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CHAPTER 13 Managing Organization Change and Innovation CHAPTER SUMMARY This chapter is about organization change and innovation. It first introduces the nature of organization change and then describes how to manage resistance to change. Next, areas of organization change are identified and discussed. Subsequent sections are devoted to organization development and innovation. LEARNING OBJECTIVES After covering 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. 4. Describe the innovation process, forms of innovation, the failure to innovate, and how organizations can promote innovation. The opening case describes the success that Genentech, a biotechnology company, has had with respect to innovation. It uses partnerships to develop drugs and also uses them to market drugs developed by them. Innovation is key to the growth of the firm and it actively searches for ways to leverage its innovation capabilities via collaboration. Management Update: In March 2009, Genentech became a member of the Roche Group. The two companies merged their pharmaceutical operations in the United States. 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. Global Connection: The formation of the European Union and the adoption of the euro currency throughout much of Europe has caused changes in firms from Europe and around the world. Extra Example: Recent changes in the use of equal opportunity initiatives, especially at universities, have also served as a powerful external force for change. Many schools have had to alter their admissions and other policies to conform to new regulations. 2. Internal forces, such as organization strategy or sociocultural values, also can cause an organization to change. Extra Example: In 2002, Yum! Brands adopted that name, switching from Tricon. While Tricon was appropriate when the firm had just three major brands, as they added two more brands, a new name was needed that reflected the changes. This represents an internal force for change. B. Planned Versus Reactive Change Planned change is change that is designed and implemented in an orderly and timely fashion in anticipation of future events. 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.” (Niccolo Machiavelli, The Prince, a book about power and political behavior, published in 1513) Reactive change is a piecemeal response to events as they occur. Extra Example: Note that the first airline that launched a fare war was enacting a planned change because it made the decision and then implemented it in a proactive fashion. However, other airlines that then chose to match the lower fares were enacting a reactive change—they were 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, an unexpected business opportunity that will boost company profits might not have been anticipated. In general, however, planned change is preferable. II. MANAGING CHANGE IN ORGANIZATIONS A. Steps in the Change Process 1. The Lewin model suggests three steps in the change process: unfreezing the people affected by the change, implementing the change itself, and 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 will likely 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 Step 1: recognition of the need for change Step 2: establishment of goals for the change Step 3: diagnosis of relevant variables Step 4: selection of appropriate change techniques Step 5: planning for implementation of the change Step 6: actual implementation Step 7: evaluation and follow-up Group Exercise: Have students plan a hypothetical change intervention using the comprehensive model as a framework. B. Understanding Resistance to Change For a variety of reasons, some people often resist change. 1. Uncertainty may be the biggest cause of employee resistance to change. 2. Threatened self-interests or the loss of power by some managers within the organization also causes resistance to change. 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: People from some cultures are more comfortable with change than are people from other cultures. For example, 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. 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. Discussion Starter: Ask students how they feel about change. For those who do not like change, ask them to explain why they feel as they do. 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. Discussion Starter: Ask students to share examples of changes in which they were allowed to participate and those in which they had no participation. Students might list changes such as re-scheduling an exam or facing a tuition increase. How did they feel in each case? Why does participation help to overcome resistance to change? 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 provide employees a chance to get used to the change, can help reduce resistance to change. 4. Force-field analysis, in which the forces for and against the change are delineated and the forces against the change are minimized, can be used to reduce resistance to change. 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 Teaching Tip: Use Table 13.1 of the text to organize and summarize the various key areas of organization change. Cross-Reference: Note that the various topics and concepts discussed in Chapters 11 and 12 are often the basis for organization change. A. Changing Structure and Design Changing the structure and design of an organization may cause changes in the jobs people hold or in reporting relationships. B. Changing Technology and Operations 1. A change in technology, or how the inputs become outputs, will usually force other changes in the organization. Frequently it may mean the introduction of new machines or a change in the way in which the product is made. 2. A very complex type of technology change is the adoption of enterprise resource planning, or ERP, a large-scale information system for integrating and synchronizing the many activities in the “extended enterprise.” Introduction of an ERP system will cause many radical changes throughout the organization. Cross-Reference: Note that technology was introduced in Chapter 12 but is discussed in more detail in Chapter 21. Extra Example: Note for students that relatively recent breakthroughs in information technology (i.e., PCs, computer networks, facsimile machines, voice mail systems, satellite communication networks, the Internet, and so forth) represent one of the most profound sources of changing technology in history. 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 how their school performs registration and billing functions. C. Changing Business Processes 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, Fortune, August 23, 1993, 41.) 1. Business process change, also called reengineering, is the radical redesign of all aspects of a business to achieve major gains in cost, service, or time. 2. Over time, most organizations experience entropy, or system-wide decline. Business process change allows managers to revitalize a stagnant firm. 3. Business process reengineering has five steps. a) Step 1: Set goals and develop a strategy. b) Step 2: Emphasize top management commitment. c) Step 3: Create a sense of urgency. d) Step 4: Start with a clean slate. e) Step 5: Optimize top-down and bottom-up perspectives. Extra Example: Other firms that have undergone reengineering include AT&T, Blue Cross of Washington, Hallmark, and Union Carbide. Teaching Tip: Note that some experts consider reengineering to be just a management fad, and expect that it will soon be replaced by some other management technique. Others, however, see it as a more enduring method for improving organizational effectiveness. D. Changing People, Attitudes, and Behaviors Changing people also may occur if an organization decides to change the skill level in the workforce, or the workers’ perceptions and expectations. Discussion Starter: Ask students which areas of change—organization structure and design, technology and operations, business processes, or people—are likely to be the easiest and the most difficult to implement. E. Organization Development (OD) 1. Organization development (OD) is a planned, organization-wide effort that is managed from the top; it is intended to increase organizational effectiveness and health through planned interventions in the organization’s process, using behavioral science knowledge. 