of individuals or groups formed to achieve a common goal, which is often a preferred decision alternative. Coalitions often play an important role in decision making in organizations. Discussion Starter: Ask students if they have ever been part of a coalition that determined the outcome of a decision. C. Intuition and Escalation of Commitment Intuition and escalation of commitment are processes that go beyond logic and rationality. 1. Intuition is an innate belief about something, without conscious consideration. Teaching Tip: Note that even though managers may sometimes seem to make decisions based purely on intuition, in reality they are also relying on their experience, judgment, and other resources, even if they are doing so unconsciously! 2. Escalation of commitment occurs when managers make a decision and become so committed to it that they stay with it even when it appears to have been wrong. This happens because managers do not want to be inconsistent or admit to an initial error. Extra Example: The military is frequently guilty of escalation of commitment. Decision makers will commit funds for a new weapons project, for example, and will continue to fund the project even when information suggests they should stop. Discussion Starter: Ask students if they have ever gambled in Las Vegas or a similar location. Note the tendency among gamblers who lose money to keep playing in the hopes of winning back their losses. This represents an escalation of commitment. D. Risk Propensity and Decision Making Risk propensity is the extent to which a manager is willing to gamble in making a decision. Risk propensity can have a significant impact on decision making. Global Connection: The extent to which managers are comfortable with different degrees of risk varies across cultures. For example, managers in the U.K. tend to avoid risk, U.S. managers are more comfortable with risk, and Italian managers are often quite risky in decision making. E. Ethics and Decision Making Just as decisions are influenced by politics and risk propensity, they are also influenced by the decision makers’ personal ethics or their own beliefs about right and wrong. IV. Group and Team Decision Making in Organizations Although the classical and behavioral models of decision making all refer to individual decision processes, much organizational decision making occurs in groups and teams. Extra Example: At ODS Corporation in Tokyo, all decisions are made by group consensus. The typical employee spends seven hours a week in group decision-making meetings. Global Connection: Group decision making is very common in Japan. Indeed, managers who make decisions without involving their subordinates are likely to be perceived as bad managers. A. Forms of Group and Team Decision Making 1. Interacting groups or teams are the most common form of group decision making. They occur when an existing or newly formed group is asked to make a decision. 2. A Delphi group is used for developing a consensus of expert opinion. The Delphi procedure solicits input from a panel of experts who contribute individually. Their opinions are combined and “averaged.” These results are fed back to the experts and the process continues until a solution is reached. 3. A nominal group is an informed group of participants who write down as many alternatives as they can think of. These ideas are listed on a board in round-robin fashion. After the ideas are listed, there is limited discussion. Then the members vote on the alternatives and the highest-ranking alternative is selected. Discussion Starter: Ask students to recount examples of when they have participated in group decision making. Ask if they prefer to make decisions alone or as part of a group. B. Advantages of Group and Team Decision Making While there are many advantages and disadvantages to group decision making, one main advantage is that more ideas are generated, which should lead to a better solution. Other advantages include more available knowledge and information, more acceptance of the final decision, and better communication of the decision. Discussion Starter: Ask if any of your students have firsthand experience with any of the advantages or disadvantages of group decision making as listed in Table 4.2. C. Disadvantages of Group and Team Decision Making Perhaps the biggest drawback of group decision making is that additional time and resources are required to arrive at a group decision. Other disadvantages include the possibility of an undesirable compromise or domination of the group by a single member. Groupthink occurs when the group’s desire for consensus and cohesiveness overwhelms its desire to reach the best possible decision. D. Managing Group and Team Decision-Making Processes Managers must be aware of the pros and cons of group decision making. The group should analyze all alternatives critically and allow divergent viewpoints to be presented. To reduce the possibility of groupthink, a good idea to ask one member to play the role of devil’s advocate. Chapter 5 Entrepreneurship and new venture management CHAPTER SUMMARY Chapter 5 deals with entrepreneurship and new venture formation. Planning and decision making are essential ingredients in the success of any new and growing venture. Moreover, entrepreneurship ideas and processes can also contribute directly to effective planning and decision making. LEARNING outcomes After studying this chapter, students should be able to: 1. Discuss the nature of entrepreneurship. 2. Describe the role of entrepreneurship in society. 3. Understand the major issues involved in choosing strategies for small firms and the role of international management in entrepreneurship. 4. Discuss the structural challenges unique to entrepreneurial firms. 5. Understand the determinants of the performance of small firms. He is not even Greek! The opening vignette features the story of Turkey-born, U.S. immigrant who launched Chobani (Turkish for shepherd), the enormously successful Greek yogurt brand. Hamdi Ulukaya set up shop in an old Kraft Foods yogurt plant in upstate New York and launched his highly successful product. The case details his journey from idea to launch. Management Update: Chobani Yogurt received some unexpected publicity during the Sochi winter Olympics in February 2014. Apparently Chobani was the yogurt of choice for the U.S. Olympians, but Russia refused to allow the yogurt to be imported because of a trade issue. In the end, Chobani earned praise for donating the earmarked yogurt to food banks. http://www.politico.com/story/2014/02/chobani-yogurt-sochi-olympics-103489.html, accessed May 23, 2014. LECTURE OUTLINE I. The Nature of Entrepreneurship A. Entrepreneurship is the process of planning, organizing, and assuming the risk of a business venture. An entrepreneur is someone who engages in entrepreneurship. B. A small business is one that is privately owned by an individual or small group of individuals and has sales and assets that are not large enough to influence its environment. Teaching Tip: Point out to your students a sample of small businesses around campus—convenience stores; dry cleaners; local restaurants, bars, and ice cream shops; clothing shops; tattoo parlors; and so forth. II. The Role of Entrepreneurship in Society Entrepreneurs and small businesses play three important roles in U.S. society. They create jobs, foster innovation, and contribute to the success of large businesses. A. Job Creation 1. Small businesses create many new jobs in the United States. 2. Large businesses also create many new jobs, but these are offset by the jobs that are eliminated by the large businesses. 3. The best predictor of job creation is not company size, but its entrepreneurial nature. Thus, Walmart, which is expanding rapidly, is the largest creator of new jobs in the United States today. Teaching Tip: Note the trends in women-owned small businesses, which are fewer in number than those owned by men but are growing at a faster rate. Discussion Starter: Ask if any of your students ever took a job with a new firm just as it was starting out. Ask them to recount their experiences. B. Innovation 1. Small businesses create many new innovative products and services. Examples include the personal computer, air conditioning, and the instant photograph. 