Category: Management Science

Corporate management science is the broad interdisciplinary study of problem solving and decision making in human organizations, with strong links to management, economics, business, engineering, management consulting, and other fields. It uses various scientific research-based principles, strategies, and analytical methods including mathematical modeling, statistics and numerical algorithms to improve an organization’s ability to enact rational and accurate management decisions by arriving at optimal or near optimal solutions to complex decision problems. Corporate management science helps businesses to achieve goals using various scientific methods.

The field was initially an outgrowth of applied mathematics, where early challenges were problems relating to the optimization of systems which could be modeled linearly, i.e., determining the optima (maximum value of profit, assembly line performance, crop yield, bandwidth, etc. or minimum of loss, risk, costs, etc.) of some objective function. Today, management science encompasses any organizational activity for which a problem is structured in mathematical form to generate managerially relevant insights.

Corporate management science is concerned with a number of different areas of study: One is developing and applying models and concepts that may prove useful in helping to illuminate management issues and solve managerial problems. The models used can often be represented mathematically, but sometimes computer-based, visual or verbal representations are used as well or instead. Another area is designing and developing new and better models of organizational excellence.

The management scientist’s mandate is to use rational, systematic, science-based techniques to inform and improve decisions of all kinds. The techniques of management science are not restricted to business applications but may be applied to military, medical, public administration, charitable groups, political groups or community groups.

Its origins can be traced to operations research, which became influential during World War II when the Allied forces recruited scientists of various disciplines to assist with military operations. In these early applications, the scientists used simple mathematical models to make efficient use of limited technologies and resources. The application of these models to the corporate sector became known as management science.

[title text=”Main contents” link_text=”See more from basic to advanced” link=”/category/management-science/”]

[blog_posts style=”normal” col_spacing=”xsmall” columns=”3″ columns__md=”1″ depth_hover=”2″ auto_slide=”6000″ cat=”127″ posts=”3″ offset=”91″ show_date=”false” excerpt_length=”25″ comments=”false” image_height=”60%” image_size=”original” image_hover=”zoom” text_align=”left”]

[blog_posts style=”normal” col_spacing=”xsmall” columns=”3″ columns__md=”1″ depth_hover=”2″ auto_slide=”6000″ cat=”127″ posts=”3″ offset=”88″ show_date=”false” excerpt_length=”25″ comments=”false” image_height=”60%” image_size=”original” image_hover=”zoom” text_align=”left”]

[blog_posts style=”normal” col_spacing=”xsmall” columns=”3″ columns__md=”1″ depth_hover=”2″ auto_slide=”7000″ cat=”127″ posts=”6″ offset=”82″ show_date=”false” excerpt_length=”25″ comments=”false” image_height=”60%” image_size=”original” image_hover=”zoom” text_align=”left”]

[blog_posts style=”normal” col_spacing=”xsmall” columns=”3″ columns__md=”1″ depth_hover=”2″ auto_slide=”6000″ cat=”127″ posts=”6″ offset=”76″ show_date=”false” excerpt_length=”25″ comments=”false” image_height=”60%” image_size=”original” image_hover=”zoom” text_align=”left”]

[blog_posts style=”normal” col_spacing=”xsmall” columns=”3″ columns__md=”1″ depth_hover=”2″ auto_slide=”5000″ cat=”127″ posts=”6″ offset=”70″ show_date=”false” excerpt_length=”25″ comments=”false” image_height=”60%” image_size=”original” image_hover=”zoom” text_align=”left”]

[blog_posts style=”normal” col_spacing=”xsmall” columns=”3″ columns__md=”1″ depth_hover=”2″ auto_slide=”6000″ cat=”127″ posts=”6″ offset=”64″ show_date=”false” excerpt_length=”25″ comments=”false” image_height=”60%” image_size=”original” image_hover=”zoom” text_align=”left”]

[blog_posts style=”normal” col_spacing=”xsmall” columns=”3″ columns__md=”1″ depth_hover=”2″ auto_slide=”7000″ cat=”127″ posts=”6″ offset=”58″ show_date=”false” excerpt_length=”25″ comments=”false” image_height=”60%” image_size=”original” image_hover=”zoom” text_align=”left”]

[blog_posts style=”normal” col_spacing=”xsmall” columns=”3″ columns__md=”1″ depth_hover=”2″ auto_slide=”5000″ cat=”127″ posts=”6″ offset=”52″ show_date=”false” excerpt_length=”25″ comments=”false” image_height=”60%” image_size=”original” image_hover=”zoom” text_align=”left”]

[blog_posts style=”normal” col_spacing=”xsmall” columns=”3″ columns__md=”1″ depth_hover=”2″ auto_slide=”6000″ cat=”127″ posts=”6″ offset=”46″ show_date=”false” excerpt_length=”25″ comments=”false” image_height=”60%” image_size=”original” image_hover=”zoom” text_align=”left”]

[blog_posts style=”normal” col_spacing=”xsmall” columns=”3″ columns__md=”1″ depth_hover=”2″ auto_slide=”7000″ cat=”127″ posts=”6″ offset=”40″ show_date=”false” excerpt_length=”25″ comments=”false” image_height=”60%” image_size=”original” image_hover=”zoom” text_align=”left”]

[row style=”small” class=”form-lien-he”]

[col span=”2″ span__sm=”12″]

[/col]
[col span=”4″ span__sm=”12″]

[button text=”Home” color=”secondary” style=”gloss” radius=”5″ depth=”2″ depth_hover=”3″ expand=”true” icon=”icon-star” icon_pos=”left” link=”https://phantran.net/”]

[/col]
[col span=”4″ span__sm=”12″]

[button text=”See basic to advanced” style=”gloss” radius=”5″ depth=”2″ depth_hover=”3″ expand=”true” icon=”icon-checkmark” icon_pos=”left” link=”https://phantran.net/category/management-science/”]

[/col]
[col span=”2″ span__sm=”12″]

[/col]

[/row]

What do managers such as Heather  Coin and Paul McGuinness have in common? They get things done through  their organizations.  Managers create the sys- tems, conditions,  and environments that enable orga- nizations to survive and thrive beyond the tenure of any specific supervisor or manager.  Jack Welch was CEO of General Electric through 20 amazingly suc- cessful  years, and some  observers worried that GE would falter without him after he left. Yet, the leader- ship transition to Jeff Immelt in 2001  was as smooth as silk, and in 2005–06 GE once again topped Fortune magazine’s  list of “Most Admired Companies,”  as well as ranking  number  one on the Financial Times’

People who have studied GE aren’t surprised. The company has thrived  for more than a century  because managers throughout the years created the ideal environment  and condi- tions:  a shared sense of purpose and pride, a passion for change and willingness to take risks, and, most important, an obsession with people and making them the best they can be.

The commitment to developing leaders at all levels began in the late 1800s with CEO Charles Coffin, who emphasized that GE’s most important product was not lightbulbs or transformers but, rather, managerial talent. Every manager at GE is required to spend  a huge amount of time on human resources issues—recruiting, training, appraising, mentor- ing, and developing leadership talent for the future.6

A key aspect of managing is to recognize the role and importance of other people. Early twentieth-century  management scholar Mary Parker Follett defined  management  as “the art of getting things done through people.”7

More recently, noted management theorist Peter Drucker stated that the job of manag- ers is to give direction to their organizations, provide leadership, and decide how to use or- ganizational resources to accomplish goals.8 Getting  things done through people and other resources and providing  leadership and direction  are what managers do. These activities apply to top executives such as Bill Gates of Microsoft and Steve Jobs of Apple but also to the leader of an airport  security team, a supervisor of an accounting department, or a direc- tor of sales and marketing. Moreover, management often is considered universal because it uses organizational resources to accomplish goals and attain high performance in all types of profit and nonprofit organizations.

Thus, our definition of management is: the attainment of organizational  goals in an

effective and efficient manner through planning, organizing, leading, and controlling organizational resources. This definition holds two important ideas: (1) the four functions of planning, organizing, leading, and controlling, and (2) the attainment of organizational goals in an effective and efficient manner. Managers use a multitude of skills to perform these functions.  Management’s  conceptual, human,  and technical skills are discussed later in the chapter. Exhibit 1.1 illustrates  the process of how managers use resources to attain organiza- tional goals. Although some management theorists identify additional management functions, such as staffing, communicating, or decision making, those additional functions will be dis- cussed  as subsets  of the four primary functions in Exhibit 1.1. Chapters of this book are devoted to the multiple activities  and skills associated with each function, as well as to the environment,  global competitiveness, and ethics, which influence how managers perform these functions.

Source: Daft Richard L., Marcic Dorothy (2009), Understanding Management, South-Western College Pub; 8th edition.

The definition of management includes the attainment of organizational  goals in an effi- cient and effective manner. Management is important because organizations  are impor- tant. In an industrialized  society where complex technologies dominate, organizations bring together knowledge, people, and raw materials to perform tasks no individual could do alone. Without organizations, how could technology be provided that enables us to share information  around the world in an instant; or electricity  be produced from huge dams and nuclear power plants; or thousands of videogames, compact discs, and DVDs be made available for our entertainment?

Organizations pervade our society. Most college students will work in an organization— perhaps Cingular Wireless, Toronto General Hospital, Office Depot, or Hollywood  Video. College  students already are members of several organizations,  such as a university  or a junior college, YMCA, church, fraternity, or sorority. College students also deal with or- ganizations every day—to renew a driver’s license, be treated in a hospital  emergency room, buy food from a supermarket,  eat in a restaurant,  or purchase new clothes. Managers are responsible for these organizations  and for seeing that resources are used wisely to attain organizational goals.

Our formal definition of an organization is a social entity  that is goal-directed and de-liberately structured. Social entity means being made up of two or more people. Goal-directed means designed to achieve some outcome, such as to make a profit (for example, Old Navy, Starbucks), to win pay increases for members (AFL-CIO), to meet spiritual needs (say, the United Methodist Church), or provide social satisfaction (a college sorority, for instance).

Deliberately structured means that tasks are divided and responsibility for their performance is assigned to organization members. This definition applies to all organizations, including both profit and nonprofit.  Small, offbeat, and nonprofit organizations are more numerous than large, visible corporations—and just as important to society.

Based on our definition of management, the manager’s responsibility  is to coordinate resources in an effective and efficient manner to accomplish the organization’s  goals. Organizational effectiveness is the extent to which the organization achieves a stated goal, or succeeds in accomplishing what it tries to do. Organizational effectiveness means pro- viding a product or service that customers value.

Organizational efficiency refers to the amount of resources used to achieve an organi- zational goal. It is based on how  much raw material,  money,  and people are necessary for producing  a given volume  of output. Efficiency  can be calculated as the amount of re- sources used to produce a product  or service.

Efficiency and effectiveness can both be at high levels in the same organization. During the tough economy of the early 2000s, companies such as Eaton Corporation, which makes hydraulic  and electrical devices, struggled to wring as much production  as it could from scaled-back factories and a reduced workforce.  Managers initiated  process improvements, outsourced some work to companies that could do it cheaper, streamlined ordering and shipping  procedures, and shifted work to the most efficient assembly lines. At Eaton, these adjustments enabled the company to cut costs and hold the line on prices  as well as meet its quality and output goals.9

Sometimes, however, managers’ efforts to improve  efficiency can hurt organizational effectiveness, especially in relation to severe cost-cutting. Some years ago, a former  CEO at Delta Airlines dramatically increased cost efficiency by cutting spending on personnel, food, cleaning, and maintenance. These moves temporarily rescued the company from  a fi- nancial tailspin, but they also precluded Delta from meeting its effectiveness goals. The airline fell to last place among major carriers in on-time performance, the morale of em- ployees sank, and customer complaints  about dirty planes and long lines at ticket counters increased by more than 75 percent.10

The ultimate responsibility of managers is to achieve high performance. This means the attainment of organizational   goals by using resources  in an efficient and effective manner.

Source: Daft Richard L., Marcic Dorothy (2009), Understanding Management, South-Western College Pub; 8th edition.

A manager’s job requires a range of skills. Although some management theorists propose a long list of skills, the necessary skills for managing a department or an organization can be placed in three categories: conceptual, human, and technical.¹⁴ As illustrated in Exhibit 1.4, the application of these skills changes dramatically when a person is promoted to man­agement. Although the degree of each skill that is required at different levels of an organization may vary, all managers must possess some skill in each of these important areas to perform effectively.

When Skills Fail

Good management skills are not automatic. Particularly during turbulent times, managers really have to stay on their toes and apply all their skills and competencies in a way that benefits the orga­nization and its stakeholders—employees, custom­ers, investors, the community, and so forth. In recent years, numerous highly publicized examples have shown what happens when managers fail to apply their skills effectively to meet the demands of an uncertain, rapidly changing world.

Everyone has flaws and weaknesses, and these shortcomings become most appar­ent under conditions of rapid change, uncertainty, or crisis.¹⁵ Consider the uproar that resulted in 2013 from the decision of managers at the Internal Revenue Service (IRS) to apply additional screening to tax-exempt applications from conservative Tea Party groups. When a manager for so-called Group 7822, an IRS office that screens and processes thou­sands of applications a year from organizations seeking tax-exempt status, noticed a grow­ing number of applications from groups identifying themselves as part of the Tea Party, the manager advised workers to flag them and similar groups to see if their purpose was too political to be eligible under the rules for tax exemption. It has long been a practice to give extra scrutiny to certain kinds of groups that present a potential for fraudulent use of tax exempt status, but critics say the agency went too far in how it applied the practice to conservative political organizations, in some cases delaying applications for years. Congressional investigators are probing whether agency activities constituted dis­crimination against conservative groups, and the full story of what happened and why is still emerging.¹⁶ IRS managers at all levels involved in the decision appear to have needed stronger conceptual skills to prevent this crisis from happening, and higher-level execu­tives had to call upon all their conceptual and human skills to resolve the dilemma and work to restore the public trust.

The numerous ethical and financial scandals of recent years have left people cynical about business and government managers and even less willing to overlook mistakes. Crises and examples of deceit and greed grab the headlines, but many more companies falter or fail less spectacularly. Managers fail to listen to customers, are unable to motivate employees, or can’t build a cohesive team. For example, the reputation of Zynga, maker of games like Farmville that were ubiquitous on Facebook for a while, plummeted along with its share price in 2012. Although there were several problems at Zynga, one was that founder and former CEO Mark Pincus had an aggressive style that made it difficult to build a cohesive team. The exodus of key executives left the company floundering, and the company’s shares fell 70 percent. Pincus stepped down as CEO in July 2013, and former Xbox executive Don Mattrick took over to try to revive the once-hot game maker.¹⁷ Exhibit 1.6 shows the top 10 factors that cause managers to fail to achieve desired results, based on a survey of man­agers in U.S. organizations operating in rapidly changing business environments.¹⁸ Notice that many of these factors are due to poor human skills, such as the inability to develop good work relationships, a failure to clarify direction and performance expectations, or an inability to create cooperation and teamwork. The number one reason for manager failure is ineffective communication skills and practices, cited by 81 percent of managers surveyed. Especially in times of uncertainty or crisis, if managers do not communicate effectively, including listening to employees and customers and showing genuine care and concern, organizational performance and reputation suffer.