2. 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 in the organization, and that the design of the organization will influence the way that employees behave. 3. OD Techniques Cross-Reference: Note that OD is a special approach to changing people. a) Diagnostic activities are used to analyze the current condition of an organization. These techniques can include questionnaires, surveys, interviews, and meetings. b) Team building activities enhance the effectiveness and satisfaction of individuals who work in groups or teams and 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 gathers and presents employee responses to a questionnaire measuring perceptions and attitudes. d) Education can focus on sensitivity skills such as consideration and understanding of others. Extra Example: As part of an OD program a few years ago, Baker-Hughes provided twenty hours of classroom instruction to each employee. The instruction was designed to help people in the organization work together more effectively. e) Intergroup activities improve the relationship between groups by promoting cooperation and resolving conflicts. f) Third-party peacemaking uses mediation and negotiation when substantial conflict exists. g) Technostructural activities are concerned with the design and technology of the organization and people on the job. h) Process consultation occurs when an OD consultant observes groups to understand their interactions. Teaching Tip: Many firms today are using both education and process consultation to help promote diversity. Extra Example: Other firms that have internal OD consultants include Exxon, AT&T, and Boeing. i) Life and career planning helps employees formulate personal goals and evaluate strategies for integrating their goals with the goals of the organization. j) Coaching and counseling provides nonevaluative feedback to individuals to help them develop a sense of how others see them. Teaching Tip: As the role of managers and leaders in organizations continues to change (as explored in Chapter 17), coaching and counseling activities are increasingly being performed by managers themselves. k) Planning and goal setting is designed to help managers improve their planning and goal-setting skills. 4. The effectiveness of OD varies. Some organizations use it regularly, while others have tried it and discarded it because it was not useful. 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. A. The Innovation Process 1. Innovation development occurs after a creative insight is verified and, where appropriate, product prototypes are built. Teaching Tip: To varying degrees, all organizations seek innovation. However, some make innovation a high-priority goal, whereas others take a more deliberate approach. Extra Example: 3M and Sony are considered to be among the most innovative firms in the world today. 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 is the stage in which an organization introduces new products or services to the marketplace. 4. Application growth occurs when demand for the new product or service increases. 5. Innovation maturity is the stage in which other organizations have access to the idea and are applying it in approximately the same way. 6. Innovation decline is the stage during which demand decreases and substitute innovations are developed and applied. Cross-Reference: Note the similarities between the innovation process and the product life cycle discussed in Chapter 8. In many ways, the innovation process is a more detailed description of the same process. B. Forms of Innovation 1. Radical versus incremental innovations a) Radical innovations are new products or technologies that essentially replace existing products or technologies. b) 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 completely replaced typewriters. 2. Technical versus managerial innovations a) Technical innovations are changes in the physical appearance or performance of a product or service, or in the physical processes through which a product or service is manufactured. b) Managerial innovations are changes in the management process by which products and services are conceived, built, and delivered to customers. Cross-Reference: Reengineering, as discussed earlier in this chapter, is a managerial innovation. 3. Product versus process innovations a) Product innovations are changes in the physical characteristics or performance of existing products or services, or they are changes in the creation of brand-new products or services. b) 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. Teaching Tip: The relationship of product and process innovation to economic return, presented in Figure 13.5 may be a bit complex for some students. Take some extra time to make sure they understand it before proceeding. C. The Failure to Innovate Global Connection: When BMW, Mercedes, Volvo, and other European luxury automakers failed to innovate, Japanese brands like the Lexus and Infiniti gained market share due to their strong innovation. 1. If a firm lacks resources, for example if it has insufficient money to fund a program of innovation, it may lag behind in innovation. 2. If organizations are not skilled at recognizing and evaluating opportunities, they may fail to invest in an innovation that would have been successful. Extra Example: A few years ago, several publishers turned down the best-selling title The Bridges of Madison County because they thought there was no market for it. 3. Innovation means giving up old products, which means change. Many people are resistant to change and, therefore, resistant to innovation. Cross-Reference: Note that we discussed resistance to change earlier in this chapter. 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. It is also important to avoid punishing workers for innovation, even if the innovation is ultimately a failure. Cross-Reference: We cover reward systems in more detail in Chapters 14 and 16. 2. Organization culture can be used to support creative and innovative activities. Cross-Reference: Note that we discussed organizational culture in Chapter 3. 3. Intrapreneurs are similar to entrepreneurs, but they work in larger organizations. Some firms strongly encourage intrapreneurship as a way of promoting innovation. a) The inventor is the person who actually conceives of and develops the new idea, product, or service by means of the creative process. b) A product champion is usually a middle manager who learns about the project and becomes committed to it. c) A sponsor is a top-level manager who approves of and supports a project. CHAPTER 14 Managing Human Resources in Organizations CHAPTER SUMMARY This chapter explores how organizations manage their human resources. The topics covered in the chapter include the environmental context of human resource management (HRM) followed by a description of how organizations attract, develop, and maintain human resources. The chapter concludes with a discussion of labor relations and emerging issues in human resource management. LEARNING OBJECTIVES After covering this chapter, students should be able to: 1. Describe the environmental context of human resource management, including its strategic importance and its relationship with legal and social factors. 