2. Despite the common misconception, most new businesses are not engaged in high-tech industries, but are innovative in a wide variety of fields. C. Importance to Big Business Big businesses buy more of their inputs from small businesses than from other large businesses. Discussion Starter: The role of small business seems to have escalated in recent years. Many of the thousands of U.S. workers and managers who were displaced by downsizing and layoffs in the late 1980s and early 1990s launched new enterprises. Though many failed, others succeeded and have continued to thrive. III. Strategy for Entrepreneurial Organizations A. Choosing an Industry It is important that an entrepreneur preparing to launch a new business carefully select an appropriate industry. Industries that require relatively little start-up resources and that can operate efficiently on a small scale are the most promising for entrepreneurs. 1. The service industry is good for small firms because it often requires few resources. Teaching Tip: Point out the large number of small service and retail businesses that probably exist around your campus. Also note the paucity of small manufacturers that are near campus (assuming, of course, that this is an accurate statement for your campus). 2. The retailing industry is a good choice because small businesses are able to focus on serving a select group of customers, such as college students. Also, the retailer may be part of a larger chain, operating as a franchise. 3. In construction, small firms may be ideal for concentrating on a particular construction trade, such as finish carpentry. Many construction projects are small, local jobs that lend themselves to small business. 4. Finance and insurance are more challenging, but small businesses may be affiliates of larger, national firms. Small banks can focus on the needs of select customer groups. 5. Wholesaling may be difficult due to the larger scale that is required, but again, concentration on a select group or limited region is ideal for small businesses. Teaching Tip: Point out to students how the increased personal and business use of the Internet has helped small business. For an investment of just a few thousand dollars, a small business can reach customers and suppliers nationwide. 6. Smaller, local transportation markets such as city taxi services or charter airlines may be effectively served by small business. 7. Due primarily to disadvantageous economies of scale, small businesses historically have not performed as well in manufacturing. Yet the growing role of computers and other technology in the creation of new products and product ideas may make manufacturing more attractive for small businesses. Discussion Starter: The agricultural segment of the U.S. economy is in a state of transition. Small family farms are being taken over by giant agribusiness enterprises. Ask students to speculate on the future of agriculture. What are the economic implications of the disappearance of small, family-owned farms? Global Connection: Another hurdle faced by small agricultural business is trade barriers. For example, U.S. rice farmers continue to be frustrated by barriers imposed by Japan, one of the largest rice-consuming countries in the world. As rice farming in Japan is very expensive, U.S. farmers believe they could provide competitive products at low prices in Japan if only there were fewer barriers. B. Emphasizing Distinctive Competencies New businesses increase their chances of success if they can identify and emphasize their distinctive competencies. 1. One competency of small business is identifying niches in established markets, markets in which several large firms compete according to well-established criteria. A particular niche (a segment of a market not currently being exploited) may not be adequately served by the big businesses that dominate established markets. 2. Small businesses also have the capability to identify new markets, either by transferring products to a new geographic market or creating new products that invent an entire industry. 3. Small firms can be more flexible than larger ones, enabling them to obtain first-mover advantages that come from being the first to exploit an opportunity before any other firm does. Extra Example: Dell Computer has thrived as a result of its first-mover advantages. Dell was the first computer company to sell high-quality computers through direct marketing—selling over the telephone and shipping directly to consumers. While other firms, including Hewlett-Packard, have imitated this approach, Dell, until recently, was able to maintain its leading role in this segment of the industry because of its “head start.” C. Writing a Business Plan 1. Another key ingredient to entrepreneurial success is the preparation of a strong business plan, a document that summarizes the business strategy and structure. Teaching Tip: See if you can locate a copy of a real business plan to show your students. Such a plan might be available from a recently opened new business, the local Chamber of Commerce, or a local SBA office. 2. Business plans should answer the questions: What are the entrepreneur’s goals and objectives? What strategies will the entrepreneur use to obtain these goals and objectives? How will the entrepreneur implement these strategies? 3. Business plans should also include the entrepreneur’s qualifications for this particular business, his or her sales and other forecasts, and information about financial planning. Group Exercise: Have small groups of students sketch the basic assumptions they would need to consider if they were going to start a specific type of new business. D. Entrepreneurship and International Management Big business is traditionally associated with international expansion, but many smaller companies are moving into foreign countries. The risks are high, but so are the potential rewards. Technology, especially the Internet, has proven to be very helpful to small, international businesses. IV. Structure of Entrepreneurial Organizations A. Starting the New Business The entrepreneur must commit to business ownership and then choose an industry and market. 1. Buying an existing business allows the entrepreneur to examine its past history and thus to better understand what he or she is getting into. 2. Starting from scratch allows the entrepreneur to avoid inheriting the mistakes of the past owner and the excitement level in a new business is usually high. This strategy usually carries a higher risk because there is no proven market, skills, and so on. Teaching Tip: Gather some examples of local firms that have been started from scratch and examples in which a business has been sold to a new owner. Point these examples out to your students. B. Financing the New Business 1. Personal resources are the savings of the entrepreneur and his or her friends and family. 2. Strategic alliances with established firms are becoming more common, as the traditional markets for many large businesses become saturated. 3. Lenders, often banks, are cautious about loaning money for new businesses, especially to inexperienced entrepreneurs. 4. Venture capital companies often require partial ownership of the new firm in exchange for their financing. 5. Small-business investment companies, or SBICs, are companies that borrow money from the SBA and lend it to entrepreneurs. 