Source: Daft Richard L., Marcic Dorothy (2009), Understanding Management, South-Western College Pub; 8th edition.

Managers use conceptual, human, and technical skills to perform the four management functions of planning, organizing, leading, and controlling in all organizations—large and small, manufacturing and service, profit and nonprofit, traditional and Internet-based. But not all managers’ jobs are the same. Managers  are responsible for different departments, work at different levels in the hierarchy, and meet different requirements for achieving high performance.

Twenty-five-year-old Daniel Wheeler is a first-line  manager in his first management job at Del Monte Foods, where he is involved directly in promoting products, approving packaging sleeves, and organizing sampling events.12 Kevin Kurtz is a middle manager at Lucasfilm,  where he works with employees to develop marketing campaigns for some of the entertainment company’s hottest films.13 Domenic Antonellis is CEO of the New England Confectionary Co. (Necco), the company that makes those tiny pastel candy hearts stamped with phrases such as “Be Mine” and “Kiss Me.”14 All three are managers and must contribute to planning, organizing, leading, and controlling their organizations— but in different amounts and ways.

During turbulent times, managers really have to stay on their toes and use all their skills and competencies to benefit the organization and its stakeholders—employees, customers, investors, the community,  and so forth. In recent years, numerous, highly publicized ex- amples showed us what happens when managers fail to effectively and ethically apply their skills to meet the demands of an uncertain, rapidly changing world. Companies  such as Enron, Tyco, and WorldCom were flying high in the 1990s but came crashing down under the weight of financial scandals. Others,  such as Rubbermaid, Kmart, and Xerox, are strug- gling because of years of management missteps.

Although corporate greed and deceit grab the headlines, many more companies fal- ter or fail less spectacularly.  Managers  fail to listen to customers, misinterpret  signals from the marketplace, or can’t build a cohesive team and execute a strategic plan. Over the past several years numerous  CEOs, including Carly Fiorina at Hewlett-Packard, Michael Eisner at Disney, and David Pottruck at Charles Schwab Corp., have been ousted because of their failure to implement their strategic plans and improve business results.

Examination of struggling  organizations  and executives offers a glimpse into the mis- takes that managers often make in a turbulent environment.15 Perhaps the biggest blunder is managers’ failure to comprehend and adapt to the rapid pace of change in the world around them. For example,  even though Xerox’s PARC research center practically  invented  the personal computer, top managers resisted getting into the computer  business until it was too late to even get in the game, much  less have a chance at winning. A related problem stems from top managers who create a climate  of fear in the organization  so people are afraid to tell the truth. Thus, bad news gets hidden, and important  signals from the marketplace are missed.

Other critical management missteps include  poor communication skills and failure to listen; treating people only as instruments to be used; suppressing dissenting  view- points; and being unable to build a management team characterized by mutual trust and respect.16 The financial  scandals of the early twenty-first century, from Enron to mutual- fund mismanagement, clearly show what can happen, for instance, when top managers pay more attention to money and Wall Street than they do to their employees and customers.

As another example, consider what happened at The New York Times when it became publicly known that Jayson Blair, a rising young reporter, had fabricated and plagiarized many of his stories. Only then did top executives acknowledge the pervasive unhappiness that existed in the newsroom. Executive editor Howell Raines, who had created an envi- ronment that favored certain editors and reporters while others were afraid to offer dis- senting viewpoints or tell their managers the truth, resigned under pressure following the scandal. The Times still is struggling to regain its footing and reclaim its honorable image.

Source: Daft Richard L., Marcic Dorothy (2009), Understanding Management, South-Western College Pub; 8th edition.

Many people who are promoted into a manager position have little idea what the job actu­ally entails and receive little training about how to handle their new role. It’s no wonder that, among managers, first-line supervisors tend to experience the most job burnout and attrition.²³

Making the shift from individual contributor to manager is often tricky. Mark Zuckerberg, whose company, Facebook, went public a week before he turned 28 years old, provides an example. In a sense, the public has been able to watch as Zuckerberg has “grown up” as a manager. He was a strong individual performer in creating the social media platform and forming the company, but he fumbled with day-to-day management, such as interactions with employees and communicating with people both inside and outside Facebook. Zuckerberg was smart enough to hire seasoned managers, including former Google executive Sheryl Sandberg, and cultivate advisors and mentors who have coached him in areas where he is weak. He also shadowed David Graham at the offices of The Post Company (the publisher of The Washington Post before it was purchased by Jeff Bezos) for four days to try to learn what it is like to manage a large organization. Now that Facebook is a public company, Zuckerberg is watched more closely than ever to see if he has what it takes to be a manager of a big public corporation.²⁴

Harvard professor Linda Hill followed a group of 19 managers over the first year of their managerial careers and found that one key to success is to recognize that becoming a manager involves more than learning a new set of skills. Rather, becoming a manager means a profound transformation in the way people think of themselves, called personal identity, which includes letting go of deeply held attitudes and habits and learning new ways of thinking.²⁵ Exhibit 1.7 outlines the transformation from individual performer to manager. The individual performer is a specialist and a “doer.” His or her mind is condi­tioned to think in terms of performing specific tasks and activities as expertly as possible. The manager, on the other hand, has to be a generalist and learn to coordinate a broad range of activities. Whereas the individual performer strongly identifies with his or her specific tasks, the manager has to identify with the broader organization and industry.

In addition, the individual performer gets things done mostly through his or her own efforts and develops the habit of relying on self rather than others. The manager, though, gets things done through other people. Indeed, one of the most common mistakes that new managers make is wanting to do all the work themselves, rather than delegating to others and developing others’ abilities.²⁶ Hill offers a reminder that, as a manager, you must “be an instrument to get things done in the organization by working with and through others, rather than being the one doing the work.”²⁷

Another problem for many new managers is that they expect to have greater freedom to do what they think is best for the organization. In reality, though, managers find themselves hemmed in by interdependencies. Being a successful manager means thinking in terms of building teams and networks and becoming a motivator and organizer within a highly interdependent system of people and work.²⁸ Although the distinctions may sound simple in the abstract, they are anything but. In essence, becoming a manager means becoming a new person and viewing oneself in a completely new way.

Many new managers have to make the transformation in a “trial by fire,” learning on the job as they go, but organizations are beginning to be more responsive to the need for new manager training. The cost to organizations of losing good employees who can’t make the transition is greater than the cost of providing training to help new managers cope, learn, and grow. In addition, some organizations use great care in selecting people for managerial positions, including ensuring that each candidate understands what management involves and really wants to be a manager.

Source: Daft Richard L., Marcic Dorothy (2009), Understanding Management, South-Western College Pub; 8th edition.

Small businesses are growing in importance. Hundreds of small businesses open every month, but the environment for small business today is highly complicated. The Appendix provides detailed information about managing in small businesses and entrepreneurial start-ups.

One interesting finding is that managers in small businesses tend to emphasize roles different from those of managers in large corporations. Managers in small companies often see their most important role as that of spokesperson because they must promote the small, growing company to the outside world. The entrepreneur’s role is also critical in small businesses because managers have to be innovative and help their organizations develop new ideas to remain competitive. At LivingSocial, for example, founder and CEO, Tim O’Shaughnessy, spends a lot of his time promoting the rapidly growing daily-deal site and talk­ing with department heads about potential new products and ser­vices.⁴³ Small-business managers tend to rate lower on the leader role and on information-processing roles, compared with their counterparts in large corporations.

Nonprofit organizations also represent a major application of management talent.⁴⁴ Organizations such as the Salvation Army, Nature Conservancy, Greater Chicago Food Depository,

Girl Scouts, and Cleveland Orchestra all require excellent man­agement. The functions of planning, organizing, leading, and controlling apply to nonprofits just as they do to business orga­nizations, and managers in nonprofit organizations use similar skills and perform similar activities. The primary difference is

that managers in businesses direct their activities toward earning money for the company and its owners, whereas managers in nonprofits direct their efforts toward generating some kind of social impact. The characteristics and needs of nonprofit organizations created by this distinction present unique challenges for managers.⁴⁵

Financial resources for government and charity nonprofit organizations typically come from taxes, appropriations, grants, and donations rather than from the sale of products or services to customers. In businesses, managers focus on improving the organization’s prod­ucts and services to increase sales revenues. In nonprofits, however, services are typically provided to nonpaying clients, and a major problem for many organizations is securing a steady stream of funds to continue operating. Nonprofit managers, committed to serving clients with limited resources, must focus on keeping organizational costs as low as pos- sible.⁴⁶ Donors generally want their money to go directly to helping clients rather than for overhead costs. If nonprofit managers can’t demonstrate a highly efficient use of resources, they might have a hard time securing additional donations or government appropriations. Although the Sarbanes-Oxley Act (the 2002 corporate governance reform law) doesn’t apply to nonprofits, for example, many are adopting its guidelines, striving for greater trans­parency and accountability to boost credibility with constituents and be more competitive when seeking funding.⁴⁷

In addition, some types of nonprofit organizations, such as hospitals and private univer­sities that obtain revenues from selling services to clients, do have to contend with a bottom line in the sense of having to generate enough revenues to cover expenses, so managers often struggle with the question of what constitutes results and effectiveness. It is easy to measure revenues compared to expenses, but the metrics of success in nonprofits are typically much more ambiguous. Managers have to measure intangibles such as “improve public health,” “upgrade the quality of education,” or “increase appreciation for the arts.” This intangible nature also makes it more difficult to gauge the performance of employees and managers. An added complication is that managers in some types of nonprofits depend on volunteers and donors who cannot be supervised and controlled in the same way that a business manager deals with employees. Many people who move from the corporate world to a nonprofit are surprised to find that the work hours are often longer and the stress greater than in their previous management jobs.⁴⁸

The roles defined by Mintzberg also apply to nonprofit managers, but they may differ somewhat. We might expect managers in nonprofit organizations to place more emphasis on the roles of spokesperson (to “sell” the organization to donors and the public), leader (to build a mission-driven community of employees and volunteers), and resource allocator (to distribute government resources or grant funds that are often assigned top-down).

Managers in all organizations—large corporations, small businesses, and nonprofit organizations—carefully integrate and adjust the management functions and roles to meet challenges within their own circumstances and keep their organizations healthy.

Source: Daft Richard L., Marcic Dorothy (2009), Understanding Management, South-Western College Pub; 8th edition.

Over the past decade or so, the central theme being discussed in the field of management has been the pervasive changes. Rapid environmental shifts are causing fundamental  trans- formations that have a dramatic  impact  on the manager’s job. These transformations  are reflected in the transition to a new workplace, as illustrated  in Exhibit 1.5. The primary characteristic of the new workplace is that it centers on bits rather than atoms—information and ideas rather than machines and physical assets. Low-cost computing power means that ideas, documents, movies, music, and all sorts of other data can be zapped around  the world at the speed of light. The digitization of business has radically altered the nature of work, employees, and the workplace itself.34

The old workplace is characterized  by routine,  specialized tasks, and standardized control procedures. Employees typically perform their jobs in one company facility, such  as an automobile factory in Detroit or an insurance agency in Des Moines. The organization is coordinated and controlled through the vertical hierarchy, and decision-making authority resides with upper-level managers.

In the new workplace, by contrast, work is free-flowing and flexible. The shift is most obvi- ous in e-commerce and high-tech  organizations, which have to respond to changing markets and competition at a second’s notice. Numerous  other organizations, such as McKinsey & Company, Canada Life, and Nokia, are also incorporating  mechanisms to enhance speed and flexibility. Empowered employees are expected to seize opportunities and solve problems as they emerge. Structures  are flatter, and lower-level employees make decisions based on widespread information  and guided by the organization’s mission and values.35

Knowledge is shared widely rather than hoarded by managers, and people throughout the company keep in touch with a broader range of colleagues via advanced technology. Some organizations, such as Tenary Software, are trying these new models.

The workplace is organized  around  networks rather than rigid hierarchies,  and work is often virtual, with managers having to supervise and coordinate  people who never actually “come to work” in the traditional sense. Thanks  to modern informa- tion and communications  technology, employees can perform  their jobs from home or another remote location, at any time of the day or night.36 Flexible hours, tele- commuting, and virtual teams are increasingly  popular  ways of working that require new skills from managers. Using virtual teams allows organizations  to use the best peo- ple for specific jobs, no matter where they are located, which enables a fast, innovative response to competitive pressures. Teams also may include  outside contractors,  suppli- ers, customers, competitors, and interim managers who  are not affiliated with a specific organization but, instead, work on a project-by-project  basis. The valued worker is one who learns  quickly, shares knowledge,   and is comfortable  with  risk, change,  and ambiguity.

1. FORCES   ON   ORGANIZATIONS

The most striking  change affecting organizations and management is technology. Consider that computing  power has roughly doubled every 18 months over the past 30 years while the cost has declined  by half or more every 18 months.37 In addition, the Internet, which was little more than a curiosity  to many  managers  as recently  as a decade ago, has trans- formed the way business is done. Many organizations  use digital networking technologies to tie together employees and company partners in far-flung operations. Organizations are increasingly shifting significant chunks of what once were considered core functions  to outsiders  via outsourcing,  joint ventures,  and other complex  alliances. Companies   are becoming interconnected, and managers have to learn how to coordinate relationships with other organizations and influence people who can’t be managed and commanded in tradi- tional ways.

The Internet and other new technologies   also  are  tied closely  to globalization. Although global interconnections  bring many opportunities,  they also  bring new threats, raise new risks, and accelerate complexity  and competitiveness. Think about the trend toward outsourcing to low-cost providers in other countries. To cut costs, U.S. companies have been sending manufacturing  work to other countries for years. Now, work involving high-level knowledge is also being outsourced to countries such as India, Malaysia, and South Africa. India’s Wipro Ltd., for example, writes software, performs consulting work,  integrates back-office solutions, undertakes   systems integration,  and handles technical support for some of the biggest corporations in the United States—and  does this for 40 percent less than comparable  U.S. companies can do the work.38

Diversity of the population and the workforce in the United States is another fact of life for organizations. The general population  of the United States, and thus of the workforce, is growing more ethnically and racially diverse. In addition,  generational diversity is a pow- erful force in today’s workplace, with employees of all ages working together on teams and projects in a way rarely seen in the past. In the face of these transformations,  organizations are learning to value change, innovation,  and speed over stability  and efficiency.

The fundamental paradigm during much of the twentieth century  was a belief that things  can be stable. In contrast, the new paradigm  recognizes change and chaos as the natural order of things.39  Events in today’s world are turbulent and unpredictable, with small and large crises occurring  frequently.  Rock star David Bowie has staked the newest phase of his career on that turbulence (see Bowie  Bonds  feature on next page).