2. Discuss how organizations attract human resources, including human resource planning, recruiting, and selecting. 3. Describe how organizations develop human resources, including training and development, performance appraisal, and performance feedback. 4. Discuss how organizations maintain human resources, including the determination of compensation and benefits and career planning. 5. Discuss labor relations, including how employees form unions and the mechanics of collective bargaining. 6. Describe the key issues associated with managing knowledge workers, and managing contingent and temporary workers. The opening case describes the human resource practices at Wegmans Food Market, a family-owned East Coast supermarket chain that is well-known for its knowledgeable and friendly employees. Wegman’s employees get the best benefits package in the industry, including fully paid health insurance. This extends even to the part-timers. Its 37,000 employees cost the company 15-17 percent of its sales, a figure that is above the industry average of 12 percent. Yet, the company believes that this expense pays off in giving the company a competitive advantage. Discussion Starter: Ask students if they have ever worked in a temporary job. If so, what attracted them to such a job? What were the drawbacks to holding a temporary job? It is also useful to have students look at temporary jobs from the employer’s viewpoint. How do you motivate such employees? LECTURE OUTLINE I. THE ENVIRONMENTAL CONTEXT OF HUMAN RESOURCE MANAGEMENT Human resource management (HRM) is the set of organizational activities directed at attracting, developing, and maintaining an effective workforce. Teaching Tip: Most business programs have a separate course in human resource management, and many offer a major or specialization in the area. If any of these apply to your school, point them out to your students. A. The Strategic Importance of HRM 1. The HRM function has become more and more important over the past several years as organizations have come to realize the importance of their human resources. Effective HRM functions translate into effective organizations. 2. Human capital reflects the organization’s investment in attracting, retaining, and motivating an effective workforce, and it indicates the value of the people that make up an organization. Teaching Tip: Point out to your students that all organizations can build similar factories, adopt similar technology, and make similar products. However, the way in which they manage their human resources can be handled in very different ways and can thus lead to competitive advantage. B. The Legal Environment of HRM Teaching Tip: Table 14.1 summarizes the discussion of employment laws. Global Connection: Most foreign countries have far fewer laws regulating human resource management practices than does the U.S. 1. Equal employment opportunity a) Title VII of the Civil Rights Act of 1964 forbids discrimination on the basis of sex, race, color, religion, or national origin in all areas of the employment relationship. It applies to direct and indirect discrimination. b) Title VII requires employment decisions to be made on the basis of qualifications. Tests of qualifications may not have an adverse impact. An employment test has adverse impact when minorities pass a required test at less than 80 percent of the pass rate for majorities. Teaching Tip: Note that Title VII was really the beginning of the legal environment regarding HRM. c) The Equal Employment Opportunity Commission (EEOC) is a federal agency charged with enforcing Title VII and other antidiscrimination laws. d) The Age Discrimination in Employment Act outlaws discrimination for those over 40 years old. e) Affirmative action requires that employers actively seek out and hire individuals from underrepresented groups. Discussion Starter: One of the most controversial issues in the United States today is affirmative action. Some people believe that affirmative action has outlived its usefulness and that it should be eliminated. Others think it is still necessary. Ask students for their opinions. f) The Americans with Disabilities Act (ADA) requires employers to make reasonable accommodation for disabled persons. g) The Civil Rights Act of 1991 makes it easier for workers to bring lawsuits, but it also protects companies by limiting the damages they must pay. 2. Compensation and benefits a) The Fair Labor Standards Act established minimum wage and required overtime pay b) The Equal Pay Act of 1963 requires that men and women be paid the same amount for doing the same job if they have the same qualifications Extra Example: Female workers, on average, make only about 75 percent of what the average male worker makes. Most of this difference is due to the women’s choice of occupations because the traditional “female” careers such as nursing, teaching, and clerical work pay far less than traditional “male” careers such as construction or business. Also, women are more likely to work part time where pay rates are often lower. c) The Employee Retirement Income Security Act of 1974 (ERISA) regulates pension funds. d) The Family and Medical Leave Act of 1993 requires up to 12 weeks of unpaid leave for family and medical emergencies for both men and women. 3. Labor relations a) The National Labor Relations Act (Wagner Act) establishes guidelines for forming a union and requires companies to bargain collectively with a properly established union. b) The Labor-Management Relations Act (Taft-Hartley Act) was passed to establish a balance between the power of firms and unions; allows the President of the U.S. to end a strike that threatens national security. Management Update: Former President Clinton did not use the Taft-Hartley Act to end a 1997 strike by United Parcel Service (UPS) workers. He and his advisors felt that UPS was not sufficiently important to the U.S. economy to warrant stopping the strike. UPS lost about 25 percent of its business to rivals Federal Express and the U.S. Postal Service, and customers were slow to return after the strike ended. Management Update: President Clinton did, however, order an end to the 1997 strike by American Airlines pilots. The airline was seen as vital to the continued well-being of the U.S. economy because it carried 20 percent of all U.S. air passengers on any given day. 4. Health and safety The Occupational Safety and Health Act of 1970 founded the federal agency OSHA, which regulates the safety of workers from job-related accident and disease Management Update: A recent controversy about health and safety relates to employees who work at home. Specifically, if an employee working at home suffers an accident due to poor lighting or improper equipment, their employer is just as liable as if the problem had occurred at work! Discussion Starter: Ask students to comment on the pluses and minuses of each of the various laws summarized above. 