6. SBA financial programs offer a variety of loan and grant programs, most of which have relatively low limits. The SBA also provides bank loan guarantees in some cases. C. Sources of Management Advice Entrepreneurs have numerous sources that they can turn to for help in launching and running their new businesses, including advisory boards, management consultants, the Small Business Administration (SBA), and networking. Teaching Tip: Arrange for a local speaker from the SBA, SCORE, or another such program visit the class for a few minutes and discuss various new business assistance programs. D. Franchising A franchising agreement is a contract between an entrepreneur (the franchisee) and a parent company (the franchiser). The franchisee pays the franchiser a fee for the use of its name, trademarks, formulas, design, and so forth. The franchiser provides management and marketing expertise, a national image, and in some cases financing. Franchising potentially reduces the entrepreneur’s risks, but it also provides less control and profit potential, and it usually involves a substantial start-up cost. Teaching Tip: Point out some local businesses, especially near campus, that are franchised. V. The Performance of Entrepreneurial Organizations A. Trends in Small Business Start-ups 1. The emergence of e-commerce creates new opportunities for new types of businesses, as well as reduces costs for traditional businesses. 2. Individuals with experience in large businesses often “cross over” to small business, as they have skills that are applicable in any firm. 3. Entrepreneurship creates opportunities for women and minorities to reach higher achievement and be more independent. Minority-owned and woman-owned small businesses are growing at a faster rate than businesses owned by white males. 4. Recent studies show that 40 percent of all new businesses will survive at least six years. In the 1960s and 1970s, the comparable rate was much lower. B. Reasons for Failure 1. Incompetent or inexperienced managers may not have the basic business skills needed to successfully found a new venture. 2. If the entrepreneur is unable or unwilling to make the required commitment of time and effort, then a new venture may fail through neglect. 3. Weak control systems fail to signal impending problems, and serious consequences can result. 4. Insufficient capital is the reason for many new business failures and can exacerbate the other problems noted above. C. Reasons for Success 1. Hard work, drive, and dedication on the part of the entrepreneur are all critical to success. Long hours and independent work are also required. Teaching Tip: Emphasize that not everyone is cut out to be an entrepreneur. Indeed, many people who try it end up going back to work for someone else. 2. Careful analysis of market demand for products or services provided is imperative if a business is to succeed. 3. Managerial competence on the part of the entrepreneur is crucial. 4. Luck plays at least a small part in every successful business. Extra Example: Another example of luck occurred for a small electronics firm struggling to develop musical applications for its technology. After the world-famous performer Michael Jackson heard about it and used it in some of his recordings, the firm took off and quickly obtained considerable new business. Chapter 6 Organization Structure and Design The second basic management function is organizing. Part III: Organizing consists of three chapters devoted to that function. Chapter 6 introduces organizing and organization design. Organization change and innovation are covered in Chapter 7. Chapter 8 deals with human resource management. CHAPTER SUMMARY Chapter 6 introduces the basic elements of organizing. Key topics covered in the chapter are designing jobs, grouping jobs via departmentalization, establishing reporting relationships, distributing authority, coordinating activities, and differentiating positions. In addition, the universal perspectives and situational perspectives on organization design and the basic forms of organization design are described. The chapter concludes with a discussion of emerging trends in organization design. LEARNING OUTCOMES After studying this chapter, students should be able to: 1. Identify the basic elements of organizations. 2. Describe the bureaucratic perspective on organization design. 3. Identify and explain key situational influences on organization design. 4. Describe the basic forms of organization design that characterize many organizations. 5. Identify and describe emerging issues in organization design. The chapter opening vignette deals with A&F Corporation, the parent of brands such as Abercrombie & Fitch and Hollister. While A&F is a related diversified company, in that all its businesses are in branded apparel retailing, it is organized along functional and not divisional lines. This is the preferred organizational structure of CEO, Michael Jeffries. •Company Update: The company’s market capitalization was $2.72 billion in late May 2014 and its stock price was around $37, at the low end of its 52-week range. LECTURE OUTLINE I. The Basic Elements of Organizing Organization structure and design specify the set of elements that can be used to configure an organization. This includes both the structural elements of the firm and the relationships among those elements. Structure is analogous to choosing the building blocks, and design is analogous to arranging the blocks in an effective configuration. A. Job Specialization Job specialization is the degree to which the overall task of the organization is broken down into smaller component parts. It evolved from the concept of division of labor. (See Chapter 1 of the text.) 1. There are four benefits of specialization. a) Workers will become proficient at their task because it is small and simple. b) Transfer time between tasks may decrease. c) The more narrowly defined the job is, the easier it is to develop specialized equipment to assist with the job. d) Training costs should be relatively low. The main problem with specialization is that workers can become bored and dissatisfied. This can lead to higher absenteeism and lower quality of work. It also is possible to overspecialize. •Extra Example: A good example to illustrate how job specialization evolves is Sam Walton. When Walton opened the first Wal-Mart store, he planned the store himself, ordered all the merchandise, developed the newspaper ads, and even operated one of the cash registers. Of course, as his business grew, these jobs were later assigned to others. •Discussion Starter: Ask students to recount their own experiences involving highly specialized jobs. •Discussion Starter: Ask students to speculate on how managers and organizations should identify the optimal degree of job specialization in order to balance efficiency and worker satisfaction. 2. Because of the drawbacks of specialization, many firms have sought alternative approaches to designing jobs. a) Job rotation involves systematically moving employees from one job to another. •Global Connection: At General Electric’s plant in Puerto Rico, workers rotate to new jobs every six months. They also get pay raises for each new job they master. •Management Update: Many companies are using job rotation today for training. Department stores are a good example of using job rotation quite effectively. b) Job enlargement gives employees more tasks to perform. •Extra Example: Ford Motor Company actively used job enlargement at one time. Ford enlarged its auto assembly line jobs laterally so that each worker performed a wider array of tasks. The effort was later abandoned, however, because the United Auto Workers’ union resisted it (claiming that the extra jobs being performed should carry with them higher wages) and because it was less efficient. c) Job enrichment attempts to increase both the number of tasks a worker does and the control the worker has over the job. It is more comprehensive than job rotation or job enlargement. •Cross Reference: Job enrichment is based on the two-factor theory of motivation developed by Frederick Herzberg and discussed in Chapter 10. 