One way that managers are addressing the complexity  of today’s world is by renewing their emphasis on innovation. With the power of the Internet, for example, companies have lost much of their ability to control information to consumers and the public, so they are forced  to innovate with increasingly better products and services to remain competitive. The intense competition brought about by globalization also spurs compa- nies to keep pace with new technologies and innovative management practices.40 A re- port from a group  of leading scientists, executives, and educators points to the growing innovation strength of countries  such as China and India, which are poised  to usurp America’s  position as  an innovation leader. Between  the years  of 1991 and 2003, research and development  spending in China  exceeded that in the United States by bil- lions of dollars.41

Over the past few years, though,  an explosion of attention to innovation roared through U.S. firms. For example, Motorola, which seemed to be on the has-been list in the opening years of the twenty-first century, roared back to life with hot new products  such as the RAZR phone, the ROKR, the first combination cell phone and iPod, and the Q phone and e-mail device, designed to compete with the BlackBerry. Motorola CEO Ed Zander is implementing  management and cultural changes  that support an ongoing process  of innovation.42

Motorola’s  changes reflect a broader movement in U.S. firms, seen in companies from General Electric to IBM to Procter & Gamble, as managers are emphasizing creativity  and innovation to compete in a new era. General Electric  CEO Jeff Immelt,  for example, shifted from emphasizing growth through acquisition to pushing growth through technological in- novation and providing additional  resources for GE’s scientific  research labs. Procter  & Gamble collaborates widely with individual entrepreneurs and other firms, even competitors, to crank out innovative products.43

2. NEW   MANAGEMENT   COMPETENCIES

In the face of these transitions,  managers must rethink their approach to organizing, di- recting, and motivating  employees. Today’s best managers give up their command-and- control mind-set to focus on coaching and providing guidance, creating organizations that are fast, flexible, innovative, and relationship-oriented.  In many of today’s best companies, leadership is dispersed throughout the organization, and managers empower others to gain the benefit of their ideas and creativity.

Success in the new workplace depends on the strength and quality of collaborative relationships. Rather than a single- minded focus on profits,  today’s managers recognize the critical importance of staying connected to employees and customers. New ways of working  emphasize collaboration  across functions and hierarchical levels as well as with other companies. Team- building  skills are crucial. Instead of managing a department  of employees,  many  managers  act as team leaders of ever-shifting, temporary projects.

At  SEI Investments,  the work is distributed among  140 teams. Some are permanent,  such as those that  serve major  cus- tomers or focus on specific markets, but many are designed to work on short-term  projects or problems. Computer  linkups, called pythons, drop from the ceiling. As people change assign- ments, they just unplug their pythons, move their desks and chairs to a new location, plug into a new python, and get to work on the next project.44

An important  management challenge in the new workplace is to build a learning organization by creating an organiza- tional climate that values experimentation and risk taking, ap- plies current technology, tolerates mistakes and failure, and re- wards nontraditional  thinking and the sharing of knowledge.

Everyone in the organization participates in identifying and solving problems, which enables the organization to continu- ously experiment,  improve,  and increase its capability.  The role of managers is not to make decisions but, instead, to create learning capability, in which everyone is free to experiment and learn what works best.

3. TURBULENT  TIMES: MANAGING CRISES AND UNEXPECTED EVENTS

Many managers dream of working in an organization  and a world in which life seems rela- tively calm, orderly, and predictable, but their reality is one of increasing turbulence and disorder. Today’s managers and organizations face various levels of crisis every day—from the loss of computer data, to charges of racial discrimination, to a factory fire, to workplace violence. These organizational crises are compounded  by crises on a more global level.

Consider  a few of the major events that affected U.S. companies within the last few years: the bursting  of the dot-com bubble, which led to the failure of thousands of compa- nies and the rapid decline of technology stocks; the crash of Enron as a result  of a complex series of unethical and illegal accounting gimmicks, the subsequent investigations  of nu- merous other corporations, and implementation of new corporate governance laws; terror- ist attacks in New York City and Washington, DC, that destroyed the World Trade Center, seriously damaged the Pentagon, killed thousands of people, and interrupted busi-ness around the world; the crash of the space shuttle  Columbia  and the ensuing investiga- tion that revealed serious cultural and management problems at NASA; Hurricane Katrina’s devastating impact on organizations in New Orleans and the Gulf Coast,  as well  as numer- ous companies  that do business with them; the removal of spinach from supermarkets because of e-coli; and continuing  terrorist threats against the United States and its allies— causing companies to hire experts to manage potential crises. Even the Hilton  family, Paris’s parents, hired a crisis manager after she got arrested and sent to jail.45 These and other events brought the uncertainty and turbulence of today’s world clearly to the fore- front of everyone’s mind and made crisis management a critical  skill for every manager.

Dealing with the unexpected has always been part of the manager’s job, but our world has become  so fast, interconnected, and complex that unexpected events happen more frequently and more often with greater and more painful consequences. All of the new management skills and competencies we discussed are important to managers in such an environment. Crisis management  places further demands on today’s managers. Some of the most recent thinking on crisis management  suggests the importance of five leadership skills.

1. Stay calm.

2. Be visible.

3. Put people before business.

4. Tell the truth.

5. Know when to get back to business.

Stay calm. A leader’s emotions  are contagious,  so leaders have to stay calm, focused, and optimistic  about the future. Perhaps the most important part of a manager’s  job in a crisis situation is to absorb people’s fears and uncertainties.  Although managers acknowl- edge the difficulties, they remain rock-steady and hopeful, which gives comfort,  inspira- tion, and hope to others.

Be visible. When  the world  becomes ambiguous and frightening to people, they need to feel that someone is in control. After Hurricane Katrina hit New Orleans, Scott Cowen, president of Tulane University, stayed on campus until he was sure that everyone was evac- uated and everything that possibly could be done to control the damage was in place.47  In times of crisis, leadership cannot be delegated. When Russian president Vladimir Putin continued his holiday after the sinking of the submarine Kursk in August 2000, his reputa- tion diminished worldwide.48

By contrast, Melvin Wilson of Mississippi Power stayed visible and maintained  impor- tant networks to deal with a real catastrophe. Imagine  that you are a mid-level  marketing manager at a public utilities company. One day you’re reviewing  next year’s advertising campaign. A day later you’re responsible for coordinating the feeding, housing, and health care of 11,000 repair workers from around the country. That’s the situation that Melvin Wilson, a marketing  manager for Mississippi Power, found himself in when Hurricane Katrina hit the state in August 2005, wiping out 1,000 miles of power lines, destroying

65 percent of the company’s transmission and distribution  facilities, damaging 300 trans- mission towers, and knocking out power for all 195,000 customers. The company  had a disaster recovery plan in place, but managers were suddenly thrust into a situation  that was twice  as bad as the worst-case  scenario.

Mississippi  Power’s corporate headquarters was totally destroyed, its disaster response center flooded and useless. Early recovery work  had to be done without access to computers, phones, or basic sanitary facilities. Confusion and chaos reigned. “My day job didn’t prepare me for this,” Wilson told a reporter  in a choked  voice as he struggled  to find nurses, beds, tetanus shots, laundry  service, showers, security services, and food for repair workers.

Other managers, from all levels and divisions,  have dealt with similar predicaments. One manager compared the process to managing an Army division at war! Amazingly, Mississippi  Power employees got the job done smoothly and efficiently, restoring power in just 12 days, thus meeting the bold target of restoring power by the symbolic date of September 11. The tale of how this was done is one of the great crisis-management stories of modern  times,  and a lesson for managers in how much  can be accomplished quickly when it’s managed right.49

The managers at Mississippi Power illustrate many of these new management com- petencies, which enabled the company to execute  a swift, ambitious  disaster plan and restore power in only 12 days following Hurricane Katrina. Two decades ago, hurricane response was run from the top down, but managers learned that setting priorities from headquarters  was ineffective during times of chaos  and confusion. Today, decision making has been pushed  far down to the level of the substation, and employees are empowered to act within certain guidelines to accomplish  a basic mission:  “Get the power on.”

The corporate culture,  based on values of unquestionable trust, superior performance, and total commitment, supports individual initiative and the confidence of management that employees will respond with quick action and on-the-spot innovation. During the disaster  recovery,  even  out-of-state crews  working unsupervised  were empowered  to engineer their own solutions to problems in the field. Networking and team-building skills also are highly valued at Mississippi Power. Middle managers like Melvin Wilson forged networks of relationships throughout the company, with other organizations, and with power company managers in other states, which  enabled them to quickly gain access to critical  resources and build teams with the right combination of skills. Overall, Missis- sippi Power reflects the qualities of a learning organization  in which employees, from line workers to accountants,  are encouraged to experiment, innovate, share knowledge, and solve problems.

Melvin Wilson also illustrates some of the qualities needed for effective crisis manage- ment. When he took on the role of “director of storm logistics,” he suppressed his own emotions to present a calm and focused persona, which kept employees’ emotions directed in a positive way on the job to be done. At the same time,  he and other managers made sure that plans were in place to assist employees whose homes were damaged (fortunately, no employees were killed in the storm). Wilson was a highly visible leader throughout  the re- covery, working  20-hour  days and sleeping on the floor. Top leaders were visible  as well, meeting with storm directors every day and helping boost the morale of recovery workers.

Leadership  during  crises and unexpected events is becoming  important for all organiza- tions in today’s complex world. Managers in crisis situations should stay calm, be visible, put people before business, tell the truth, and know when to get back to business. Human skills become critical during times of turbulence and crisis.

Put people before  business. The companies that weather  a crisis  best, whether the crisis is large or small, are those in which managers make people and human feelings their top priority. Ray O’Rourke, managing director for global corporate affairs at Morgan Stanley, put it this way following  September 11: “Even though we are a financial services company, we didn’t have a financial  crisis on our hands; we had a human crisis. After that point, everything  was focused on our people.”50

Tell the truth. Managers should get as much information from as many  diverse sources as they can, do their best to determine the facts, and then be open and straightfor- ward about what’s going on. After a 17-year-old patient at Duke University Hospital died following a botched organ transplant,  hospital  managers compounded  the organizational crisis by failing to communicate with the media and community for nine full days after the tragedy was reported in the press.51

Know when to get back to business. Although managers should first deal with the physical and emotional  needs of people, they should get back to business  as soon as possible.  The company has to keep going, and a natural human tendency makes us want to rebuild and move forward. Rejuvenation of the business is a sign of hope and an inspiration to employees. Moments of crisis also present excellent opportunities for looking forward and using the emotional energy that has emerged to build a better company.

This is a challenging  time to be entering  the field of management. Throughout  this book, you will learn much more about the new workplace, about the new and dynamic roles that managers are playing in the twenty-first century, and about how you can be an effec- tive manager in a complex, ever-changing  world.

Source: Daft Richard L., Marcic Dorothy (2009), Understanding Management, South-Western College Pub; 8th edition.

One of the toughest challenges for managers today is to direct people’s focus on adaptive change to meet the demands of a turbulent and rapidly changing environment. Few prob- lems come with ready-made solutions, and they require that people throughout  the com- pany think in new ways and learn new values and attitudes.52  These needs demand  a new approach to management and a new kind of organization.

Managers began thinking about the concept of the learning organization after the pub- lication of Peter Senge’s book, The Fifth Discipline: The Art and Practice of Learning  Orga- nizations.53   Senge described the kind of changes that managers have to undergo to help their organizations adapt to an increasingly chaotic world.  These ideas gradually evolved to describe characteristics of the organization itself. No single view describes what the learn- ing organization looks like. The learning organization is an attitude or philosophy about what an organization can become.

1. DEFINITION OF A LEARNING ORGANIZATION

The learning organization can be defined as one in which  everyone is engaged in identify- ing and solving problems, enabling the organization to continuously experiment, change, and improve, thus increasing its capacity to grow, learn, and achieve its purpose. The es- sential idea is problem solving, in contrast to the traditional organization designed for effi- ciency. In the learningorganization, all employees look for problems, such as understand- ing special customer needs. Employees also solve problems,  which means putting things together in unique ways to meet a customer’s needs.

Many of today’s managers are quite aware that sustained competitive  advantage can come only by developing the learning capacity of everyone in the organization. This aware- ness is reflected in a survey conducted  by Strategy Business. The magazine asked its online subscribers, along with a group  of thinkers,  educators, interview  subjects, and scholars, to vote for the ideas discussed in Strategy Business over  the last 10 years that they consider most likely to remain relevant for at least the next decade. The concept of the learning or- ganization  ranked second on the list of top 10 ideas.54

2. CHARACTERISTICS OF A LEARNING ORGANIZATION

To develop a learning organization,  managers make changes in all the subsystems of the organization. Three important adjustments to promote  continuous  learning are: shifting to a team-based  structure,  empowering   employees, and sharing information. These three characteristics are illustrated  in Exhibit 1.6, and each is described here.

Team-based structure. An important value in a learning organization is collab- oration   and  communication across  departmental and  hierarchical boundaries. Self-directed  teams comprise the basic building block of the structure.  These teams are made up of employees with different skills who share or rotate jobs to produce an entire product or service. Traditional management  tasks are pushed down  to lower levels of the organization, with teams often taking responsibility for training, safety, scheduling, and deci- sions about work  methods,  pay and reward systems, and coordination with other teams.

Although team leadership is vital, in learning organizations the traditional boss is nearly eliminated.  People on the team are given the skills, information, tools, motivation, and authority to make decisions central to the team’s performance and to respond creatively and flexibly to new challenges and opportunities that arise.

Employee empowerment.  Empowerment means unleashing the power and creativity of employees by giving them the freedom, resources, information,  and skills to make decisions and perform effectively. Traditional management tries to limit employees, whereas empowerment  expands their behavior. Empowerment  may be reflected in self- directed work teams, quality circles, job enrichment, and employee-participation  groups, as well as through  decision-making  authority,  training, and information  so people can per- form jobs without close supervision.

In learning organizations,  people are a manager’s primary  source of strength, not a cost to be minimized.  Companies that adopt this perspective believe in treating employees well by providing competitive wages and good working conditions, as well  as by investing time and money in training programs and opportunities for personal and professional develop- ment. In addition, they often provide a sense of employee ownership by sharing gains in productivity and profits.55

Open  Information. A learning organization  is flooded with information. To identify needs and solve problems, people have to be aware of what’s going on. They must understand the whole organization as well as their part in it. Formal data about budgets, profits, and departmental expenses are available to everyone. “If you really want to respect individuals,” says Solectron  Corp.’s Winston Chen, “you’ve got to let them know how they’re doing—and let them know soon enough so they can do something about it.”56

Managers know that providing too much information  is better than providing too little. In addition, managers encourage people throughout the organization to share information. For example, at Viant Inc., which helps companies build and maintain  web-based busi- nesses, people  are rewarded  for their willingness to absorb and share knowledge.  Rather than encouraging consultants to hoard specialized knowledge, CEO Bob Gett says, “We value you more for how much information you’ve given to the guy next to you.”