5. Sexual harassment, alcoholism, drug dependence, and AIDS have emerged as significant legal issues for organizations. Extra Example: The popular Michael Crichton book and subsequent movie Disclosure (with Michael Douglas and Demi Moore) featured a case of sexual harassment as its major plot theme. C. Social Change and HRM Current examples of social change relevant to HRM are the increasing use of temporary workers and an increase in dual-career families. The controversy surrounding the employment-at-will doctrine is another example. Employment-at-will is a traditional view of the workplace that says organizations can fire their employees for whatever reason they want. Teaching Tip: Discuss with your students the extent to which the employment-at-will doctrine is more or less relevant to your state or region. II. ATTRACTING HUMAN RESOURCES A. Human Resource Planning 1. Job analysis is a systematic analysis of jobs within an organization. a) A job description lists the duties of a job, its working conditions, and the tools, materials, and equipment used to perform it Teaching Tip: Obtain a copy of a job description and share it with your students. b) A job specification describes the skills, abilities, and credentials required to perform the job 2. Forecasting human resource demand and supply requires managers to collect relevant information, forecast the supply and demand of labor, and then develop appropriate strategies for addressing differences. Extra Example: As already noted, there is currently a shortage of skilled workers in the United States. a) Replacement charts can be used to plan for management positions. These list each important managerial position, who occupies it now, how long he or she will probably stay in it before moving up, and who is or soon will be qualified to move into the position. Extra Example: A few years ago Disney experienced problems due to the lack of a replacement chart. Michael Eisner (the firm’s top executive) was having emergency heart surgery, Frank Wells (the firm’s number two executive) had just been killed in a plane crash, and Jeffrey Katzenberg (the firm’s number three executive) left the firm after a highly publicized altercation with Eisner (and subsequently formed Dreamworks with Stephen Spielberg and David Geffen). This uncertainty created concern among major shareholders. b) Employee information systems or skills inventories contain information on each employee’s education, skills, experience, and career aspirations. They are used to identify individuals who are ready for a transfer or promotion. Group Exercise: Have students brainstorm examples of the most important information that should be included in an employee information system or skills inventory. 3. Matching human resource supply and demand requires managers to plan and deal with predicted human resources shortfalls or overstaffing. B. Recruiting Human Resources Recruiting is the process of attracting qualified individuals to apply for the jobs that are open. 1. Internal recruiting considers only present employees as candidates for openings. The organization benefits from information about the employee, but too much reliance on internal recruiting can lead to stagnation. Teaching Tip: Ask students to recount any of their experiences involving internal recruiting. For example, see if any of them have applied for and received a new job within their current organization. If so, explore the various ramifications of that move. 2. External recruiting attracts persons outside the organization to apply for jobs. External recruiting offers firms the chance to introduce new ideas into the company, but it is riskier. Teaching Tip: Most business sectors were expanding through the late 1990s, so many firms were actively recruiting new employees. This pattern is in contrast to the cut backs many firms have been making since 2008. Teaching Tip: Bring in the “help wanted” section from a local paper and read a few ads to your students. Select ads that reflect a diversity of jobs, companies, and so forth. Use this to illustrate how firms recruit through external sources. 3. Realistic job previews provide applicants with a real picture of what it is like to perform the job. They can be used to make sure that they have an accurate understanding of the job being offered so that their expectations can be met by the job Teaching Tip: Before they start work, Wal-Mart shows all of its potential new employees a two-hour video illustrating what the job of an entry-level associate is like. This realistic job preview helps the firm control turnover among its employees. C. Selecting Human Resources 1. The organization wants to select applicants that have a high probability of success on the job. Therefore they gather information about factors that are predictive of future success. Validation determines the ability of information to predict job performance and the success of an applicant. There are two types of validation. a) Predictive validation involves collecting the scores of employees or applicants on the device to be validated and correlating their scores with actual job performance. b) Content validation uses logic and job analysis data to establish that the selection device measures the skills needed for successful job performance. 2. There are many selection methods. a) Application blanks require applicants to provide background information about themselves; generally used to decide whether the candidate merits further evaluation. Teaching Tip: If possible, obtain a blank employment application and discuss its content with your students. Point out what it asks (e.g., education and experience) and what it does not ask (e.g., gender, ethnicity). b) Tests measure ability, skill, aptitude, or knowledge that is relevant to the job. c) Interviews are a popular selection device but a poor predictor of job success. Discussion Starter: Discuss with your students some of their own experiences (positive and negative) with employment interviews. d) Assessment centers provide a content-valid simulation of key parts of a managerial job that lasts two to three days. A variety of techniques (for example, interviews or tests) are included in the assessment. Extra Example: Tenneco is another example of a firm that makes frequent use of assessment centers to identify and select managers for promotion to higher levels in the organization. e) Other techniques include polygraph tests, physical exams, drug tests, and credit checks. Management Update: The use of polygraph tests today is highly regulated and can be used only for hiring certain kinds of employees (e.g., police officers). Extra Example: Another increasingly popular selection test today is honesty tests. Organizations are finding that such tests are surprisingly good predictors of an individual’s ethics and honesty in the workplace. III. DEVELOPING HUMAN RESOURCES After an organization has hired new employees, it then usually invests in developing them so that they can make more contributions to the firm’s performance. A. Training and Development 1. Training occurs when the firm teaches operational or technical employees how to do the job for which they were hired. Global Connection: Note that Japanese firms tend to spend far more on training than do typical U.S. firms. Extra Example: Chaparral Steel emphasizes training. New employees without a high school degree must commit to three years of training (both general education and job-related), which takes place two nights a week for two hours a night. High school graduates must commit to two years of job-related training on the same schedule. Extra Example: American Airlines uses a mock airplane cabin to train its flight crews. Trainers play the roles of passengers, observe how flight crew members handle various assignments and problems, and then provide feedback. Extra Example: American Airlines also uses flight simulators to help train its pilots, especially for emergency situations. 