3. Job characteristics approach The job characteristics approach is an alternative to job specialization that suggests that jobs should be diagnosed and improved along five core dimensions, taking into account both the work system and employee preferences. The five dimensions are as follows: a) Skill variety—the number of things a person does in a job b) Task identity—the extent to which the worker does an identifiable portion of the total job c) Task significance—the perceived importance of the task d) Autonomy—the degree of control the worker has over how the work is performed e) Feedback—the extent to which the worker knows how well the job is being performed •Group Exercise: Have small groups of students select a job they see regularly (e.g., retail clerk, fast-food worker). Ask them to describe how much each of the five core job dimensions is likely to exist now in that job and how the job might be changed to improve the core dimensions. •Extra Example: A useful way to illustrate variations on the core job dimensions is contrasting the jobs of airline pilot and airline ticket agent. The agent does one basic thing (process tickets), while the pilot does several (pre-flight checks, taking off, flying, landing, etc.). Similar distinctions can be drawn for each of the other dimensions. 4. Work teams are another alternative to job specialization. Work is assigned to a team and the team members have control over each worker’s duties. B. Grouping Jobs: Departmentalization Departmentalization is the grouping of jobs according to some logical arrangement. As the organization grows in size and complexity, it is no longer possible for one manager to oversee all of the workers, so workers are assigned to new managers based on some overall plan. •Teaching Tip: Stress for your students that most organizations use multiple bases of departmentalization in different areas and/or at different levels. 1. Functional departmentalization groups together those jobs involving the same or similar activities. •Interesting Quote: “One of the beauties of the vertical, functional organization is that who you report to and who’s the boss is very, very clear.” (Douglas Lennick, American Express executive, quoted in Fortune, April 3, 1995, p. 92) 2. Product departmentalization involves grouping and arranging activities around products or product groups. •Teaching Tip: Identify local organizations that use product departmentalization. (Note: Many retail outlets use this approach and are good examples.) 3. Customer departmentalization structures the organization’s activities to respond to and interact with specific customers and customer groups. •Global Connection: Few Japanese companies have ever used functional departmentalization. Instead, most Japanese companies have always used product or customer-based departmentalization. 4. Location departmentalization groups jobs on the basis of geographic sites or areas. •Teaching Tip: If possible, identify for your students examples of local organizations that use customer and location bases of departmentalization. •Group Exercise: Have groups of students search for examples of different forms of departmentalization in your college or university. •Group Exercise: You might ask student groups to sketch real or hypothetical organization charts. You can then use the boxes (jobs) and reporting relationships (lines) they generate to illustrate some of the elements of organizing to be introduced in this chapter. C. Establishing Reporting Relationships 1. Chain of command is a clear and distinct line of authority among positions in the organization. There are two components to chain of command. a) Unity of command suggests that each person within an organization should have a clear reporting relationship to one and only one boss. b) The scalar principle suggests that there should be a clear and unbroken line of authority that extends from the lowest to the highest position in the organization. •Teaching Tip: Trace for your students the chain of command that exists within your college or university. •Discussion Starter: Ask students to discuss the advantages and disadvantages of a clear chain of command. 2. The span of management determines how many people will report to each manager (also called span of control). •Group Exercise: Have students research the different spans of management for different administrators in your college or university. •Global Connection: Many Chinese managers today are still concerned with trying to identify the “ideal” span of management. U.S. consultants report that when they visit Chinese businesses, this is one of the most frequently asked questions. •Interesting Quote: “Remember the theory that a manager should have no more than six or seven direct reports? I say the right number is closer to ten or fifteen. With ten or fifteen reports, a leader can focus only on the big important issues, not on minutiae.” (Jack Welch, former CEO of General Electric, quoted in Harvard Business Review, September–October 1989, p. 114) 3. Tall versus flat organizations Tall organizations have more layers of management than do flat organizations. Given the same number of employees, a tall organization will have smaller spans of control than will a flat organization. Most companies are working to reduce the layers of management in an attempt to decentralize control, reduce costs, and increase worker autonomy. •Extra Example: Many businesses today have adopted a flatter organization by widening spans of management. •Extra Example: An example of a firm that is using a flatter organization today is Ford. The firm has eliminated two levels of its hierarchy so far and wants to eliminate more. D. Distributing Authority Authority is power that has been legitimized by the organization. 1. Delegation is the process by which a manager assigns a portion of his or her total workload to others. The primary reason for delegation is to allow the manager to get more work done. Steps in the delegation process are assigning responsibility for the task, giving the authority needed to do the job, and establishing accountability. •Discussion Starter: Ask students if they have ever worked for a boss who did not delegate properly. Explore whether the problem was too little or too much delegation. •Teaching Tip: Relate delegation back to job specialization. As managers find it useful to create new specialized jobs to perform various functions, they similarly may find it useful and necessary to delegate authority to people performing those jobs. 2. Decentralization is the process of systematically delegating power and authority throughout the organization to middle and lower-level managers. Centralization is the process of systematically retaining power and authority in the hands of higher-level managers. •Teaching Tip: Point out the relationship between decentralization and flat organizations. Specifically, as organizations become flatter, they must also become more decentralized. •Global Connection: Brazilian firms are traditionally managed in a highly centralized manner. Guards often patrol factory floors, employee trips to the bathrooms are timed, and employees are frequently searched when they leave work. •Interesting Quote: “I watch while they sometimes elect managers I would never want to work for. But I trust my employees. They’re looking for success as strongly as I am.” (Ricardo Semler, CEO of Semco, a Brazilian firm trying to break away from the traditional Brazilian model; quoted in Fortune, February 6, 1995, p. 74) E. Coordinating Activities Coordination is the process of linking the activities of the various departments in the organization. 1. The primary reason for coordination is that departments and work groups need information and resources from each other to do their jobs. There are several types of relationships between departments, and each requires a different approach to coordination. a) Pooled interdependence is the lowest level of interdependence. Only the output of the units is pooled at the organizational level. b) In sequential interdependence, the output of one unit becomes the input for another in a sequential fashion. c) Reciprocal interdependence exists when activities flow both ways between units. •Extra Example: Note that different courses have different levels of interdependence. A biology course and a philosophy course may be unrelated other than contributing to overall student education (pooled interdependence), whereas Statistics I may feed directly into Statistics II (sequential interdependence). 