Source: Daft Richard L., Marcic Dorothy (2009), Understanding Management, South-Western College Pub; 8th edition.

The shift to the learning organization  goes hand-in-hand with the current transition to a technology-driven workplace. The physical world that Frederick Taylor and other propo- nents of scientific  management measured determines less and less of what is valued in or- ganizations and society. Our lives and organizations  have been engulfed by information technology. Ideas, information,  and relationships are becoming more important  than pro- duction machinery, physical products, and structured jobs.

Many employees perform much of their work on computers and may be a part of virtual teams, connected electronically to colleagues around  the world. Even in factories that produce physical goods, machines have taken over much of the routine and uniform work, freeing workers to use more of their minds and abilities. Managers and employees in today’s companies focus on opportunities rather than efficiencies, which requires that they be flexible, creative, and unconstrained by rigid rules and structured tasks.

1. THE SHIFTING WORLD OF E-BUSINESS

Today,  much business takes place by digital processes over a computer network rather than in physical  space. E-business refers to the work an organization  does by using electronic linkages (including the Internet) with customers, partners, suppliers, employ- ees, or other key constituents. Organizations  that use the Internet or other electronic linkages to communicate with employees or customers are engaged in e-business.

E-commerce is a narrower term. It refers specifically to business exchanges or transactions that occur electronically. E-commerce replaces or enhances the exchange of money and prod- ucts with the exchange of data and information  from one computer to another. Three types of e-commerce are business-to-consumer,  business-to-business, and consumer-to-consumer.

Companies such as Amazon.com, 800-Flowers, Expedia.com, and Progressive are engaged in what is referred to as business-to-consumer e-commerce (B2C),  because they sell products  and services to consumers over the Internet. Although this type of exchange is probably the most visible expression of e-commerce to the public, the fastest growing area of e-commerce is business-to-business e-commerce (B2B),  which  refers to electronic transactions between organizations. Today, much B2B e-commerce  takes place over the Internet.59

Large organizations   such as Wal-Mart, General Electric, Carrier Corp., General Motors, and Ford Motor Company  buy and sell billions of dollars worth of goods and services  a year  via either public or private Internet linkages.60   For example, General Motors sells about 300,000 previously owned vehicles a year online through SmartAuction. Ford  purchases a large portion of the steel it uses to build cars through  e-Steel.61

Some companies  take e-commerce to high levels  to achieve amazing performance through supply chain management. Supply chain management refers to managing the sequence of suppliers and purchasers, covering all stages of processing from obtaining raw materials to distributing  finished goods to consumers.62  Dell Computer  was a pioneer in the use of end-to-end digital supply-chain networks to keep in touch with customers, take orders, buy components from suppliers, coordinate with manufacturing partners, and ship customized products directly to consumers. This trend is affecting every industry,  prompt- ing a group  of consultants at a Harvard  University  conference to conclude that businesses today must either “Dell or be Delled.”63

The third area of e-commerce, consumer-to-consumer (C2C), is made possible

when an Internet-based business acts as an intermediary  between and among consumers. One of the best-known  examples of C2C e-commerce is the web-based auction such as auctions  made possible by eBay. Internet auctions  create a large electronic  market- place where  consumers can buy and sell directly with one another, usually handling nearly the entire transaction via the web. Members of eBay in the United States alone sold approximately $10.6 billion in merchandise during the first 6 months of 2005. Merchandise sales worldwide in the previous year were approximately  $36 billion.64

Another growing area of C2C commerce is peer-to-peer (P2P) file-sharing net-

works.  Companies   such as Kazaa and Grokster provide the technology for swapping music, movies, software, and other files. Online music sharing, in particular, has zoomed in popularity,  and although music companies and record retailers currently are engaged in a heated battle with file-sharing services, these companies  are likely here to stay.

2. INNOVATIVE TECHNOLOGY IN THE WORKPLACE

New electronic  technologies  also shape the organization and how it is managed. A century ago, Frederick Taylor described the kind of worker needed in the iron industry: “Now one of the first requirements for a man who is fit to handle pig iron as a regular occupation is that he shall be so stupid and so phlegmatic  that he more nearly resembles in his mental makeup the ox than any other type.”66  The philosophy of scientific management was that managers structured and controlled  jobs so carefully that thinking on the part of employees wasn’t required—indeed, it usually was discouraged.

How different  things are today! Many organizations depend on employees’ minds more than their physical bodies. In companies where the power of an idea determines  success, managers’ primary  goal is to tap into the creativity and knowledge of every employee.

Technology provides the architecture that supports and reinforces this new workplace. One approach to information management is enterprise resource planning  (ERP), systems that weave together  all of a company’s major business functions, such as order  pro- cessing, product design, purchasing, inventory, manufacturing,  distribution, human re- sources, receipt of payments, and forecasting of future demand.

ERP supports a companywide  management  system in which everyone, from the CEO down to a machine  operator  on the factory floor, has instant  access to critical information. People  can see the big picture and act quickly, based on up-to-the-minute information. Thus, ERP also supports management attempts to harness and leverage organizational knowledge.

Peter Drucker coined the term knowledge work more than 40 years ago,68  but only in re- cent years did managers begin to genuinely recognize knowledge as an important organiza- tional resource that should be managed just as they manage cash flow or raw materials. Knowledge management refers to efforts to systematically find, organize, and make available a company’s intellectual  capital and to foster a culture of continuous learning and knowledge sharing so that a company’s activities  build on what is already known.69

A growing segment of knowledge  management is the use  of sophisticated cus- tomer relationship management (CRM), systems that collect and manage large amounts of data about customers and make them available to employees, enabling bet- ter decision making and superior  customer  service. The use  of CRM  has  virtually exploded over the past several years. In Bain and Company’s 2005 management tool survey, for example, three out of four companies reported using CRM, up from only 35 percent of companies in 2000, one of the largest and fastest usage increases ever re- vealed by the survey.

Information technology  also is contributing to the rapid growth of outsourcing— contracting out selected functions  or activities to other organizations that can do the work more cost-efficiently.  Today’s companies are outsourcing  like crazy to free up cash for investment in long-term research and innovation. Outsourcing—along with other trends such as supply  chain management, customer relationship  management, telecommuting, and virtual teamwork—requires that managers be technologically  savvy and also that they learn to manage a complex  web of relationships. These relationships might reach far be- yond the boundaries of the physical organization;  they often are built through flexible e-links  between a company and its employees.

Source: Daft Richard L., Marcic Dorothy (2009), Understanding Management, South-Western College Pub; 8th edition.

A historical  perspective on management provides a context or environment in which to in- terpret current opportunities and problems. Studying history, however, doesn’t mean merely arranging events in chronological order. It means developing an understanding  of the impact of societal forces on organizations. Studying history is a way to achieve strategic thinking, see the big picture, and improve conceptual skills. Let’s start by examining how social, political, and economic forces have influenced organizations and the practice of management.

1. INFLUENTIAL  FORCES

Social forces refer to those aspects of a culture  that guide and influence relationships among people. What do people value? What do people need? What are the standards of behavior among people? These forces shape what is known  as the social contract,  which refers to the unwritten,  common rules and perceptions about relationships among people and between employees and management.

A significant  social force today is represented by the changing attitudes, ideas, and val- ues of Generation X and Generation Y employees.72 Generation X employees, those now in their 30s and 40s, have had a profound  impact  on the workplace, and Generation Y workers (sometimes called Nexters) may have an even greater impact. These young work- ers, the most-educated generation in the history of the United  States, grew up technologi- cally adept and globally conscious.

Unlike many workers of the past, they don’t hesitate to question their superiors and challenge the status quo. They want a work environment that is challenging and support- ive, with access to cutting-edge technology, opportunities to learn and further their careers and personal goals, and the power to make substantive decisions and changes in the work-place. In addition, Gen X and Gen Y workers  have prompted  a growing  emphasis on work/life balance, reflected in trends  such as telecommuting,  flextime, shared jobs, and organization-sponsored sabbaticals.

Political forces refers to the influence of political and legal institutions  on people and organizations. Political forces include basic assumptions underlying  the political system, such as the desirability of self-government, property rights, contract rights, the definition of justice, and the determination of innocence or guilt of a crime. The spread of capitalism throughout the world has altered the business landscape dramatically.  The dominance of the free-market  system and growing  interdependencies among the world’s countries re- quire organizations to operate differently  and managers to think in new ways. At the same time, strong anti-American  sentiments in many parts of the world create challenges for U.S. companies and managers.

Economic forces pertain  to the availability, production, and distribution of resources in a society. Governments, military agencies, churches, schools, and business organizations in every society require resources to achieve their goals, and economic forces influence the allocation of scarce resources. Less-developed countries  are growing  in economic power, and the economy of the United States and other developed countries is shifting dramati- cally, with the sources of wealth, the fundamentals of distribution, and the nature of eco- nomic decision making undergoing significant changes.73

Today’s economy is based as much on ideas, information, and knowledge as it is on ma- terial resources. Supply chains and the distribution of resources have been revolutionized by digital technology.  Surplus inventories,  which  once could trigger recessions, are declin- ing or completely disappearing.

Another economic trend is the boom in small and midsized  businesses, including start-ups, which early in the twenty-first century grew at three times the rate of the na- tional economy. “I call it ‘the invisible economy,’ yet it is the economy,”  says David Birch of Cognetics Inc., a Cambridge,  Massachusetts, firm that tracks business formation.

A massive shift in the economy is not without its upheavals, of course. In the early 2000s, years of seemingly endless growth ground to a halt as stock prices fell, particularly for dot-com  and technology companies. Numerous Internet-based companies went out of business, and organizations throughout the United States and Canada began laying off hundreds of thousands of workers. This economic downturn, however, also may be a stim- ulus for even greater technological innovation and small business vitality.

Management  practices and perspectives vary in response to these social, political,  and eco- nomic forces in the larger society. During difficult times, managers look for ideas to help them cope with environmental  turbulence and keep their organizations vital. A management tools survey conducted by Bain & Company, for example, reveals a dramatic  increase over the past dozen or so years in the variety of management ideas and techniques used by managers.

Challenges such as a tough economy and a rocky stock market, environmental  and or- ganizational  crises, lingering  anxieties over war and terrorism,  and the public suspicion and skepticism resulting from corporate scandals leave executives searching for any man- agement tool—new  or old—that  can help them get the most out of limited resources.

This search  for guidance  is reflected  in a  proliferation of books, scholarly  articles, and conferences dedicated to examining management fashions and trends.

2. CLASSICAL  PERSPECTIVE

Although the practice of management  can be traced to 3000 B.C.E. to the first govern- ment organizations developed by the Sumerians and Egyptians, the formal study of man- agement is relatively recent.77  The early study of management  as we know it today began with what  is now called the classical perspective, which  emerged during the nineteenth and early twentieth centuries.

The factory system that began to appear in the 1800s posed challenges that earlier orga-nizations had not encountered. Problems arose in tooling the plants, organizing managerial structure, training  employees (many of them non-English-speaking immigrants), schedul- ing complex manufacturing  operations, and dealing with increased labor dissatisfaction and resulting strikes.

The myriad new problems and the development of large, complex organizations de- manded a new approach to coordination and control, and a “new sub-species of economic man—the salaried manager”78—was born. Between 1880 and 1920, the number of profes- sional managers in the United States grew from 161,000 to more than 1 million.79 These professional managers began developing and testing solutions to the mounting challenges of organizing, coordinating,  and controlling large numbers of people and increasing worker productivity. Thus began the evolution of modern management with the classical perspective.  This perspective contains  three subfields,  each  with a  slightly different emphasis: scientific  management,   bureaucratic organizations, and  administrative principles.

Efficiency  is   everything. The somewhat  limited success  of organizations in achieving improvements  in labor productivity led a  young engineer to suggest that the problem lay more in poor management practices than in labor. Frederick Winslow Taylor (1856–1915) insisted that management itself would have to change and, further, that the manner of change could be determined only by scientific study. Hence, the label scientific management emerged. Taylor suggested that decisions  based on rules of thumb and tradition be replaced with precise procedures developed after careful study of individual situations.81

Taylor’s philosophy is encapsulated in his statement, “In the past, the man has been first. In the future, the system must be first.”82 The sci-

entific management approach is illustrated by the un- loading of iron from rail cars and the reloading of fin- ished steel for the Bethlehem  Steel plant in 1898. Taylor calculated that, with the correct movements, tools, and sequencing, each man was capable of load- ing 47.5 tons per day instead of the typical 12.5 tons. Taylor also worked  out an incentive system that paid each man $1.85 a day for meeting the new standard, an increase from the previous rate of $1.15. Productivity at Bethlehem Steel shot up overnight.

These insights helped to establish organizational as- sumptions that the role of management is to maintain stability and efficiency, with top managers doing the thinking and workers doing what they are told.

How to get organized. Another subfield of the classical perspective took a broader look at the orga- nization. Whereas scientific management  focused  pri-marily on the technical core—on work performed on the shop floor—administrative principles looked at the design and functioning of the organization   as a whole. For example, Henri Fayol proposed fourteen principles of management,  such as: “Each subordinate receives orders from only one superior” (unity of com- mand), and “similar activities in an organization should be  grouped  together under one manager”  (unity of direction). These principles formed the foundation for modern management practice and organization design.

The scientific management and administrative principles approaches were powerful  and gave organizations  fundamental  new ideas for establishing high productivity  and increasing prosperity. The administrative principles in particular contributed to the development of bu- reaucratic organizations, which emphasized designing and managing organizations  on an impersonal, rational basis through elements such as clearly defined authority and responsibil- ity, formal record keeping, and uniform application of standard rules. Although the term bureaucracy has taken on negative connotations in today’s organizations, bureaucratic charac- teristics worked extremely well for the needs of the Industrial Age.

The term bureaucracy has taken  on a negative meaning  in today’s organizations and is associated with endless rules and red tape. We all have been frustrated by waiting  in long lines or following seemingly silly procedures. Rules and other bureaucratic procedures, however,  provide  a standard  way of dealing with employees. Everyone  gets equal treat- ment, and everyone knows what the rules are. This foundation enables many organizations to become extremely efficient. UPS serves as a good example.83

One problem with the classical perspective is that it failed to consider the social context and human needs. Early work on industrial  psychology and human relations received little attention because of the prominence of scientific management. A major breakthrough came, however, with a series of experiments at a Chicago electric company, which came to be known as the Hawthorne Studies. Interpretations of these studies concluded that posi- tive treatment of employees improved  their motivation and productivity.  Publication of these  findings led to a  revolution in worker treatment and laid the groundwork for subsequent work examining the treatment of workers, leadership, motivation,  and human resource management.