2. Development occurs when a firm teaches its managers and professionals the skills needed for both present and future jobs. Teaching Tip: Many business schools have on-site management or executive development centers. Among the most noteworthy are those at Northwestern, Stanford, the University of Pennsylvania, and the University of Michigan. Note whether your school has a center or conducts similar programs for managers. 3. Firms usually have a training plan, which consists of several steps. a) Assessing training needs is the first step, and it determines what training is needed. b) Managers must select the methods they will use for training. Common methods include lecture, reading, role-playing, and simulation. Web-based and other electronic training methods are becoming more popular. Some firms have developed a corporate university, which is a company-owned, self-contained training facility. Extra Example: Microsoft has gone even further in its training and development programs. It provides extensive training on-site and also aids workers in attending advanced training and higher education. It even refers to the its work site as a “campus” and provides college-like amenities, such as art museums and sports fields. c) Managers must then evaluate the effectiveness of training. B. Performance Appraisal Performance appraisal is a formal assessment of how well employees are doing their jobs. Teaching Tip: Most colleges and universities use teaching evaluations at the end of the semester. Note for your students that this is a form of performance appraisal through which they are evaluating your performance as a teacher. Extra Example: Disney and American Express each use a performance appraisal system in which supervisors randomly monitor calls between customer service representatives and customers. The supervisors note positive and negative aspects of how representatives handle various calls and provide feedback to them after the calls have been completed. 1. Common appraisal methods usually fall into one of two types: objective and judgmental. a) Objective measures include actual output, sales, or any other concrete measure of performance. b) Judgmental methods require a manager to rate or rank the employees who report to him or her. c) One very useful method is the Behaviorally Anchored Rating Scale (BARS), which was developed to identify relevant performance dimensions and then generate anchors that describe an observable behavior. Teaching Tip: If possible, obtain a copy of a graphic rating scale that is used to measure performance. Display it for your students, noting how it is used and its strengths and weaknesses. Group Exercise: Have small groups of students develop sample graphic rating scales that you could use to assess their performance. Teaching Tip: Note the BARS displayed in Figure 14.4 in the text. Point out to your students that the anchors reflect example behaviors for each scale point. Extra Example: An extension of the BARS that some firms are trying is called a Behavioral Observation Scale, or BOS. Like BARS, a BOS uses behavioral anchors, but also provides an assessment of the frequency with which various behaviors are exhibited by the employee. 2. In any kind of rating or ranking system, errors or biases can occur. a) Recency error can occur when an evaluator makes a judgment based on only the most recent performance. b) Halo error occurs when an evaluator allows the worker’s performance in one aspect of the job to extend to all aspects. c) One way to limit errors is the use of 360 degree feedback. This is a performance appraisal system in which managers are evaluated by everyone around them—their boss, their peers, and their subordinates, giving a more complete picture of true performance. C. Performance Feedback Performance feedback is the final step in the performance appraisal system. Individuals meet privately with the evaluator and discuss the appraisal. Teaching Tip: Providing performance feedback is often a difficult undertaking for many managers. This is especially true when the feedback is negative and/or when there are strong personal feelings (either positive or negative) between the supervisor and the subordinate. IV. MAINTAINING HUMAN RESOURCES A. Determining Compensation Compensation is the financial remuneration given by the organization to its employees in exchange for their work. Wages are hourly compensation, while salary is pay for total contribution, not just hours worked. Incentive compensation is pay tied to specific performance requirements such as bonuses. 1. The wage-level decision is a management decision about whether the firm wants to pay above, at, or below the going rate for labor in the industry or the geographic area. Extra Example: Wal-Mart has a corporate policy of never paying anyone the minimum wage. Even if it is only a token amount (perhaps only 25 cents an hour more), the firm wants its employees to know they are being paid more than the legal minimum. 2. The wage-structure decision is an attempt to place a value on a job and then group together the jobs that have similar values. This is frequently accomplished with the use of a job evaluation—an attempt to assess the worth of each job relative to other jobs. Discussion Starter: Note for students that CEO compensation is a controversial issue today. Solicit their opinions on whether top managers are worth hundreds or thousands of times the average worker’s salary. 3. Individual wage decisions concern how much to pay each employee in a particular job. Extra Example: Professional sports teams provide a good source of examples to illustrate individual wage decisions. Some players, like Eli Manning of the New York Giants, are paid millions of dollars, whereas others, such as third-string defensive backs, are paid much less. B. Determining Benefits Benefits are things of value (other than compensation) provided by the organization to its workers such as sick leave, vacation, holidays, and unemployment compensation. 1. Recently, organizations have begun to offer nontraditional benefits in an effort to attract skilled workers. Nontraditional benefits can include health club memberships, on-site childcare, legal assistance, and mortgage assistance. 2. Cafeteria benefits plans allow workers to choose additional benefits on top of some basic benefits provided to all. Thus, a working parent can add daycare benefits while a childless worker may choose more vacation time instead. Management Update: Benefit costs—especially for healthcare—are becoming an increasingly critical area of concern for many organizations. As a result, many are moving to HMOs and other managed healthcare arrangements. Teaching Tip: Summarize for students the kinds of benefit options that are provided to faculty at your college or university. C. Career Planning Career planning involves helping the employee find an appropriate career path. It can benefit the company and the employee. Extra Example: General Electric and Xerox are both recognized for having outstanding career planning programs for their employees. V. MANAGING LABOR RELATIONS Labor relations is the process of dealing with employees who are represented by an employee association called a “union.” Managing labor relations is an important part of HRM. Teaching Tip: Note for your students the relative strength and importance of unions in local and regional business. For example, unions tend to be stronger and more prevalent in the north and northeast and less prevalent in the south and southwest. A. How Employees Form Unions 1. Employees must be interested in having a union. 2. Thirty percent of employees must indicate their interest by signing authorization cards. If thirty percent or more sign cards, then an election can be held after the bargaining unit has been determined. 