2. There are a number of structural coordination techniques that can be used to manage relationships between departments. a) The managerial hierarchy is used to achieve coordination by placing one manager in charge of interdependent departments or units. •Teaching Tip: Note that the hierarchy is most effective as a coordination technique when the organization is relatively tall and centralized. b) Rules and procedures can be used to coordinate routine activities. c) Managers in liaison roles coordinate interdependent units by acting as a common point of contact in order to facilitate the flow of information between units. d) Task forces may be created when the need for coordination is acute. Individuals from several units who have special information form a task force to solve a specific problem and then go back to their original units. e) Integrating departments is a more permanent version of a task force. There are permanent members as well as temporary members. •Teaching Tip: Liaison roles, task forces, and integrating departments are more likely to be used for coordination in organizations that are relatively flat and decentralized. 3. E-mail, local networks, electronic scheduling, portable computers and cell phones, and other advances in electronic information technology have made coordination easier and cheaper. II. The Bureaucratic Model of Organization Design Bureaucracy is an organization based on a legitimate and formal system of authority. A. Weber felt bureaucracy was “the one best way” to do things. He delineated five basic characteristics of a bureaucracy: division of labor, rules and procedures, organizational hierarchy, impersonal relationships among workers, and expertise-determined promotions. •Discussion Starter: Ask your students to identify examples of bureaucratic rules and red tape they have recently encountered. •Teaching Tip: Point out to your students that rules and regulations are sometimes necessary to ensure equitable treatment. For example, explain to them that there needs to be some logical system to determine who can register for classes at your school, who can file degree plans, who can buy athletic tickets, who can park, and so forth. This system, in turn, must then be codified into rules and regulations. B. Weber believed that his model was an optimal model for all organizations, regardless of their situation or circumstances. C. The bureaucratic model improves efficiency, reduces favoritism, and clarifies organizational procedures. However, it can lead to rigidity and neglect of human and social processes. •Global Connection: The bureaucratic model is still very prevalent in China. Many managers there still believe in the importance of hierarchy, rules, regulations, and standard operating procedures. •Group Exercise: Have small groups of your students develop a plan for making an organization less bureaucratic. III. Situational Influences on Organization Design The situational view of organization design assumes that the best design for an organization depends upon the organization’s circumstances and situation. A. Core Technology One situational view of organization design assumes that the best organization design depends upon the organization’s core technology. 1. Technology is the conversion processes used to transform inputs into outputs. While any organization often uses multiple technologies, its most important one is called its core technology. 2. Woodward identified three basic forms of technology. •Teaching Tip: Note that Woodward’s conceptualization of technology is actually relatively simple in terms of today’s understanding of technology. a) Unit or small-batch, in which custom-made products or small quantities are made •Extra Example: Examples of unit or small-batch technology are a medical laboratory that performs blood tests on request, a cabinetmaker who makes one-of-a-kind cabinets for customers, and a software design firm that writes special programs to meet unique customer requirements. b) Large-batch or mass-production assembly line production •Extra Example: Examples of large-batch or mass-production technology are computer manufacturers like IBM and H-P, pen manufacturers like Cross, and bicycle makers like Schwinn. c) Continuous-process, in which transformation of raw materials to finished goods is done by a series of transformations •Extra Example: Examples of continuous-process technology include fertilizer makers like Scott’s and paint manufacturers like Sherwin-Williams. •Group Exercise: Have small groups of students try to develop their own frameworks or taxonomies of technology. 3. Woodward found that small-batch and continuous-process firms tended to have organizational structures that were organic—that is, flexible and informal. Large-batch firms tended to have a more mechanistic structure—one that is formal and fixed. 4. Woodward also found that firms that followed a pattern tended to have higher performance. •Discussion Starter: Ask students whether service technology is likely to have a different influence on organization design than manufacturing technology. B. Environment 1. A mechanistic organization structures its activities in predictable ways by means of rules, specialized jobs, and a centralized authority. This structure tends to work best in environments that are stable. An organic organization uses a higher level of fluidity and flexibility and is a good choice for firms in constantly changing environments. •Teaching Tip: Note the distinctions between mechanistic and organic forms of organization design. 2. Differentiation is the extent to which the organization is broken down into subunits. Integration is the degree to which the various units must work together in a coordinated fashion. The degree of differentiation and integration needed by an organization will depend on the stability of the environments it faces. C. Organizational Size and Life Cycle 1. Organizational size and life cycle have a complex relationship to organizational design. 2. Organizational size is the total number of full-time or full-time-equivalent employees. In small organizations, core technology appears to be the primary situational influence on organization design. In larger firms, the relationship is much weaker. 3. Most large firms are specialized, have many rules, and are decentralized. •Discussion Starter: Ask students to speculate about the kinds of differences in organization design that are likely to exist among larger versus smaller organizations, using examples of businesses with which they are familiar. 4. Organizational life cycle is a four-phase process through which organizations evolve. The four stages include birth, youth, midlife, and maturity. As an organization evolves, its structural needs change. •Extra Example: Note that different units within the same organization can be at different stages of their life cycles. For example, The Limited stores have been around since 1963 and are in their maturity stage. On the other hand, the Bath & Body Works chain is only a few years old and is in the youth (rapid growth) stage. IV. Basic Forms of Organization Design •Teaching Tip: Note that the appropriate organization design for a particular firm is dependent on the situational factors already discussed: technology, environment, size, life cycle, and strategy. •Teaching Tip: Note for your students that the preceding material was concerned with identifying and discussing the various elements of organizing, whereas this section focuses on how to put the various elements together to create an overall organization. A. Functional (U-form) Design The functional design (also called the U-form or unitary design) uses organizational function (marketing, production, etc.) as the basis for grouping jobs. 1. Functional design is most appropriate for small or new firms or for firms that produce a single product. 