From a historical  perspective, whether the studies were academically sound is of less impor-tance than the fact that they stimulated increased interest in looking at employees as more than extensions of production  machinery. The interpretation that employees’ output increased when managers treated them in a positive manner  started a revolution in worker treatment for improving organizational productivity. Despite flawed methodology or inaccurate conclusions, the findings provided the impetus for the human relations movement.

IBM, one of the earliest proponents of a human  relations  approach, shaped manage- ment theory and practice for well over a quarter century. The company’s belief that atten- tion to human relations is the best approach  for increasing productivity still persists today.

3. HUMAN RESOURCES PERSPECTIVE

The human relations movement initially espoused  a dairy farm view of management: Contented  cows give more milk, so satisfied  workers  will give more work. Gradually, views with deeper content began to emerge. The human  resources perspective main- tained an interest in worker participation and considerate leadership  but shifted the emphasis to the daily tasks that people perform. The human resources perspective com- bines prescriptions for design of job tasks with theories of motivation.85  In the human resources view, jobs are designed so tasks are not perceived  as dehumanizing or demean- ing but, instead, allow workers to use their full potential. Two of the best-known con- tributors to the human resources  perspective  were Abraham Maslow and Douglas McGregor.

Abraham Maslow (1908–1970),  a practicing  psychologist,  observed that his patients’ problems usually stemmed from an inability to satisfy their needs. Thus, he generalized his work  and suggested a hierarchy  of needs. Maslow’s  hierarchy  started with physiological needs and progressed to safety, belongingness, esteem, and, finally, self-actualization needs.

Douglas McGregor (1906–1964), during the time he was president of Antioch College in Ohio, had become frustrated with the early simplistic human relations notions. He chal- lenged both the classical perspective  and the early human  relations assumptions about human behavior. Based on his experiences as a manager and consultant,  his training as a psychologist, and the work of Maslow, McGregor formulated his Theory X and Theory Y.86

McGregor believed that the classical perspective was based on Theory X assumptions about workers and posited that a slightly modified  version of Theory X fit early human relations ideas. In short, he believed that the human relations ideas of the time did not go far enough. McGregor proposed Theory Y as a more realistic view of workers for guiding management thinking.

The point of Theory Y is that organizations  can take advantage of the imagination and intellect of all their employees. Employees will exercise self-control and will contribute to organizational goals when given the opportunity. A few companies today still use Theory X management, but many are using Theory Y techniques.

4. BEHAVIORAL  SCIENCES  APPROACH

The behavioral  sciences approach  develops theories  about  human  behavior  based on scientific methods and study. Behavioral  science draws from sociology, psychology, an- thropology, economics, and other disciplines to understand employee behavior and inter- action in an organizational setting. The approach can be seen in practically every organiza- tion. When General Electric conducts research to determine the best set of tests, interviews, and employee profiles to use when selecting new employees, it is applying  behavioral science techniques.  When Circuit City electronics  stores train new managers  in the techniques of employee motivation, most of the theories and findings  are rooted in behav- ioral science research.

Nevertheless, the hierarchical  system and bureaucratic approaches that came about dur- ing the Industrial Revolution remained the primary approach to organization design and functioning well into the 1970s and 1980s. In general, this approach worked well for most organizations until the past few decades. During the 1980s, however, it began to lead to problems. Increased competition,  especially on a global  scale, changed  the playing field. North American companies had to find a better way. The 1980s produced new corporate cultures that valued lean staff, flexibility, rapid response to the customer, motivated em- ployees, caring for customers, and quality products.

Over the past two decades, the world  of organizations has undergone even more profound and far-reaching  changes. The Internet and other advances in information technology, glo- balization,  rapid social and economic changes, and other challenges from the environment call for new management perspectives and more flexible approaches to organization design.

Don’t forget the environment. Many problems arise when all organizations are treated as similar,  which was the case with scientific management and administrative principles approaches that attempted to design all organizations the same. The structures and systems that work in the retail division of a conglomerate  will not be appropriate  for the manufacturing division. The organization  charts and financial procedures that are best for an entrepreneurial Internet firm such as eBay or MaMaMedia will not work for a large food processing plant.

Contingency means that one thing depends on other things, and for organizations to be effective, there must be a “goodness of fit” between their structure and the conditions in their external environment. What works in one setting may not work in another set- ting. There is not one best way. Contingency  theory means “it depends.” For example, some organizations have a certain environment,  use a routine technology, and desire effi- ciency. In this situation,  a management  approach that uses bureaucratic control proce- dures, a hierarchical structure, and formal communication would be appropriate. Likewise, free-flowing management processes work  best in an uncertain environment with nonrou- tine technology. The correct management approach is contingent on the organization’s situation.

Today, almost all organizations operate in highly uncertain environments. Thus, we are involved in a significant  period of transition, in which concepts of organizations and man- agement are changing  as dramatically as they changed with the dawning of the Industrial Revolution.

5. TOTAL  QUALITY MANAGEMENT

The quality movement in Japan emerged  partly as a result  of American influence after World War II. The ideas of W. Edwards Deming, known as the “father of the quality movement,” were scoffed at in the United States initially, but the Japanese embraced his theories and modified them to help rebuild their industries into world powers.87   Japanese companies achieved a significant departure from the American model by gradually shifting from an inspection-oriented  approach to quality control toward an approach emphasizing employee involvement in the prevention of quality problems.88

During the 1980s and into the 1990s, total quality management (TQM), which focuses on managing the total organization to deliver quality to customers,  was at the forefront in helping managers deal with global competition. The approach infuses qual- ity values throughout every activity within a company,  with front-line workers intimately involved in the process. Four significant elements of quality  management are employee involvement, focus on the customer, benchmarking, and continuous improvement.

Employee involvement means that TQM requires companywide participation  in quality control. All employees are focused on the customer; TQM companies find out what cus- tomers want and try to meet their needs and expectations. Benchmarking refers to a process whereby companies find out how others do something better than they do and then try to imitate or improve on it. Continuous improvement is the implementation of small, incre- mental improvements in all areas of the organization on an ongoing basis.

TQM  is not a quick  fix, but companies such as General  Electric,  Texas Instruments, Procter & Gamble, and DuPont achieved astonishing  results in efficiency, quality, and customer satisfaction through total quality management.89 TQM is still an important part of today’s organizations, and managers consider benchmarking  in particular to be a highly effective and satisfying management technique.90

Some of today’s companies  pursue highly ambitious quality goals to demonstrate their commitment to improving quality. For example, Six Sigma, popularized  by Mo- torola and General Electric, specifies  a goal  of no more than 3.4 defects per million parts. But the term also refers to a broad quality  control approach that emphasizes  a disciplined and relentless pursuit of higher quality and lower costs. TQM  is discussed in detail in Chapter 15.

Source: Daft Richard L., Marcic Dorothy (2009), Understanding Management, South-Western College Pub; 8th edition.

The tremendous and far-reaching  changes occurring  in today’s world can be understood by defining and examining components of  the external environment.  The external organizational environment includes all elements existing outside the boundary of the organization that have the potential  to affect the organization.5 The environment includes competitors,  resources, technology, and economic conditions that influence the organiza-tion. It does not include  events so far removed from the organization that their impact is not perceived.

The organization’s  external environment  can be further conceptualized  as having  two layers—general and task environments. The general environment is the outer layer that is widely dispersed and affects organizations indirectly.  It includes social, demographic, and economic factors that influence all organizations  about equally. Increases in the infla- tion rate or the percentage of dual-career couples in the workforce are illustrative  of the organization’s general environment.  These events do not directly  change day-to-day  opera- tions, but they do affect all organizations eventually.

One impact of the environment is that as parents  become more  educated and more affluent, they place higher demands on educational toys, a  situation one company is exploiting.

The task environment is closer to the organization and includes the sectors that con-duct day-to-day transactions with the organization and directly influence its basic opera- tions and performance. This environment generally is considered to include competitors, suppliers, and customers.

The organization  also has an internal environment, which includes the elementswithin the organization’s boundaries. The internal environment is composed of current employees,  management,  and especially  corporate  culture, which defines employee behavior in the internal environment and how well the organization will adapt to the ex- ternal environment.

Exhibit 2.1 illustrates the relationship among the general, task, and internal  environ- ments. As an open system, the organization draws resources from  the external environment and releases goods and services back to it. We now will discuss the two layers of the exter- nal environment in more detail. Then we will discuss corporate culture,  the key element in the internal environment. Other aspects of the internal environment, such as structure and technology, will be covered in Parts Three and Four of this book.

1. GENERAL  ENVIRONMENT

The general environment  represents the outer layer of the environment. These dimensions influence the organization over time but often are not involved in day-to-day transactions with it. The dimensions of the general environment include international, technological, sociocultural, economic, and legal-political.

International. The international dimension of the external environment repre- sents events originating in foreign countries as well  as opportunities for U.S. companies in other countries. Note in Exhibit 2.1 that the international dimension represents  a context that influences all other  aspects of the external environment. The international environ- ment provides new competitors, customers, and suppliers and shapes social, technological, and economic trends, as well.

Today,  every company has to compete on a global basis. High-quality, low-priced auto- mobiles from Japan and Korea have changed the American automobile industry permanently.

In  cell phones and handhelds,  U.S.–based companies face stiff competition from Korea’s Samsung, Finland’s Nokia, and Taiwan’s High Tech Computer (HTC)   Corporation. For many U.S. companies,  such as Starbucks  and Wal-Mart,  domestic markets have become saturated, and the only potential for growth lies overseas. E-commerce organizations, too, are making international  expansion a priority. The U.S. share of worldwide  e-commerce is falling as foreign  companies  set up their own e-commerce ventures.

The most dramatic change in the interna- tional environment in recent years is the shift of economic power to China and India. To- gether,  these countries  have the population, brainpower, and dynamism to transform the twenty-first–century global economy. If things continue on the current track, analysts predict that India will overtake Germany as the world’s third-largest economy within three decades, and that China will overtake the United States as number one by mid-century. In China, per- capita income has tripled in a generation,  and leaders   are   building  the  infrastructure for decades of expansion, as reflected  in the coun- try’s hunger for raw materials. In 2005, China represented roughly 47 percent of the global cement consumption, 30 percent of coal,and 26 percent of crude steel. No one can predict the future, but it is clear that however things in India and China shake out, U.S. and other Western firms clearly have no choice but to pay attention.

The global environment  represents a complex, ever-changing,  and uneven playing field compared to the domestic environment. To remain competitive,  managers who are used to thinking only about the domestic environment must learn new rules. When operating globally, managers have to consider legal, political, sociocultural, and economic factors, not only in their home countries but in various other countries as well.  For example, the rising consumer  class in China and India plays a growing  role in setting the standards for high- tech products and services  such  as cell phones, multimedia gadgets, and wireless web services.6

Chapter 3 describes how today’s businesses are operating in an increasingly borderless world and examines in detail how the management in a global environment  differs from the management of domestic operations. Perhaps the hardest lesson for managers in the United States to learn is that they do not always know best. U.S. decision makers know little about  issues and competition in foreign countries, and many pay little attention to cultural factors, which is a sure route  to failure.

One study found that only 28 percent of surveyed executives from the United States think multi-cultural experience is important.7 U.S. arrogance is a shortcut  to failure. An observer of emerging companies in India issues a wake-up call: “Once they learn to sell at Indian prices with world quality, they can compete anywhere.”

Technological.  The technological dimension includes scientific and technolog- ical advancements in a specific industry  as well as in society at large. In recent years, this dimension  created massive changes for organizations in all industries. Twenty years ago, many organizations didn’t even use desktop computers. Today, computer networks, Inter- net access, handheld devices, videoconferencing  capabilities, cell phones, fax machines, and laptops are the minimum tools for doing business.

A new generation of handhelds  allows users to check their corporate e-mail, daily cal- endars, business contacts, and even customer orders from anywhere there’s a wireless net- work. Cell phones now can switch  seamlessly between cellular  networks and corporate WiFi connections. Some companies hand out wireless key fobs with continually updated security codes that enable employees to log on to their corporate networks and securely view data or write e-mails from any PC with a broadband connection.9

Other technological advances also will affect organizations and managers. Decoding  of the human genome could lead to revolutionary medical advances. Cloning technology and stem cell research are raising both scientific and ethical concerns. Nanotechnology,  which refers to manipulating matter at its tiniest scale, is moving from the research lab to the marketplace. Although only a few products incorporated nanoparticles in 2005, within a few years, nanotechnology could affect every industry.

General Electric is researching how nanoceramics can make turbines  more efficient. Medical researchers are looking at the potential for portable labs that offer instant analysis for everything from diabetes to HIV. Nanoparticles  could someday give us golf balls de- signed to fly straight, army fatigues that resist chemical weapons, dent-free automobiles, and super-charged fuel cells that could replace fossil-fuel  engines. Some 1,200 nanotech- nology start-ups have emerged around the world,  and smart managers at established orga- nizations  such as 3M, Dow Chemical, Samsung, NASA, Intel, Johnson & Johnson, and IBM are investing  research dollars in this technological breakthrough.

Sociocultural. The sociocultural dimension of the general environment represents the demographic characteristics as well  as the norms, customs, and values of the general population. Important sociocul- tural characteristics are geographical  distri- bution and population density, age, and ed- ucation levels. Today’s demographic profiles are the foundation of tomorrow’s workforce and consumers.   Forecasters   see increased globalization of both consumer markets and the labor supply, with increasing diversity both within  organizations  and consumer markets.11  Consider the following key de- mographic trends in the United States:

1. The United States is experiencing the largest influx of immigrants in more than a century.  By 2050, non- Hispanic whites will make up only about half of the population, down from 74 percent in 1995 and 69 per- cent in 2004. Hispanics are expected to make up about a quarter  of the S. population.12
2. People are staying in the workforce longer, and many members of the huge post–World  War II baby-boom generation are choosing to work well past traditional retirement age. At the same time,  the 76 million or so members  of Generation Y,which rivals the baby-boom generation in size, are beginning to flood the job market. For the first time, a significant number of organiza- tions are dealing with four generations working side-by-side.13

3. The fastest-growing type of living arrangement is single-father households, which rose 62 percent in 10 years, even though two-parent  and single-mother  households are still much more numerous.14

4. In an unprecedented demographic shift, married couple households have slipped from 80 percent in the 1950s to just over 50 percent in 2003. Couples with kids total just 25 percent, with the number projected to drop to 20 percent by 2010. By that year, 30 percent of homes are expected to be inhabited by someone who lives alone.

Demographic trends affect organizations in other countries just as powerfully.  Japan, Italy, and Germany are all faced with an aging workforce and customer base as a result  of years of declining birth rates. In both Italy and Japan, the proportion of people over the age of 65 reached 20 percent in 2006.16

The sociocultural  dimension  also includes societal norms and values. The low-carb craze replaced the low-fat craze, spurring restaurants to alter their menus and supermarkets to re- vise their product mix. Even the Girl Scouts were affected, as sales declined about 10 percent during the 2004 cookie season.17 Handgun  manufacturers in the United States have been tugged back and forth as public acceptance and support of guns in the home fell in the wake of tragic school shootings, then surged following terrorist attacks in the United States.