3. The National Labor Relations Board holds a secret-ballot election. 4. If a simple majority agrees to the union, it becomes certified. 5. The union recruits members and elects officers. B. Collective Bargaining Collective bargaining is used to reach an agreement on a labor contract between management and the union that is satisfactory to both parties. Labor contracts are enforced by the grievance procedure. If an employee feels mistreated, he or she files a grievance to correct the problem, and successively higher levels of the organization attempt to correct the problem. Global Connection: Labor relations in England tend to be much more antagonistic than is currently the case in the United States. English unions are often affiliated with political parties, and strikes tend to be very common. VI. NEW CHALLENGES IN THE CHANGING WORKPLACE A. Managing Knowledge Workers 1. Knowledge workers are employees whose contributions to an organization are based on what they know. They are educated professionals who usually like to work independently. 2. Knowledge workers are increasingly in demand as technical fields grow in importance, but a global shortage has led to higher pay and low retention rates. B. Contingent and Temporary Workers 1. A contingent worker is anyone not employed full or part time. They are independent contractors, temporary workers, or leased employees. Currently about 10 percent of the U.S. workforce fits into this category. 2. Use of these workers increases flexibility, but it also makes planning more challenging and can be very costly. These workers might also be less effective or difficult to integrate into the firm’s labor force. CHAPTER 15 Basic Elements of Individual Behavior in Organizations Part V of the book covers the third basic managerial function, the leading process. Part V consists of five chapters. Chapter 15 introduces basic elements of individual behavior in organizations. Chapter 16 covers employee motivation and Chapter 17 is devoted to leadership. Interpersonal processes and communication are the topics of Chapter 18. Chapter 19 covers group and team processes in organizations. CHAPTER SUMMARY Chapter 15 covers the basic elements of individual behavior in organizations. The major topics covered in the chapter include the basic foundations for understanding individual behavior and personality. The chapter then addresses attitudes, perception, stress, and creativity. The chapter concludes by examining the impact of workplace behaviors on organizational effectiveness. LEARNING OBJECTIVES After covering this chapter, students should be able to: 1. Explain the nature of the individual–organization relationship. 2. Define personality and describe personality attributes that affect behavior in organizations. 3. Discuss individual attitudes in organizations and how they affect behavior. 4. Describe basic perceptual processes and the role of attributions in organizations. 5. Discuss the causes and consequences of stress and describe how it can be managed. 6. Describe creativity and its role in organizations. 7. Explain how workplace behaviors can directly or indirectly influence organizational effectiveness. The opening cases profiles Bernie Madoff, the infamous Wall Street financier who used his impression management skills to concoct a Ponzi scheme that defrauded his investors to the tune of $50 billion. The case interviews psychologists who study such people, particularly such people who are in the business world. Discussion Starter: Have students talk about bosses they have had in the working career. What qualities did the good bosses have? The bad? Were any of them psychopaths or narcissists? Scott Adams’ Dilbert comic strips often parody poor corporate managers. It may be a good idea to look at a few of them to stimulate this discussion. LECTURE OUTLINE I. UNDERSTANDING INDIVIDUALS IN ORGANIZATIONS A. The Psychological Contract A psychological contract is the overall set of expectations held by an individual with respect to what he or she will contribute to the organization and what the organization, in return, will provide to the individual. 1. Individual contributions are such things as effort, skills, ability, time, loyalty, and so forth. 2. Organizational inducements are such things as pay, career opportunities, job security, and status. Management Update: The Wall Street Journal has a weekly column in the “Marketplace” section titled “In the Lead.” These columns offer interesting vignettes of corporate leaders at various levels in organizations. Teaching Tip: Discuss with your students the nature of the psychological contract that exists between you as the instructor and them as students. Discussion Starter: Solicit student ideas regarding unusual or novel individual contributions and/or organizational inducements that might be part of a psychological contract. B. The Person–Job Fit Person–job fit is the extent to which the contributions made by the individual match the inducements offered by the organization. There are several possible reasons for an imperfect person–job fit. 1. Organizational selection procedures are imperfect. 2. Both people and organizations change. 3. Each individual is unique. Group Exercise: Have small groups of students discuss with one another what they would consider to be a “perfect” job. Ask them to identify the similarities and differences among the various jobs suggested. C. The Nature of Individual Differences Individual differences are personal attributes that vary from one person to another. Individual differences may contribute to or detract from the job depending on the circumstances. Cross-Reference: Note the role of organization culture, as described in Chapter 6, in helping define psychological contracts and person–job fit and how individual differences might cause one person to fit into an organization while another person will not fit into that same organization at all. Discussion Starter: Ask students if they can recall any instances in which they observed one person who really liked a particular job and another person who strongly disliked the same job. Ask them to speculate on why the differences occurred. II. PERSONALITY AND INDIVIDUAL BEHAVIOR Personality is the relatively permanent set of psychological and behavioral attributes that distinguish one person from another. A. The “Big Five” Personality Traits Contemporary researchers suggest that there are five fundamental personality traits (called the “big five”) that characterize many people in organizations. 1. Agreeableness refers to a person’s ability to get along with others. 2. Conscientiousness refers to the number of goals on which a person focuses. 3. Negative emotionality refers to a person’s general mood and emotional state. 4. Extraversion refers to a person’s comfort level with relationships. 5. Openness refers to a person’s rigidity of beliefs. Cross-Reference: Note that in Chapter 14 we discussed how some organizations attempt to measure the personality of job applicants as part of the selection process. Group Exercise: Ask students to discuss with each other how they might see themselves on each of the “big five” traits. Discussion Starter: Ask students to speculate as to how easy or hard it might be to measure these five personality traits with a questionnaire. B. The Myers-Briggs Framework Based on the work of Carl Jung, this framework assesses personality along four key dimensions. 1. Extroversion (E) versus Introversion (I). Extroverts like to be around other people, while Introverts need solitude. 2. Sensing (S) versus Intuition (N). The Sensing type prefers concrete things, while Intuitives prefer abstract concepts. 