2. Functional design is simple and promotes functional expertise. However, it can be difficult to maintain coordination as the organization grows. Also, functional design may fail to give managers an organization-wide view and may be too highly centralized. •Teaching Tip: Note that many organizational subunits, such as marketing, operations, or human resource management, have their own unique organization designs. •Extra Example: Most local automobile dealerships use a U-form design, as does the Outback Steakhouse restaurant chain. B. Conglomerate (H-form) Design The conglomerate (also called H-form or holding company design) is an organization made up of a set of unrelated businesses. 1. The H-form is appropriate only for firms that are practicing unrelated diversification. 2. H-form design allows each business unit to focus attention on its own performance. However, it does not create or exploit synergies between units and does not allow for coordination across units. As the H-form company grows, corporate leaders may not have enough expertise in each business to manage effectively. •Teaching Tip: Note that The Limited’s corporate strategy is one of related diversification. This allows the firm’s organization design to facilitate synergy. In contrast, a firm like General Electric that uses unrelated diversification will have an organization design that does not necessarily try to promote synergy. •Group Exercise: Have students research and identify other examples of H-form organizations. •Teaching Tip: Sara Lee is another example of an H-form organization that is practicing unrelated diversification. Have students describe some of the advantages and disadvantages of this structural form. C. Divisional (M-form) Design The divisional design (also called M-form or multidivisional design) is based on multiple businesses in related areas operating within a larger organizational framework. Jobs are grouped by division, where each division is made up of a set of related businesses or products. 1. M-form is most appropriate for firms practicing related diversification. 2. The M-form structure exploits synergies between units, allows for effective coordination across units, and balances internal cooperation and competition. The M-form requires excellent coordination techniques, but has no significant disadvantages. •Extra Example: Firms that use an M-form organization design include Bristol-Myers Squibb (prescription drugs, infant nutrition, medical equipment, consumer health products, and toiletries and beauty aids) and PepsiCo (soft drinks, chips, cereal, sports drinks, and juice). D. Matrix Design The matrix design is based on two overlapping bases of departmentalization. Jobs are grouped according to function, and then a set of product groups are superimposed across the functional groups. Thus, a multiple command structure results, in which any given individual reports both to a functional superior and to one or more project managers. 1. The matrix design is appropriate for complex firms where functional skills are important and another form of departmentalization (customer, product, and so on) is equally important. It is often the best choice for demanding environments, processing large amounts of information, or situations that require sharing scarce internal resources. 2. A matrix design provides the benefits of both functional and another type of departmentalization. It increases flexibility, motivation, employee learning, efficiency, cooperation, and autonomy. However, it can create uncertainty about reporting relationships and lead to poor management; it can also add unnecessary complexity and time to decision making and coordination. •Extra Example: Business schools often use a matrix form of organization design. Academic departments (management, marketing, and so forth) serve as functional departments, while various academic programs (undergraduate program, MBA program, honors program, and so forth) serve as product groups. •Teaching Tip: Note that the idea of a multiple command structure essentially contradicts the idea of unity of command discussed earlier. •Discussion Starter: Ask students how they think they would function in a multiple command structure (i.e., having two bosses). •Cross Reference: The foundation of matrix forms of organization design is work teams. Teams are discussed more fully in Chapter 13. E. Hybrid Designs A hybrid design occurs when two or more of the common forms of organization design are combined. •Global Connection: Note the similarities and differences among domestic forms of organization design and global forms of organization design. •Global Connection: Many international firms in the same industries have very similar designs. For example, Ford and Nissan have similar organization designs. •Extra Example: The Limited operates each of its businesses independently (highly differentiated) but also closely coordinates activities among them (highly integrated). V. Emerging Issues in Organization Design A. The Team Organization The team organization is an approach to organization design that relies almost exclusively on project-type teams, with little or no underlying functional hierarchy. This approach maximizes flexibility and learning. B. The Virtual Organization The virtual organization is one that has little or no formal structure. Flexibility is high and costs can be lower, while the organization benefits from specialized skills. On the other hand, virtual organizations have low employee loyalty and may have less control. C. The Learning Organization The learning organization works to facilitate the lifelong learning and personal development of all its employees while continually transforming itself to respond to changing demands and needs. As environments become more complex and dynamic, this approach becomes more important. Chapter 7 Organization change and Innovation CHAPTER SUMMARY Chapter 7 is devoted to organization change and innovation. It first introduces the nature of organization change and then describes how to manage change. Areas of change are identified and discussed. Subsequent sections are devoted to organization development and organization innovation. LEARNING OUTCOMES After studying this chapter, students should be able to: 1. Describe the nature of organization change, including forces for change and planned versus reactive change. 2. Discuss the steps in organization change and how to manage resistance to change. 3. Identify and describe major areas of organization change, and discuss the assumptions, techniques, and effectiveness of organization development (OD). 4. Describe the innovation process, forms of innovation, the failure to innovate, and how organizations can promote innovation. The opening case describes how IKEA, the Swedish furniture retailer, uses innovation and change to drive growth and engender cult-like loyalty among its customers. For IKEA, innovation is fundamental to 5 factors: target market, product, price, distribution, and promotion. Innovation is key to the growth of the firm and it actively searches for ways to leverage its innovation capabilities via collaboration. Management Update: IKEA had 332 stores in 38 countries at the end of 2013. An article in BusinessInsider, http://www.businessinsider.com/13-facts-about-ikea-that-will-blow-your-mind-2013-10, points out a number of fun facts about the company that makes for interesting reading. LECTURE OUTLINE I. The Nature of Organization Change Organization change is any substantive modification to some part of the organization. Teaching Tip: Note that there is no rigid line that separates “substantive” from “nonsubstantive.” The point is that, quite simply, some changes are so trivial as to not warrant much attention (for example, changing from pink to green telephone message slips). For a change to warrant managerial attention, it must be nontrivial—that is, it must be of substance. A. Forces for Change 1. External forces for change derive from the organization’s general and task environments and include such factors as politics, the economy, and competitors. Discussion Starter: The Internet is currently serving as a powerful force for external change. Ask if your students have experienced any changes resulting from the Internet. Extra Example: The ethical crises of the last several years, including problems at Enron, WorldCom, HealthSouth, and others, have had several important impacts on organizations. One external change is that accounting regulations are tighter. Increased scrutiny from boards of directors and investors is an example of an internal change. Global Connection: The conflict in Iraq is having an ongoing impact on many organizations. Ask students to think of examples. Note that the impacts can be both positive and negative. 