Economic. The economic dimension represents the general economic health of the country or region in which the organization operates. Consumer purchasing power, the unemployment rate, and interest rates are part of an organization’s economic environment.

Because organizations today are operating in a global environment,  the economic dimen-sion has become exceedingly complex and creates enormous uncertainty for managers. The economies of countries are tied together more closely now. For example, the economic re- cession in the early 2000s and the decline of consumer confidence in the United  States af- fected economies and organizations around the world. Similarly,  economic problems in Asia and Europe had a tremendous  impact  on companies and the stock market in the United States.

One significant trend in  the economic  environment  of late is the frequency  of mergers  and acquisitions.  Citibank and Travelers merged  to form Citigroup, IBM purchased PricewaterhouseCoopers Consulting,  and Cingular  acquired AT&T Wireless. In the toy industry, the three largest toy makers—Hasbro, Mattel, and Tyco—gobbled up at least a dozen smaller competitors  within a few years. At the same time, a tremendous vitality is evident in the small business sector of the economy. Entrepreneurial start-ups are a significant  aspect of today’s U.S. economy,  as will be discussed in Appendix A.

Legal-Political. The legal-political dimension includes government regulations at the local, state, and federal  levels, as well as political activities designed to influence company behavior. The U.S. political system encourages capitalism,  and the government tries not to overregulate business. Government  laws, however, do specify rules of the game. The federal government influences organizations through the Occupational  Safety and Health Administration (OSHA), Environmental  Protection Agency (EPA), fair trade practices, libel statutes allowing  lawsuits against business, consumer protection legislation, product safety requirements, import and export restrictions, and information  and labeling requirements.

Many organizations  also have to contend with government and legal issues in other countries. The European Union (EU) adopted environmental and consumer protection rules that are costing American  companies hundreds of millions of dollars a year. Compa- nies such as Hewlett-Packard, Ford Motor Company,  and General Electric  have to pick up the bill for recycling the products they sell in the EU, for example.18

Managers also must recognize a variety of pressure groups that  work  within the legal-political framework to influence companies to behave in socially responsible ways. Envi- ronmental  activists have targeted Victoria’s  Secret, L.L.Bean, and other companies for wasteful catalog-printing practices that the activists say contribute  to the stripping of en- dangered forests.19

Tobacco companies today are certainly feeling the far-reaching power of antismoking groups. Middle-aged  activists who once protested the Vietnam War have gone to battle to keep Wal-Mart from “destroying the quality of small-town life.” Some groups also attacked the giant retailer on environmental issues, which  likely  will be one of the strongest pressure points in coming years.20

Two of the hottest  current  issues for pressure groups that also are related to environ- mental concerns are biotechnology and world trade. Environmental and human rights pro- testers disrupted  World Trade Organization  meetings and meetings of the World Bank and the International Monetary Fund to protest a system of worldwide integration that has food, goods, people, and capital freely moving  across borders. This current international issue will be discussed in more detail in Chapter 3.

2. TASK  ENVIRONMENT

As described earlier, the task environment includes those sectors that have a direct working relationship with the organization. These include customers, competitors, suppliers, and the labor market.

Customers. People and organizations in the environment that acquire goods or ser- vices from the organization are its customers. As recipients of the organization’s output, customers are important because they determine the organization’s success. Patients are the customers of hospitals, students the customers of schools, and travelers the customers of airlines. Many companies are searching for ways to reach the coveted teen and youth market by tying marketing messages into online social networks  such as MySpace.com and Facebook.com. With high school and college students  representing  a $375  billion consumer-spending market, this is serious business for managers at companies  such  as Target, Apple, Coca-Cola, and Walt Disney. Apple sponsors an Apple-lovers group on Facebook.com, giving away iPod Shuffles in weekly contests. Target  has sponsored a group on MySpace.com that features a 15-year-old  professional snowboarder wearing a Target logo on his helmet.

Customers  today have more  power  because of the Internet, which presents threats  as well  as opportunities for managers. Today’s customers can directly affect the organization’s reputation and sales, for example, through  gripe sites such as walmartsucks.com,  where  cus- tomers  and sales associates cyber-vent  about the nation’s largest retailer, and untied.com, where United Airlines employees and disgruntled  fliers rail against the air carrier.

“In this new information environment,” says Kyle Shannon, CEO of e-commerce con- sultant Agency.com, “you’ve got to assume everyone knows everything.”

Competitors. Other organizations in the same industry  or type of business that pro- vide goods or services to the same set of customers are referred to as competitors.  Each industry is characterized by specific competitive issues. The recording industry differs from the steel industry and the pharmaceutical industry.

Competitive  wars are being waged worldwide  in all industries. Coke and Pepsi con- tinue to battle it out for the soft-drink market. UPS and FedEx fight the overnight deliv- ery wars. Home Depot and Lowe’s brawl in the retail home improvement market, trying to out-do one another in terms of price, service, and selection.23  In the travel and tourism industry, Internet  companies such as Expedia.com and Hotels.com have hurt the big hotel chains. These chains are fighting back by undercutting the brokers’ prices on the hotels’ own websites.  In  addition, five of  the largest chains banded together to  create Travelweb.com, which is aimed directly at the online brokers.24 When celebrities become part of the competition, it often puts an unfair burden on other players, as shown in the Spotlight on Skills feature.

Suppliers. The raw materials the organization uses to produce its output  are provided by suppliers. A steel mill requires iron ore, machines, and financial  resources. A small, private university may utilize hundreds of suppliers for paper, pencils, cafeteria food, com- puters, trucks, fuel, electricity, and textbooks. Companies from toolmakers to construction firms and auto manufacturers were hurt in 2004 by an unanticipated jump in the price of steel from suppliers. Just as they were starting to see an upturn in their business, the cost of raw materials jumped 30 percent in a two-month  period.25

Consider also that China now produces more than 85 percent of the Vitamin C used by companies in the United States. An agreement among China’s four largest producers led to an increase in the price of Vitamin C from $3 a kilogram  to as high as $9 a kilogram.26

Many companies are using fewer suppliers and trying to build good relationships with them so they will receive high-quality parts and materials at lower prices. The relationship between manufacturers and suppliers traditionally has been an adversarial one, but manag- ers are finding that cooperation is the key to saving money, maintaining quality, and speed- ing products to market.

Labor market. The labor market represents people in the environment  who can be hired to work for the organization.  Every organization  needs a supply of trained, qualified personnel. Unions,  employee associations, and the availability  of certain classes of employees can influence the organization’s  labor market. Curent labor market forces affecting organizations include (1) the growing need for computer-literate knowledge workers; (2) the necessity for continuous investment in human resources through recruitment, education, and training to meet the competitive  demands of the borderless world; and (3) the effects of international  trading blocs, automation, outsourcing, and shifting facility location upon labor dislocations, which creates unused labor pools in some areas and labor shortages in others.

Changes in these various sectors of the general and task environments  can give rise to tremendous challenges, especially for organizations operating in complex, rapidly changing industries. Nortel Networks, a Canadian company with multiple U.S. offices, is an example of an organization operating in a highly  complex environment.

Nortel Networks. The external environment for Nortel Networks is illustrated in Exhibit 2.2. The Canadian-based company began in 1895  as a manufacturer of telephones and has reinvented itself many times to keep up with changes in the environment. In the late 1990s, the company transformed itself into a major player in wireless technology and equipment for connecting businesses and individuals to the Internet. In 1997, the com- pany was about to be run over by rivals,  such as Cisco  Systems, who were focused on Internet gear. Then-CEO John Roth knew he had to do something bold to respond to changes in the technological environment. A name change to Nortel Networks symbol- ized and reinforced the company’s new goal of providing unified network solutions to customers worldwide.

One response to the competitive  environment  was to spend billions of dollars to ac- quire data and voice networking companies, including Bay Networks (which makes Internet and data equipment),  Cambrian  Systems (a hot maker of optical technology), Periphonics  (maker of voice-response  systems),  and Clarify (customer  relationship management software). These companies brought Nortel top-notch technology, helping the company snatch customers away from rivals Cisco and Lucent Technologies. In ad- dition, even during  rough economic times, Nortel kept spending nearly 20 percent of its revenues on research and development  to keep pace with changing technology.

Internationally,  Nortel made impressive  inroads in Taiwan, China, Brazil, Mexico, Colombia, Japan, and Sweden, among other countries. It also won customers by recognizing the continuing  need for traditional equipment and offering hybrid gear that combines old telephone technology with new Internet  features, allowing  companies to make the transition from the old to the new. Bold new technologies for Nortel include optical systems that move voice and data at the speed of light and third-generation wireless networks (3G), which zap data and video from phone to phone. Nortel is considered  a leader in wireless gear and won contracts from Verizon Communications and Orange SA, a unit of France Telecom, to supply equipment that sends phone  calls as packets  of digital  data like that used over the Internet.

Companies moving in a Net-speed environment risk a hard landing, and when the de-mand for Internet equipment slumped in the early 2000s, Nortel’s  business was devas- tated. The company cut more than two-thirds of its workforce  and closed dozens of plants and offices. An accounting  scandal that led to fraud investigations and senior executive dismissals made things even worse. At one point, Nortel’s stock was trading for less than a dollar. By early 2006, though,  positive changes in the economic environment, along with a savvy new CEO, put Nortel back on an uphill swing. Analysts predicted that the com- pany would outdo major competitor Lucent in sales growth and other financial metrics. As one analyst said, however, “It’s a tough business,” and Nortel’s  managers have to stay on their toes to help the organization cope in an ever-changing, difficult environment.

Source: Daft Richard L., Marcic Dorothy (2009), Understanding Management, South-Western College Pub; 8th edition.

Why do organizations  care so much about factors in the external environment? The reason is that the environment  creates uncertainty  for organization  managers, and they must respond by designing the organization to adapt to the environment.

1. ENVIRONMENTAL  UNCERTAINTY

To  be  effective,  organizations   must manage environmental   uncertainty. Uncertainty means that managers do not have sufficient information  about environmental factors to understand and predict  environmental  needs and changes.28 As indicated in Exhibit 2.3, environmental  characteristics that influence  uncertainty  are the number of factors that affect the organization and the extent to which those factors change. A large multinational such as Nortel Networks  has thousands of factors in the external environment creating un- certainty for managers. When  external factors change rapidly, the organization  experiences high uncertainty.  Examples are telecommunications  and aerospace firms, computer and electronics companies, and e-commerce organizations that sell products  and services over the Internet.  Companies have to make an effort to adapt to the rapid changes in the envi- ronment. When an organization deals with only a few external factors and these factors are relatively stable, such as for soft-drink bottlers or food processors, managers experience low uncertainty  and can devote less attention to external issues.

2. ADAPTING TO THE ENVIRONMENT

If an organization faces increased uncertainty with respect to competition,  customers, suppliers, or government reg- ulations, managers can use several strategies to adapt to these  changes,  including boundary-spanning  roles, interorganizational partnerships, and mergers  or joint ventures.

People in departments such as marketing and purchas- ing span the boundary to work with customers and suppli- ers, both face-to-face  and through  market research. Some organizations  are staying in touch with customers through the Internet,  such as by monitoring  gripe sites, communi- cating with customers on company websites, and contract- ing with market-research firms that use the web to moni- tor  rapidly  changing marketplace trends.29 Another approach to boundary  spanning  is the use of business intel- ligence, which results from using sophisticated software to search through large amounts of internal and external data to spot patterns, trends, and relationships that might be significant. For example,  Verizon uses business  intelli- gence software  to actively monitor customer interactions and fix problems almost immediately.30

Boundary spanning  is an increasingly  important task in organizations because environmental shifts can happen so quickly  in today’s world. To make good de- cisions,  managers need good information about their competitors, customers, and other elements of the en- vironment. Thus, the most successful companies  in- volve everyone in boundary-spanning activities. People at the grassroots often  can see and interpret significant changes sooner than managers who are more removed from the day-to-day work.31 But top executives, too, have to stay in tune with the environment. Tom Stemberg, CEO of Staples, visits a competi- tor’s store  once  a week  and shares what he learns with others on the management team.32 Perceiving environmental shifts that could impact the organization isn’t always easy. Managers  must learn to not only interpret the data right in front of them but also to see weak  signals  on the periphery and answer the question, “What don’t we know that might matter?”

Managers  are shifting from an adversarial orientation  to a partnership orientation,  as summarized in Exhibit 2.4. The new paradigm  is based on trust and the ability  of partners to work out equitable solutions to conflicts so everyone  profits from the relationship. Managers work to reduce costs and add value to both sides rather than try to get all the benefits for their own company. The new model also is characterized by a high level of information sharing,  including e-business  link- ages for automatic ordering, payments, and other transactions.

In addition, person-to-person interaction pro- vides corrective  feedback  and solves problems. People from other companies may be onsite  or participate in virtual teams to enable close coordi- nation. Partners frequently  are involved  in one another’s product design and production,  and they are committed  for the long term. It is not unusual for business partners  to help one another,  even outside of what is specified in the contract.34

A  step beyond  strategic  partnerships  is for companies to become involved in mergers or joint ventures to reduce environmental uncertainty.  A merger occurs when two or more organizations combine to become  one. For example,  Wells Fargo merged with Norwest Corp. to form the nation’s fourth largest  banking corporation.  A joint venture  involves  a  strategic  alliance or program by two or more organizations. A joint venture typically occurs when a project  is too com- plex, expensive, or uncertain for one firm to han- dle alone. Oprah Winfrey’s Harpo Inc. formed  a joint venture with Hearst Magazines to launch O, The Oprah Magazine.

Source: Daft Richard L., Marcic Dorothy (2009), Understanding Management, South-Western College Pub; 8th edition.

The internal environment within which  managers work includes corporate culture, pro- duction technology, organization structure, and physical facilities. Of these, corporate culture  surfaces as extremely  important to competitive  advantage. The internal culture must fit the needs of the external environment  and company strategy. With  this fit, highly committed  employees create a high-performance  organization  that is tough to beat.

Most people don’t think about culture; it’s just “how we do things around here” or “the way things are here.” But managers have to think about  culture  because it typically  plays a significant role in organizational success. The concept of culture  has been of growing con- cern to managers since the 1980s, as turbulence  in the external environment  has grown, often requiring new values and attitudes. Organizational culture has been defined and stud- ied in many and varied ways. For the purposes of this chapter,  we define  culture as the set of key values, beliefs, understandings,  and norms shared by members of an organization.37

The concept of culture helps managers understand the hidden, complex aspects of organiza- tional life. Culture  is a pattern of shared values and assumptions about how things are done within the organization. Members learn this pattern as they cope with external and internal problems and teach it to new members  as the correct  way to perceive, think, and feel.