3. Thinking (T) versus Feeling (F). Thinking individuals bases their decisions more on logic and reason, while Feeling individuals base their decisions more on feelings and emotions. 4. Judging (J) versus Perceiving (P). People who are the Judging type enjoys completion or being finished, while Perceiving types enjoy the process and open-ended situations. Teaching Tip: Direct students to the interpersonal skill-building exercise for this chapter for more information about the Myers-Briggs framework and for an online assessment tool. C. Other Personality Traits at Work 1. Locus of control refers to the degree to which an individual believes that behavior has a direct impact on the consequences of that behavior. a) Internal locus of control is a belief that success or failure results from one’s own behavior. Extra Example: Most successful top managers appear to have an internal locus of control. b) External locus of control is a belief that success or failure results from fate, chance, luck, or the behavior of others. Teaching Tip: Many different questionnaires exist that purport to measure locus of control. Obtain a copy of one of these and have your students complete it. Be careful not to make actual attributions based on in-class results. Rather, use the results to discuss the nature of locus of control and whether students see the results as being valid. 2. Self-efficacy is an individual’s beliefs about her or his capabilities to perform a task. 3. Authoritarianism is the extent to which an individual believes that power and status differences are appropriate within hierarchical social systems like organizations. Discussion Starter: Ask students whether they see themselves as having high or low levels of authoritarianism. Discussion Starter: Ask students to identify jobs for which different levels of authoritarianism might be more or less appropriate. 4. Machiavellianism is the extent to which people are motivated enough by the pursuit of power to lie and/or manipulate others, even at the expense of loyalty and friendship. Discussion Starter: Ask students for examples of individuals they know or have known who appeared to be high on the Machiavellianism scale. 5. Self-esteem is the extent to which a person believes that he or she is a worthwhile and deserving individual. 6. Risk propensity is the degree to which an individual is willing to take chances and make risky decisions. Discussion Starter: Ask students to comment on their relative level of risk propensity. Ask them to suggest jobs in which high levels of risk propensity are desirable, and jobs in which high levels of risk propensity are less desirable. D. Emotional Intelligence Yet another way to think about personality at work is the concept of emotional intelligence or EQ. Persons with high EQ seem to be more successful and effective at work. There are
five dimensions of EQ. 1. Self-awareness refers to a person’s capacity for being aware of how they are feeling. 2. Managing emotions refers to a person’s capacities to ensure that feelings do not interfere with getting things accomplished. 3. Motivating oneself refers to a person’s ability to remain optimistic in the face of failure. 4. Empathy refers to a person’s ability to understand how others are feeling. 5. Social skill refers to a person’s ability to get along with others. III. ATTITUDES AND INDIVIDUAL BEHAVIOR Attitudes are complexes of beliefs and feelings that people have about specific ideas, situations, or other people. Attitudes are made up of three components. The affective component reflects feelings and emotions that an individual has toward a situation. The cognitive component is derived from perceived knowledge that an individual has about a situation. The intentional component reflects how an individual expects to behave toward or in the situation. Extra Example: Select a given attitude that a student might hold (e.g., a positive attitude toward a particular academic department). Illustrate its three parts (e.g., I like that department; the professors do a good job, and the courses they teach are relevant; I will take another course from that department). The conflict that individuals may experience among their own attitudes is called cognitive dissonance. Extra Example: Students may experience cognitive dissonance as part of their academic programs. For example, when they begin taking courses in their intended major, they may decide that they do not like that field after all. Ask students if they have ever experienced anything like this. A. Work-Related Attitudes 1. Job satisfaction or dissatisfaction is an attitude that reflects the extent to which an individual is gratified by or fulfilled in his or her work. 2. Organizational commitment is an attitude that reflects an individual’s identification with and attachment to the organization itself. Extra Example: The problem being encountered by firms that have recently downsized is that the downsizing has led to employees experiencing lower levels of organizational commitment and job involvement. Group Exercise: Have students think of attitudes that they have held for a long time, and then discuss what might be necessary to get them to change those attitudes. Also ask them to identify attitudes that they have changed and to note why those changes took place. B. Affect and Mood in Organizations 1. Some people seem to have a general attitude set called positive affectivity, which results in them being upbeat and optimistic, having an overall sense of well-being, seeing things in a positive light, and usually seeming to be in a good mood. 2. Others seem to have a general attitude set called negative affectivity, which results in them being downbeat and pessimistic, seeing things in a negative way, and usually seeming to be in a bad mood. Discussion Starter: Ask students to identify and discuss characters from popular television shows who seem to have a lot of positive and/or negative affectivity. IV. PERCEPTION AND INDIVIDUAL BEHAVIOR Perception is the set of processes by which an individual becomes aware of and interprets information about the environment. A. Basic Perceptual Processes 1. Selective perception is the process of screening out information that we are uncomfortable with or that contradicts our beliefs 2. Stereotyping is the process of categorizing or labeling people on the basis of a single attribute Extra Example: Note that if the morning newspaper had featured a headline story about a big increase in tuition at your school, most students would be aware of it. However, assuming that was not the case, fewer students can recall the headline because it was less relevant to them. Discussion Starter: Ask students to identify specific examples, other than those in the text, to illustrate positive and negative examples of selective perception and stereotyping. B. Perception and Attribution Attribution is a mechanism through which we observe behavior and then attribute causes to it. Attribution occurs as a result of three forces. 1. Consensus is the extent to which other people in the same situation behave the same way. 2. Consistency is the extent to which the same person behaves in the same way at different times. 