2. Internal forces, such as organization strategy or sociocultural values, also can cause an organization to change. Extra Example: Jeff Immelt has been employed with GE since his college graduation in 1982. When Immelt became CEO of GE in 2001, he mandated many changes in the firm. Because he is an insider, he represents an internal force for change. B. Planned Versus Reactive Change 1. Planned change is change that is designed and implemented in an orderly and timely fashion in anticipation of future events. Planned change is usually preferable to reactive change. 2. Reactive change is a piecemeal response to events as they occur. Extra Example: Note that the first airline that launches a fare war is enacting a planned change, because it made the decision and then implemented it in a proactive fashion. However, other airlines that then choose to match the lower fares are enacting a reactive change—they are following the lead of a competitor. Teaching Tip: Stress for students that no matter how effectively a manager plans for change, environmental uncertainty will also force occasional reactive change. Teaching Tip: Also stress that reactive change is not necessarily always bad. For example, a business opportunity that will boost company profits might not have been anticipated. In general, however, exceptions such as this aside, planned change is preferable. II. Managing Change in Organizations A. Steps in the Change Process 1. The Lewin model suggests three steps in a change. a) Unfreezing the people affected by the change. b) Implementing the change itself. c) Refreezing the people involved by reinforcing and supporting the change. Teaching Tip: A good way to teach the Lewin model is to use the literal meaning of the terms used to describe the process. If a person wants to change the shape of an ice cube into an ice sphere, using a hammer and chisel is likely to break it or create an odd-shaped result. A better way is to unfreeze the ice cube, pour the water into a spherical mold, and then refreeze it in the desired shape. 2. A comprehensive approach to change takes a systems view. a) Step 1: Recognition of the need for change b) Step 2: Establishment of goals for the change c) Step 3: Diagnosis of relevant variables d) Step 4: Selection of appropriate change techniques e) Step 5: Planning for implementation of the change f) Step 6: Actual implementation g) Step 7: Evaluation and follow-up Group Exercise: Have students plan a hypothetical change intervention using the comprehensive model as a framework. Interesting Quote: “There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success than to take the lead in the introduction of a new order of things.” (Niccolò Machiavelli, The Prince, a sixteenth-century book about power and political behavior) B. Understanding Resistance to Change For a variety of reasons, some people may resist some changes. Discussion Starter: Ask students for personal examples of people they know who have been or who are reluctant to adopt new forms of technology. Global Connection: Geert Hofstede found that people from some cultures are more comfortable with change than are people from other cultures. For example, Hofstede claims that, on average, people from Denmark, the United States, Canada, Norway, and Hong Kong are relatively more comfortable with change than are people from Japan, Italy, France, and Belgium. 1. Uncertainty may be the biggest cause of employee resistance to change. 2. Managers’ threatened self-interests, when they fear loss of power within the organization, also causes resistance to change. 3. Different perceptions of the people who recommend the change and the people who are affected by the change may cause resistance to the change. 4. Feelings of loss that arise from disrupted social networks or altered work arrangements may cause those affected to resist the change. C. Overcoming Resistance to Change 1. Participation is often the most effective technique for overcoming resistance to change. Teaching Tip: Note the reciprocal relationship between change and participation: Participation overcomes resistance to change, while change today often increases participation. 2. Education and communication aimed at employees affected by the change also can reduce resistance to change. 3. Facilitation procedures, such as announcing the changes in advance to give employees a chance to get used to the change, can help to reduce resistance to change. Teaching Tip: To better facilitate change, organizations often use a facilitator—an outside consultant who helps oversee the process. 4. Force-field analysis, in which the forces for and against the change are delineated so that the forces against the change are minimized, can be used to reduce resistance to change. Interesting Quote: “Change = Change Helps Align New Goals in Employees.” (David W. Murphy, Madisonville Community College, February 15, 1999) Group Exercise: Have students perform a force-field analysis for a hypothetical change at your school. Potential examples for this exercise include changing or abolishing a long-standing tradition, adjusting class meeting schedules, or eliminating an academic program. III. Areas of Organization Change A. Changing the structure and design of an organization may cause it to change the jobs that people hold or to whom they report. B. A change in technology and operations, which affects how the inputs become outputs, will usually force at least one change in the organization. Frequently, it may mean the introduction of new machines or a change in the order in which the product is made. Extra Example: Note for students that breakthroughs in information technology (e.g., PCs, networks, facsimile machines, voicemail systems, satellite communication networks, and so forth) represent one of the most profound sources of changing technology in history. C. Changing people, attitudes, and behaviors also may occur, for example, if an organization decides to change the skill level in the work force. This may be accomplished by enacting change in the existing work force and/or replacing existing workers with new ones. Discussion Starter: Ask students which areas of change—organization structure and design, technology and operations, or people—are likely to be the easiest and the most difficult to implement. Group Exercise: Ask groups of students to identify examples of operations changes they have recently encountered. Potential examples include changes in how fast-food restaurants serve customers, how retail stores handle checkout procedures, and so forth. D. Changing business processes, also called reengineering, is the radical redesign of all aspects of a business to achieve major gains in cost, service, or time. Interesting Quote: “If you want to get something funded around here—anything, even a new chair for your office—call it reengineering on your request for expenditure.” (Unnamed telephone company executive; quoted in Fortune, August 23, 1993, p. 41) 1. Business processes become outdated and less effective over time because organizations are subject to entropy or normal