Culture can be analyzed at three levels, as illustrated in Exhibit 2.5, with each level be- coming less obvious.38 At the surface level are visible artifacts, which include things such as manner of dress, patterns  of behavior, physical symbols, organizational ceremonies, and office layout. Visible artifacts are all the things  one can see, hear, and observe by watching members of the organization. At a deeper level are the expressed values and beliefs, which are not observable but can be discerned from how people explain and justify what they do.

Members of the organization hold these values at a conscious level. They  can be inter- preted from the stories, language, and symbols organization   members use to represent them.

Some values become so deeply embedded in a culture  that members no longer are con- sciously aware of them. These basic, underlying  assumptions and beliefs are the essence of culture and subconsciously guide behavior and decisions. In some organizations,  a basic assumption might be that people are essentially lazy and will shirk their duties whenever possible; thus, employees are closely supervised and given little freedom, and colleagues fre- quently  are suspicious of one another. More enlightened organizations operate on the basic assumption that people want to do a good job. In these organizations,  employees are given more freedom and responsibility  and colleagues trust one another and work cooperatively. Take the New Manager Self Test see  how well you might do in a new organizational culture.

The fundamental  values that characterize an organization’s  culture  can be under- stood through the visible manifestations  of symbols,  stories,  heroes,  slogans,  and ceremonies.

1. SYMBOLS

A symbol is an object, act, or event that conveys meaning to others. Symbols can be con- sidered a rich, nonverbal language that vibrantly  conveys the organization’s important val- ues concerning  how people relate to one another and interact with the environment.39 For example, managers at a New York–based start-up that provides Internet solutions to local television broadcasters wanted  a way to symbolize the company’s unofficial mantra of “drilling down to solve problems.”  They bought a dented old drill for $2 and dubbed it The Team Drill. Each month, the drill is presented to a different  employee in recognition of exceptional work, and the employee personalizes the drill in some way before passing it on to the next winner.40

Buildings  and office layout also can be symbolic. The headquarters of RadioShack Corp. used to have 22 separate entrances and five parking lots, with employees higher up the hierarchy having more convenient parking and building access. When the com- pany built its new headquarters, top managers asked that it be designed with one park- ing garage and a single front door for all 2,400 employees. The door spills onto a “main street” corridor  that connects all departments. Executives who once took a private eleva- tor to their top floor, marble-clad suite now ride the elevator with everyone  else and are  located close  to  rank-and-file employees.  The  new headquarters  symbolizes RadioShack’s new cultural  values of egalitarianism, horizontal collaboration, teamwork, and innovation.41

2. STORIES

A story is a narrative  based on true events and is repeated frequently  and shared among organizational  employees. Stories are told to new employees to keep the organization’s primary  values alive. One of Nordstrom’s  primary  means of emphasizing the importance of customer service is through corporate storytelling. An example is the story about a sales representative  who took back a  customer’s   two-year-old blouse  with  no questions asked.42

A frequently told story at UPS concerns an employee who, without authorization, or- dered an extra Boeing 737 to ensure timely delivery of a load of Christmas packages that had been left behind in the holiday rush. As the story goes, rather than punishing the worker, UPS rewarded his initiative. By telling this story, UPS workers communicate that the company  stands behind its commitment to worker autonomy and customer service.43

3. HEROES

A  hero is a figure who exemplifies the deeds, character, and attributes of a strong  cul- ture. Heroes are role models for employees to follow. Sometimes  heroes are real, such as  the female  security  supervisor who once challenged  IBM’s chairman because he wasn’t carrying the appropriate clearance identification to enter a security area.44 Other times they are symbolic, such as the mythical sales representative  at Robinson Jewelers who delivered a wedding  ring directly to the church  because the ring had been ordered late.

The deeds of heroes are out of the ordinary, but not so far out as to be unattainable  by other employees. Heroes show how to do the right thing in the organization. Companies with strong cultures take advantage of achievements to define  heroes who uphold key values.

At 3M Corp., top managers keep alive the heroes who developed projects that were killed  by top management. One hero was a vice president who was fired earlier in his career for persisting with a new product  even after his boss had told him, “That’s  a stupid idea.

Stop!” After the worker was fired, he would  not leave. He stayed in an unused office, work-ing without a salary  on the new product idea. Eventually he was rehired,  the idea suc- ceeded, and he was promoted  to vice president. The lesson of this  hero as a major  element in 3M’s culture is to persist at what you believe in.45

4. SLOGANS

A slogan is a phrase  or sentence that succinctly  expresses a key corporate  value. Many companies  use a slogan or saying to convey special meaning to employees. H. Ross Perot of Electronic  Data Systems established the philosophy of hiring the best people he could find and noted how difficult it was to find them. His motto was, “Eagles don’t flock. You gather them one at a time.”

Averitt Express  uses the slogan “Our driving force is people” to express its commitment to treating employees and customers well. Cultural values also can be discerned in written public  statements, such as corporate mission  statements or other formal statements that express the core values of the organization. The mission statement for Hallmark Cards, for example, emphasizes values of excellence, ethical and moral conduct in all relationships, business innovation, and corporate social responsibility.46

5. CEREMONIES

A ceremony is a planned activity  at a special event that is conducted for the benefit of an audience. Managers hold ceremonies to provide dramatic examples of company  values. Ceremonies  are special occasions that reinforce  valued accomplishments, create a bond among people by allowing them to share an important event, and anoint and celebrate heroes.47 Wal-Mart founder Sam Walton initiated  a ceremony in 1962 that thrives to this day and remains the heartbeat of Wal-Mart’s culture.48

In summary, organizational  culture represents the values, norms, understandings, and basic assumptions that employees share, and these values are signified by symbols, stories, heroes, slogans, and ceremonies. Managers help define important  symbols, stories, and he- roes to shape the culture.

Source: Daft Richard L., Marcic Dorothy (2009), Understanding Management, South-Western College Pub; 8th edition.

A big influence on internal corporate culture is the external environment. Cultures can vary widely  across organizations; however, organizations within the same industry  often reveal similar  cultural  characteristics  because they are operating  in similar environments.49 The internal culture should embody what it takes to succeed in the environment. If the external environment requires extraordinary customer service, the culture should encourage good service. If it calls for careful technical decision making,  cultural  values should reinforce managerial decision making.

1. ADAPTIVE   CULTURES

Harvard  University  researched 207 U.S. firms to illustrate the critical relationship be- tween corporate culture and the external environment. The study found that a strong corporate culture alone did not ensure  business  success unless  the culture encouraged healthy adaptation to the external environment.  Adaptive corporate cultures have values and behaviors different from unadaptive corporate cultures. In adaptive cultures, manag- ers are concerned about customers and the internal people and processes that  bring  about useful change. In unadaptive corporate cultures, managers are concerned about them- selves, and their values tend to discourage risk taking and change. Thus, a strong culture alone is not enough  because an unhealthy culture  may encourage the organization to march resolutely in the wrong direction. Healthy  cultures help companies adapt to the environment.50

2. TYPES OF CULTURES

In considering what cultural  values are important for the organization,  managers consider the external environment as well as the company’s strategy and goals. Studies suggest that the right fit between culture, strategy, and the environment is associated with four categories or types of culture.  These categories are based on two dimensions: (1) the extent to which the external environment requires flexibility or stability; and (2) the extent to which  a com- pany’s strategic focus is internal or external. The four categories associated with these dif- ferences are adaptability, achievement, involvement, and consistency.51

The adaptability culture emerges in an environment that requires fast response and high-risk decision making.  Managers encourage values that support the company’s ability to rapidly detect, interpret, and translate signals from the environment into new behavior responses. Employees  have autonomy to make decisions and act freely to meet new needs, and responsiveness to customers is highly valued. Managers also actively create change by encouraging and rewarding creativity, experimentation, and risk taking.

Lush Cosmetics, a fast-growing  maker of shampoos, lotions,  and bath products made from fresh  ingredients  such as mangoes and avocados, provides  a good example of an adaptability culture. A guiding motto at the company is: “We reserve the right to make mistakes.” Founder and CEO Mark Constantine is passionately devoted to change and encourages employees to break boundaries, experiment, and take risks. The company kills off a third of its product line every year to offer new and offbeat products.52 Other compa- nies in the cosmetics industry,  as well as those involved  in electronics, e-commerce, and fashion, often use an adaptability  culture because they must  move quickly  in response to rapid changes in the environment.

The achievement culture is suited to organizations that are concerned  with serving specific customers in the external environment but without  the intense need for flexibility and rapid change. This results-oriented  culture values competitiveness, aggressiveness, personal initiative, and willingness to work long and hard to achieve results. An emphasis on winning and achieving specific ambitious  goals is the glue that holds the organization  together.53

Siebel Systems, which sells complex software systems, thrives on an achievement cul- ture. Professionalism and aggressiveness are core values. Employees  are forbidden to eat at their desks or to decorate with more than one or two personal photographs. People who succeed at Siebel are focused, competitive, and driven to win. Those who perform and meet stringent goals are rewarded handsomely; those who don’t are fired.54

The involvement culture emphasizes an internal  focus on the involvement and partic-ipation of employees to adapt rapidly to changing  needs from the environment. This culture places high value on meeting employees’ needs, and the organization  may be characterized as having a caring, family-like atmosphere.  Managers  emphasize values such as cooperation, consideration of employees and customers alike, and avoiding status differences.

Consider the involvement culture at Valero, which is partly responsible for helping the company become the top oil refinery in the United States.

Some managers might think putting  employees ahead of customers and shareholders is nice, but not very good for business. But at Valero, a strong involvement culture based on putting employees first has paid off in terms of high employee performance and rising market share, profits,  and shareholder value.55

The final category of culture, the consistency culture,  uses an internal  focus and a consistency orientation for a stable environment.  Value is placed on following the rules and being thrifty, and the culture supports and rewards a methodical, rational, orderly way of doing things. In today’s fast-changing world, few companies operate in a stable environ- ment, and most managers are shifting toward cultures that are more flexible and in tune with changes in the environment.

But one thriving company, Pacific Edge Software, successfully implemented elements of a consistency culture,  ensuring  that all its projects  are on time and on budget. The husband-and-wife team of Lisa Hjorten and Scott Fuller implanted  a culture of order, dis- cipline, and control from the moment they founded the company. The emphasis on order and focus means that employees can generally go home by 6:00 p.m. rather than work all night to finish an important project. Hjorten insists that the company’s culture isn’t rigid or uptight, just careful. Although sometimes being careful means being slow, so far Pacific Edge has managed to keep pace with the demands of the external environment.56

Each of these four categories of culture  can be successful. In addition, organizations usually have values that fall into more than one category. The relative emphasis on various cultural values depends  on the needs of the environment and the organization’s focus. Managers are responsible for instilling the cultural  values the organization  must have to be successful in its environment.

Source: Daft Richard L., Marcic Dorothy (2009), Understanding Management, South-Western College Pub; 8th edition.

Research conducted by a Stanford  University  professor indicates that the one factor that increases a company’s value the most is people and how they are treated.57  In addition, sur- veys found  that CEOs cite organizational culture as their most important mechanism for attracting, motivating, and retaining  talented  employees, a capability  they consider the single best predictor  of overall organizational  excellence.58 In a survey of Canadian senior executives, fully 82 percent indicated that they believe culture and financial performance are directly correlated.59

Corporate  culture  plays a key role in creating an organizational climate that enables learning and innovative  responses to threats from the external environment,  challenging new opportunities, or organizational crises. Managers, however, realize that they can’t focus all their effort  on values. They also must be committed to solid business performance.

1. MANAGING THE HIGH-PERFORMANCE CULTURE

Companies that succeed in a turbulent  world are those that pay careful attention to cultural values and business performance. Cultural values can energize and motivate  employees by appealing to higher ideals and unifying  people around shared goals. In addition, values boost performance by shaping and guiding employee  behavior,  so that everyone’s actions  are aligned with strategic priorities.60 Exhibit 2.6 illustrates four organizational outcomes based on the relative attention  managers pay to cultural values and business performance.61

A company in Quadrant A pays little attention to either values or business results and is unlikely to survive for long. Managers in Quadrant B organizations are highly focused on creating a strong cohesive culture,  but they don’t tie organizational  values directly  to goals and desired  business results.  When cultural values aren’t  connected  to business performance, they aren’t likely to benefit the organization during hard times. For exam- ple, Levi Strauss  placed  a high premium on values, even tying part of managers’ pay to how well they toed the values line. The problem  was that top executives lost sight of the business performance  side of the issue. Thus,  when Levi jeans began losing market share to new, hip rivals, the company  was unable  to adapt quickly to the changing environment.62

Quadrant C represents organizations that are focused primarily  on bottom-line results and pay little attention to organizational values.

Quadrant C courses would  have students engage in cut-throat competition for grades. The teacher doesn’t care about the people, only how well they do on assignments and tests. This approach may be profitable in the short  run,  but  the success is difficult to sustain over the long term because the “glue” that holds the organization together—shared cultural values—is missing.

Think about the numerous get-rich-quick  goals of dot-com entrepreneurs. Thousands of companies that sprang up in the late 1990s were aimed primarily at fast growth and quick profits, with little effort to build  a solid organization based on long-term mission and values. When the crash came, these companies failed. Those that survived typically were companies with strong cultural  values that helped them weather the storm. For example, both eBay and Amazon.com  managers paid careful attention to organizational  culture, as did smaller e-commerce  companies  such as Canada’s Mediagrif Interactive Technologies, an online B2B brokerage that allows businesses to meet online and trade their goods.63

Finally, companies in Quadrant D emphasize both culture and solid business perfor- mance  as drivers  of organizational success. Managers  in these organizations  align values with the company’s day-to-day  operations—hiring  practices, performance management, budgeting, criteria for promotions  and rewards, and so forth. A 2004 study of corporate values by Booz Allen Hamilton and the Aspen Institute found that managers in companies that report superior financial  results typically  emphasize values and link them directly to the way they run the organization.64

A good example is the fast-growing  Umpqua Bank, which expanded from 11 branches and $140 million in assets in 1994 to 92 branches and $5 billion in assets nine  years later. At Umpqua, every element of the culture is directed to serving customers, and every aspect of operations reflects the cultural values.

Consider training programs. To avoid the “it’s not my job” attitude that infects many banks, managers devised the “universal associate” program,  which  trains every bank staffer in every task so a teller can take a mortgage application  and a loan officer can process your checking account deposit. Employees are empowered to make their own decisions about how to satisfy customers, and branches have free reign to devise unique ways to coddle the clientele in their particular location.