3. Distinctiveness is the extent to which the same person behaves in the same way in other situations. V. STRESS AND INDIVIDUAL BEHAVIOR A. Stress is an individual’s response to a strong stimulus. This stimulus is called a stressor. Stress can be either beneficial or detrimental. Teaching Tip: Students can easily relate to the topic of stress. B. Stress generally follows a cycle referred to as the General Adaptation Syndrome, or GAS. The stages in the GAS are alarm, resistance, and exhaustion. C. Type A individuals are competitive, devoted to work, and have a strong sense of time urgency. Type B individuals are less competitive, less devoted to work, and have a weaker sense of time urgency. Discussion Starter: Ask students whether they consider themselves to be Type A or Type B. Cross-Reference: Note that the Type A/B distinction parallels the discussion of individual differences earlier in this chapter. That is, if we did not have this separate section on stress, we could have discussed Type A/B along with locus of control, self-esteem, and the other personality-based differences. D. Causes and Consequences of Stress 1. Causes of stress fall into one of four categories. a) Task demands are associated with the task itself. Extra Example: The job of telemarketer is one with a high level of task demands-related stress. Such workers must follow a prescribed script to sell products, are under intense pressure to make lots of calls, and often encounter abrupt, negative reactions from the people they call. b) Physical demands are stressors associated with the job setting. c) Role demands are stressors associated with roles (discussed more fully in Chapter 19). Extra Example: When an executive reported for work at the U.S. Bank of Washington on a holiday, he noted that he was the one-hundredth manager to sign in for work that day—a holiday when the bank was officially closed. d) Interpersonal demands are stressors associated with relationships that confront people in organizations. Teaching Tip: While stress can be a trigger for workplace violence, other factors that also enter in include the organizational culture and the individual’s personal history and propensity for violence. Extra Example: While stress can initiate workplace violence, the fact that violence has occurred subsequently increases stress for other employees. 2. There are several likely consequences of stress. a) Behavioral consequences include detrimental or harmful actions such as smoking, alcoholism, overeating, drug abuse, accident proneness, and violence. b) Psychological consequences of stress include sleep disturbances, depression, family problems, and sexual dysfunction. c) Medical consequences of stress include heart disease, stroke, headaches, backaches, ulcers, and skin conditions. Global Connection: The Japanese use the word karoshi to refer to death from overwork. Some experts estimate that karoshi claims as many as thirty thousand people a year in that country. d) Individual stress also has direct consequences for businesses, including poor quality work, lower productivity, faulty decision making, absenteeism, and turnover. e) Burnout is a feeling of exhaustion that may develop when someone experiences too much stress for an extended period of time E. Managing Stress 1. People manage stress through exercise, relaxation, time management, and support groups. Extra Example: Prayer and meditation are increasingly being used by individuals to manage stress. Discussion Starter: Ask students how they manage their own stress. 2. Organizations can help employees cope with stress through wellness programs, stress management programs, health promotion programs, and fitness programs. Discussion Starter: Ask students for other ideas on how organizations can help workers manage stress. VI. CREATIVITY IN ORGANIZATIONS Creativity is the ability of an individual to generate new ideas or to conceive of new perspectives on existing ideas. A. The Creative Individual Several characteristics often exemplify creative individuals. 1. A creative environment during childhood often fosters individual creativity. 2. Creative people also tend to be open, energetic, independent, autonomous, and self-confident, and to see themselves as being creative. 3. Creative people tend to be intelligent and to have divergent and convergent thinking skills. Discussion Starter: Ask students to assess their own creativity and/or the creativity of people they know. Teaching Tip: Stress for students that these individual characteristics tend to be generalizations, not rigid requirements that someone must meet to be deemed creative. B. The Creative Process The creative process often follows four distinct stages 1. Preparation occurs when an individual is getting ready to be creative and can include education and experiences. 2. Incubation is a period of low intensity during which the individual takes a break from the problem. Teaching Tip: Point out for students that the adage “sleep on it” often refers to the incubation process. 3. Insight is the spontaneous breakthrough that allows the discovery of a solution. It may emerge gradually or suddenly. Teaching Tip: Point out for your students that the common visual metaphor of a light bulb over a person’s head as he or she gets an idea actually shows insight. Extra Example: Legend has it that Archimedes first coined the phrase “Eureka!” (which means “I have found it!” in Greek) when he achieved a critical insight into a problem while bathing one day. On the downside, he was so excited by his discovery that he then ran naked through the streets of Athens. 4. Verification follows breakthrough and is used to determining the validity of the insight. Discussion Starter: Ask students for examples of how they achieved creativity through these four stages. C. Enhancing Creativity in Organizations Organizations can attempt to promote creativity by making it a part of the firm’s culture and by integrating creative activities with the reward system. VII. TYPES OF WORKPLACE BEHAVIOR Workplace behavior is a pattern of action by the members of an organization that directly or indirectly influences organizational effectiveness. A. Performance Behaviors Performance behaviors are the total set of work-related behaviors that the organization expects the individual to display. Performance behaviors are diverse and may be difficult to assess. Cross-Reference: Note that the methods of performance evaluation discussed in Chapter 13 focus primarily on measuring workplace behaviors. B. Withdrawal Behavior Another important type of work-related behavior is that which results in withdrawal. 1. Absenteeism occurs when an individual does not show up for work. Discussion Starter: Ask students to recall examples of when they were absent from work for reasons that their employer might not have thought of as being legitimate. 2. Turnover occurs when people quit their jobs. Discussion Starter: Ask students who have quit one or more previous jobs to recall what caused them to do so. C. Dysfunctional Behavior Dysfunctional behaviors are those that detract from, rather than contribute to, organizational performance. They include absenteeism and turnover and also theft, sabotage, sexual and racial harassment, politicized behavior, and violence. D. Organizational Citizenship Organizational citizenship refers to the behavior of individuals that makes a positive overall contribution to the organization. Teaching Tip: Stress for students that citizenship goes beyond strict productivity. Extra Example: Note that the person making the highest grade on a test may be the top performer. However, that same person may not always be in class, may contribute little to class, and may come in late and/or leave early. Someone else, however, may attend class more regularly, participate in class discussion more often, always be in class on time, and be willing to sit past class ending time for a few minutes while you finish an important point. This individual may be a better organizational citizen. Instructor Manual for Management Ricky W. Griffin 9781111969714