decline. It is important that managers combat decline before it is too late. Reengineering is one way to do this. Extra Example: Firms that have undergone reengineering include GTE, AT&T, Blue Cross of Washington, Hallmark, and Union Carbide. Group Exercise: Have students research one or more of the organizations noted above and see how well its reengineering efforts have paid off. 2. First, the organization must set goals and develop a strategy for the reengineering. Top management must emphasize their commitment to the change. Managers should create a sense of urgency. The organization can “start with a clean slate,” meaning that it should freely experiment with radically new approaches. The firm must optimize top-down and bottom-up perspectives so that the project is guided by strong leadership but encourages participation by everyone. Teaching Tip: Note that some experts consider reengineering to be just a management fad and think that it will soon be replaced by some other management technique. Others, however, see it as a more enduring method for improving organizational effectiveness. E. Organization Development 1. OD Assumptions Organization development (OD) is an effort that is planned, organizationwide, and managed from the top, intended to increase organizational effectiveness and health through planned interventions in the organization’s processes, using behavioral science knowledge. The practice of OD is based on the assumptions that employees have the desire to grow and develop, that they have a strong need to be accepted by others, and that the design of the organization will influence the way the employees behave. 2. OD Techniques a) Diagnostic activities can be used to analyze the current condition of an organization. These techniques include questionnaires, surveys, interviews, and meetings. b) Team building activities are intended to enhance the effectiveness and satisfaction of individuals who work in groups or teams and to promote overall group effectiveness. Extra Example: Team building is an especially important OD technique today. For example, executives at Colgate-Palmolive regularly participate in team-building programs designed to help them function more effectively as a cohesive unit. c) Survey feedback asks employees to respond to a questionnaire measuring perceptions and attitudes and the results are presented to everyone involved. d) Third-party peacemaking uses mediation and negotiation when substantial conflict exists. e) Process consultation occurs when an OD consultant observes groups to understand their interactions. f) Life and career planning helps employees formulate personal goals and integrate them with organization goals. f) Coaching and counseling provide nonevaluative feedback with emphasis on how the person can perform better in the future. Teaching Tip: Many firms today are using both education and process consultation to help promote diversity. Extra Example: Firms that have internal OD consultants include ExxonMobil, AT&T, and Boeing. 3. Effectiveness of OD. The effectiveness of OD varies. Some organizations use it with regularity, while others have tried it but have discarded it because it was not useful. Teaching Tip: As the role of managers and leaders in organizations continues to change (as explored in Chapter 11), coaching and counseling activities are increasingly being performed by managers themselves. Extra Example: As part of an OD program, Baker-Hughes oilfield services firm provided twenty hours of classroom instruction to each employee. The instruction was designed to help people in the organization work together more effectively. Global Connection: OD is often used in Europe, although not as extensively as in the United States. It is seldom used in Asia, however. IV. Organizational Innovation Innovation is the managed effort of an organization to develop new products or services or new uses for existing products or services. Extra Example: 3M and Apple are considered to be among the most innovative firms in the world today. Teaching Tip: To varying degrees, all organizations seek innovation. However, some make innovation a high priority goal, while others take a more deliberate approach. A. The Innovation Process 1. Innovation development occurs after a creative insight is verified and, where appropriate, product prototypes are built. Extra Example: Changes in the personal computer industry are happening with such regularity that the complete innovation process occurs within months or sometimes even weeks. 2. Innovation application is the stage in which an organization takes a developed idea and uses it in the design, manufacture, or delivery of new products, services, or processes. 3. Application launch occurs when an organization introduces new products or services to the marketplace. Extra Example: Other notable failed or disappointing application launches include full-sized Toyota pick-up trucks and Federal Express’s ZapMail. 4. Application growth occurs when demand for the new product or service increases. 5. Innovation maturity is the stage in which others have access to the idea and are applying it in approximately the same way. 6. During innovation decline, demand decreases and substitute innovations are developed and applied. B. Forms of Innovation 1. Radical versus incremental innovations Radical innovations are new products or technologies that essentially replace existing products or technologies. Incremental innovations are new products or processes that modify existing ones. Extra Example: Examples of radical innovations include compact disks, which essentially replaced vinyl records, and PCs, which have almost replaced typewriters. 2. Technical versus managerial innovations Technical innovations are changes in the physical appearance or performance of a product or service, or the physical processes through which a product or service is manufactured. Managerial innovations are changes in the management process by which products and services are conceived, built, and delivered to customers. 3. Product versus process innovations Product innovations are changes in the physical characteristics or performance of existing products or services or the creation of brand new products or services. Process innovations are changes in the way products or services are manufactured, created, or distributed. Extra Example: Dell Computer became a success in part because of its direct mail strategy, which was a process innovation. C. The Failure to Innovate 1. Lack of resources may cause a firm to lag behind in innovation, if the company does not have sufficient money to fund a program of innovation or does not employ the kinds of individuals needed to be innovative. 2. If organizations fail to recognize opportunities, they may not invest in an innovation that would have been successful. Extra Example: A dozen publishers turned down the first Harry Potter book because they thought there was no market for it. J. K. Rowling’s novels went on to sell some 450 million copies. 3. Resistance to change is another reason for the failure to innovate. Innovation means giving up old products, which means change. D. Promoting Innovation in Organizations 1. To increase innovation, it is important to provide financial and nonfinancial rewards to people and groups who are innovative and creative. 2. Organization culture can communicate support for creative and innovative activities. 3. Support for intrapreneurship in larger organizations is a way for companies to encourage innovation. Intrapreneurs are similar to entrepreneurs, but they work in larger organizations. Intrapreneurs are of three types. a) The inventor conceives of and develops the original idea. b) The product champion is a middle manager who becomes committed to the innovation and works to overcome resistance. c) The sponsor is a top-level manager who supports the project with resources at the organization wide level. Instructor Manual for Fundamentals of Management Ricky W. Griffin 9781285849041, 9780357039168