Umpqua  also carefully  measures and rewards the cultural  values it wants to maintain. The bank’s executive vice president of cultural  enhancement devised a software program that measures how cultural values are connected  to performance, which the bank calls “return on quality” (ROQ). The ROQ scores for each branch and department  are posted every month,  and they serve as the basis for determining incentives and rewards.65

Quadrant D organizations represent the high-performance culture, a culture that (1) is based on a solid organizational  mission or purpose, (2) embodies shared adaptive values that guide decisions and business practices, and (3) encourages individual employee ownership of both bottom-line results and the organization’s cultural backbone.66

One of the most important things that managers do is to create and influence organiza- tional culture to meet strategic  goals, because culture  has a significant impact on perfor- mance. In Corporate Culture  and Performance, Kotter and Heskett  provided evidence that companies that intentionally managed cultural  values outperformed  similar companies that did not. Research has validated that some elements of corporate culture are positively corre- lated with higher financial performance.67  A  good example  is Caterpillar Inc., which developed  a Cultural Assessment Process (CAP) to measure and manage how effectively the culture contributes to organizational  effectiveness. The assessment gave top executives hard data documenting millions of dollars in savings attributed  directly  to cultural factors.68

2. CULTURAL  LEADERSHIP

A primary way in which managers  shape cultural norms and values to build a  high- performance culture is by being a cultural leader. Managers  must overcommunicate to en- sure that employees understand the new culture values, and they signal these values in ac- tions  as well  as words.

A cultural  leader defines and uses signals and symbols to influence corporate culture. Cultural leaders influence  culture in two key areas:

1. The cultural leader articulates a vision  for the organizational  culture that employees can believe in. The leader defines and communicates central values that employees believe in and will rally around. Values are tied to a clear and compelling  mission, or core purpose.
2. The cultural leader heeds the day-to-day activities that reinforce the cultural vision. The  leader makes sure that work procedures and reward systems match and reinforce  the values. Actions  speak louder than words, so cultural  leaders “walk  their talk.”69

Leaders  can create a culture  that brings people together  by ensuring that people have a voice  in what the important values should  be. Managers  at United Stationers built a new, adaptive culture  from the ground up by asking all 6,000 globally dispersed employees to help define the values that would be the building blocks of the culture.70

Managers widely communicate the cultural  values through  words and actions. Values statements that aren’t reinforced by management behavior are meaningless or even harm- ful to employees and the organization. Consider Enron, whose values statement included things like communication,  respect, and integrity. Managers’ actions at the corporation clearly belied those stated values.71

For values to guide the organization, managers have to model them every day. Canada’s WestJet Airlines, which ranked in a survey  as having Canada’s most admired corporate cul- ture, provides an illustration.  WestJet employees (called simply “people” at WestJet) regu- larly  see CEO Clive  Beddoe and other top leaders putting the values of equality, teamwork, participation, and customer service into action. At the end of a flight, for example, everyone on hand pitches in to pick up garbage—even the CEO.

Top executives spend much of their time chatting informally with em- ployees and customers, and they regularly send notes of thanks to people who have gone above and beyond the call of duty. Top executives have been known to visit the call center on Christmas Day to pitch in and to thank people for working on the holiday. Managers don’t receive perks over and above anyone else; they get no assigned parking  spaces and no club memberships. Every person at WestJet is treated like first-class, ex- actly the way leaders want employees to treat every passenger on a WestJet flight.72

Cultural leaders also uphold  their commitment to values during  difficult times or crises, as illustrated  by the example of Bill Greehey at Valero ear- lier in this chapter. On Fortune magazine’s list of “100 Best Companies to Work For,” Valero zoomed from Number 23 to Number 3 based on its treatment of employees following  the devastating 2005 hurricanes. Despite the costs, Valero kept people on the payroll throughout the crisis, set up special booths to feed volunteers, and donated $1 million to the American Red Cross for hurricane relief efforts.73 Upholding the cultural values helps organizations  weather a crisis and come out stronger on the other side.

Creating and maintaining a high-performance  culture is not easy in today’s turbulent environment and changing workplace, but through their words—and particularly their actions—cultural  leaders let everyone in the organization know what really counts.

Source: Daft Richard L., Marcic Dorothy (2009), Understanding Management, South-Western College Pub; 8th edition.

Why do companies such as Dell, FedEx, and eBay want to pursue a global  strat- egy, despite difficulties, failures, and losses? They recognize that business is becoming a unified,  global field as trade barriers fall, communication becomes faster and cheaper, and consumer tastes in everything from clothing to cellular phones converge. Thomas Middelhoff of Germany’s Bertelsmann AG, which purchased U.S. publisher Random House, put it this way: “There are no German and American companies. There are only successful and unsuccessful companies.”7

In addition, for many companies today, the only potential for significant growth lies overseas. The demand for raw materials  such as steel, aluminum,  cement, and copper has slowed in the United  States but is booming in countries  such as China, India, and Brazil.8

For online companies, too, going global is a key to growth. The number of residential Internet subscribers in China is growing significantly  faster than that of the United States. Western  Europe  and Japan together  account for a huge share of the world’s e-commerce revenue. 9

Companies that think globally have a competitive  edge. Consider  the U.S. movie in- dustry, where global markets used to be an afterthought. Not any more. The success of Crouching Tiger, Hidden Dragon in both Asian and U.S. markets spurred movie studios to take a broader view. Squeezed at the box office in the United States, studios  such as New Line Cinemas, Columbia Pictures, Disney,  and Universal  are busily striking deals to co-produce foreign language films designed primarily  for foreign markets that are experi- encing a booming  demand. The box-office  share for local films in Russia, for example, nearly tripled in 2004.10 Movement of people around the world, as immigrants to a new country,  can now create business opportunities.

The reality of today’s borderless companies means that consumers no longer can tell from which country they’re buying. U.S.-based Ford Motor Company owns Sweden’s Volvo.

Source: Daft Richard L., Marcic Dorothy (2009), Understanding Management, South-Western College Pub; 8th edition.

Organizations   have a  couple of ways  to become  involved internationally. One is to seek cheaper  sources  of materials or labor offshore, which is called  offshoring or global outsourcing. Another  way is to develop markets for finished products outside their home countries, which may include exporting, licensing, and direct investing. These market entry strategies represent alternative  ways to sell products  and services in foreign markets. Most firms begin with exporting and work up to direct investment. Exhibit 3.2 shows the strategies companies  can use to enter foreign markets.

1. OUTSOURCING

In recent years, millions of low-tech jobs  such as textile manufacturing  have been out- sourced to low-wage countries. The Internet and plunging  telecommunications  costs are enabling companies to outsource more and higher-level work as well.13

Service companies are getting in on the outsourcing trend as well. U.S. data-processing companies use high-speed data lines to ship document images to Mexico and India, where 45,000 workers do everything from processing airline tickets to screening credit card appli- cations. British banks have transferred back-office operations to companies in China and India, as well.14

2. EXPORTING

With exporting, the corporation maintains its production facilities within the home nation and transfers its products for sale in foreign countries.15 Exporting enables a company  to mar- ket its products in other countries at modest resource cost and with limited risk. Exporting does entail numerous problems  based on physical distances, government  regulations,  foreign currencies, and cultural differences, but it is less expensive  than committing the firm’s own capital to building plants in host countries.

A form of exporting to less-developed countries is called countertrade, which is the barter of products for products rather than the sale of products for currency. Many less- developed countries have products to exchange but have no foreign currency. An estimated 20 percent of world trade is countertrade.

3. FRANCHISING

Franchising is a special form of licensing in which the franchisee buys a complete pack- age of materials  and services, including equipment, products, product ingredients, trade- mark and trade name rights, managerial  advice, and a standardized  operating system. Whereas with licensing  a licensee generally  keeps its own company name and operating systems, a franchise  takes the name and sys-tems of the franchisor. For example,  An- heuser-Busch  licenses the right to brew and distribute  Budweiser beer to several brewer- ies, including Labatt in Canada and Kirin in Japan, but these breweries retain their own company names, identities,  and autonomy.

In contrast,  a Burger  King franchise any- where  in the world is a  Burger King, and managers  use standard  procedures designed by the franchisor. The fast-food  chains are some  of the best-known  franchisors. KFC, Burger King, Wendy’s, and McDonald’s out- lets are found in almost every large city in the world. The story often is told of the Japanese child  visiting Los Angeles who excitedly pointed out to his parents, “They have Mc- Donald’s in America.”

Licensing and franchising  offer a business firm relatively   easy access to international markets at low cost, but they limit its partici- pation in and control over the development of those markets.

4. CHINA   INC.

Just as managers  at Delphi are looking  to China as the wave of the future, many companies today are going straight to China or India as a first step into international business. As we discussed, business in both countries is booming,  and U.S. and European companies are taking advantage of opportunities for all of the tactics we’ve discussed here—outsourcing, exporting, licensing, and direct investment. In 2003, foreign companies invested more in business in China than they spent anywhere else in the world.16 Multinationals based in the United States and Europe are manufacturing  more and more products in China using de- sign, software,  and services from India. This trend prompted  one business writer to coin the term “Chindia” to reflect the combined power of the two countries in the international dimension.17

Outsourcing is perhaps the most widespread approach to international involvement in China and India. China manufactures an ever-growing  percentage of the industrial and consumer products sold in the United States—and in other countries  as well. China pro- duces more clothes, shoes, toys, television  sets, DVD  players, and cell phones than any other country. Manufacturers  there also are moving into higher-ticket items such as auto- mobiles, computers, and parts for Boeing 757s. China can manufacture almost any product at a much lower cost than in the West. For its part, India is a rising power in software de- sign, services, and precision  engineering.

JPMorgan Chase announced plans to move 30 percent of its investment bank back-office and support staff functions to India by the end of 2007 to take advantage of the low cost of highly educated workers.18 Nearly 50 percent of microchip engineering for Conexant Sys- tems, a California company that makes the intricate brains behind Internet  access for home computers and satellite-connection set-top boxes for televisions, is done in India.19

Many large organizations  also are developing  joint ventures or building  subsidiaries in China and India. Cummins  Engine was one of the earliest U.S. firms to open plants in both countries.

Source: Daft Richard L., Marcic Dorothy (2009), Understanding Management, South-Western College Pub; 8th edition.

International management is defined  as the management of business operations con- ducted in more than one country.  The fundamental  tasks of business management,  includ- ing financing, production, and distribution of products  and services, do not change in any substantive way when a firm is transacting business across international borders. The basic management functions  of planning,  organizing, leading, and controlling are the same whether a company operates domestically or internationally. But managers will experience more difficulty and risks when performing  these management functions on an interna- tional  scale. Consider the following blunders:

• When U.S. chicken entrepreneur  Frank  Purdue translated  a successful advertising  slo- gan into Spanish, “It takes a tough man to make a tender chicken”  came out as “It takes a virile man to make a chicken affectionate.”20
• It took McDonald’s more than a year to figure out that Hindus in India do not eat beef. The company’s sales took  off only after McDonald’s  started using lamb to make burgers that were sold in India.21

• In Africa, the labels on bottles show pictures of what is inside so illiterate  shoppers can know what they’re buying. When  a baby-food  company showed a picture of an infant on its label, the product didn’t sell very well.22
• United Airlines  discovered that even colors can doom a product.  The airline handed out white carnations when it started flying from Hong Kong, only to discover that to many Asians, these flowers represent death and bad luck.23

Some of these examples seem humorous,  but there’s nothing funny about them to man- agers trying to operate in a highly competitive  global environment.  What should managers of emerging global companies look for to avoid obvious international mistakes? When  they are comparing one country with another, the economic, legal-political,  and sociocultural sectors present the greatest difficulties.  Key factors to understand in the international envi- ronment are summarized in Exhibit 3.3.

Source: Daft Richard L., Marcic Dorothy (2009), Understanding Management, South-Western College Pub; 8th edition.

The economic environment  represents the economic conditions in the country where the international organization operates. This part of the environment  includes factors such as economic  development,  infrastructure,   resource and product markets, and exchange rates, each of which is discussed next. In addition,  factors such as inflation, interest rates, and economic growth are part of the international economic environment.

1. ECONOMIC DEVELOPMENT

Economic  development differs widely among the countries and regions of the world. Countries  can be categorized as either developing or developed. Developing  countries are referred to as less-developed countries  (LDCs). The criterion traditionally used to classify countries as developed or developing is per-capita income, which is the income generated by the nation’s production of goods and services divided  by total population.

The developing countries have low per-capita incomes. LDCs generally are located in Asia, Africa, and South America. Developed countries generally are located in North Amer- ica, Europe,  and Japan. Most international business firms  are headquartered in the wealth- ier, economically  advanced countries,  but smart managers are investing  heavily  in Asia, Eastern Europe, Latin America, and Africa.24  These companies face risks and challenges today, but they stand to reap huge benefits in the future.

2. INFRASTRUCTURE

A country’s physical facilities that support economic activities make up its infrastructure, which includes transportation  facilities such as airports, highways, and railroads; energy- producing facilities such as utilities and power plants; and communication facilities such as telephone lines and radio stations. Companies operating in LDCs must contend with lower levels of technology and perplexing logistical, distribution,  and communication problems. Undeveloped infrastructures represent opportunities  for some firms, such as United Tech- nologies  Corporation, based  in Hartford, Connecticut,   whose  businesses include jet engines, air-conditioning  and heating systems, and elevators.

As countries  such as China, Russia, and Vietnam  open their markets, new buildings need elevators and air and heat systems, and opening  remote regions for commerce requires more jet engines and helicopters.25  Cellular  telephone companies have found tremendous opportunities in LDCs, where land lines are still limited. China has the world’s biggest base of cell phone subscribers at 350 million, and the number is expected to grow to near 600 million by 2009.26

3. RESOURCE  AND PRODUCT  MARKETS

When  operating in  another country, company  managers  must evaluate  the market demand  for their products.  If market demand is high, managers may choose to export products to that coun- try. To develop plants, however, resource markets for providing  needed raw materials  and labor must be  available. For example, the greatest challenge for McDonald’s, which sells Big Macs on every continent  except Antarctica,  is to obtain supplies of everything from pota- toes to hamburger buns to plastic straws. At McDonald’s in Cracow, the burgers come from a Polish plant, partly owned by Chicago-based  OSI Industries;  the onions come from Fresno,  California; the buns come from a production   and distribution center near Moscow; and the potatoes come from a plant  in Aldrup, Germany.27

American Amanda Knauer found high-quality  raw materials in South America, where she set up her own business.

4. EXCHANGE   RATES

Exchange rate is the rate at which one country’s currency is exchanged for another coun- try’s. Volatility in exchange rates is a major concern for companies doing business interna- tionally.28 Changes in the exchange rate can have major implications for the profitability of international operations that exchange millions of dollars into other currencies every day.29

For example, assume that the U.S. dollar  is exchanged for 0.8 euros. If the dollar increases in value to 0.9 euros, U.S. goods will be more expensive in France because more euros will be required to buy a dollar’s worth of U.S. goods. It will be more difficult to export U.S. goods to France, and profits will be slim. If the dollar drops to a value of 0.7 euros, by con- trast, U.S. goods will be cheaper in France and can be exported at a profit.

Source: Daft Richard L., Marcic Dorothy (2009), Understanding Management, South-Western College Pub; 8th edition.