Jones: Introduction To II. The Human Side of 7. …myresource.phoenix.edu/secure/resource/BUS210R4/bus210...Dick’s approach to leading and motivating its employees begins when it

Jones: Introduction To Business: How Companies Create Value for People

II. The Human Side of Business

7. Motivating and Managing People and Groups in Business Organizations

© The McGraw−Hill Companies, 2007

C H A P T E R

7Learning ObjectivesAfter studying this chapter, you should be able to:

Motivating and ManagingPeople and Groups in Business Organizations

WHY IS THIS IMPORTANTWhy do you work harder in some classes than inothers? Something motivates you to do a better job.Why do some of your classmates study more or lessthan you do? The same thing is true in organizations.Some people and groups are more motivated toachieve goals than others. Also, why is there moreconflict within some groups than others? What causesconflict and how can it be managed to benefit theorganization?

This chapter will help you understand how impor-tant it is for companies to motivate employees sothey can achieve success for the company they workfor and for themselves.

?1. Understand the nature and sources ofwork motivation and appreciate the waymotivation is under the voluntary control of an employee.

2. Describe five different theories of workmotivation and identify how they worktogether to determine work motivation.

3. Identify the characteristics of groups andteams and distinguish between importanttypes of groups and teams.

4. Explain the factors that create high-performing groups and teams.

5. Identify the sources of organizationalconflict and understand how bargaining and negotiation are used to resolveconflicts between people and groups.





A Question of BusinessHow to Run a RestaurantWhat is Dick’s approach to motivating its employees?

Dick’s Drive-In Restaurants is a five-store, family-

owned hamburger chain based in Seattle, Wash-

ington. Founded in 1954, its owners have pur-

sued an innovative approach to leadership and

motivation in the fast-food industry, which is

known for its high employee turnover and low-

paying jobs. From the beginning, Dick’s has

always paid its employees well above the industry

average and offers them many benefits, too.

Dick’s pays its 110 part-time employees $8.75 an

hour, covers 100% of the cost of their health

insurance, and provides employees who have

worked at Dick’s for six months up to $10,000

towards their college education. Dick’s even pays

its employees their regular wages if they perform

four hours of volunteer work each month in the

local community. Dick’s competitors, on the other

hand, national hamburger chains like Wendy’s

and McDonald’s, pay their part-time employees

the minimum wage ($5.85 an hour) and offer

them no health insurance and few fringe benefits.

When asked why Dick’s adopts this approach Jim

Spady, its vice president answered, “We’ve been

around since 1954, and one thing we’ve always

believed is that there is nothing more important

than finding and training and keeping the best

people you possibly can.”

Dick’s approach to leading and motivating its

employees begins when it recruits new hires

straight out of high school. Its managers empha-

size that they look for a long-term commitment

from employees and that in return, Dick’s will

help and support employees by providing them

with above-average pay, pension benefits, and

tuition money while they work their way through

school. With its supportive “family style” leader-

ship, Dick’s managers and employees help train

new recruits and quickly bring them up to speed.





Every company strives to make and sell the kind of goods and ser-vices customers want to buy. A crucial determinant of a company’s

ability to achieve this goal is its managers’ ability to motivate its human resources.The opening case described how managers at Dick’s Restaurants tried to create awork setting that encouraged employees to work hard, perform at a high level, andstay with the company. In this chapter, we examine how managers can motivate peo-ple and groups in order to do this.

First, we examine the nature of work motivation and describe five theories thattogether explain what motivates people. Second, we move up from the individuallevel to the group and team level. We identify several different types of groups andteams and discuss the factors that can increase or decrease their members’ motivation.

We then turn to the issue of why conflict occurs between people and groups in thework setting and discuss how conflict can reduce efficiency and effectiveness. Finally,we examine how managers can use bargaining and negotiation to help resolve con-flict and increase a company’s performance. By the end of this chapter, you willunderstand the many issues managers face as they try to motivate employees, indi-vidually or in groups, to work hard and perform in ways that allow a company to pur-sue its business model successfully.

210 Chapter Seven

Dick’s expects its employees to perform to thebest of their ability to get its burgers, and its cus-tomers, out the door as fast as they can. Dick’semployees don’t wait to be asked to do some-thing. They are proactive and do whatever ittakes to provide customers the freshest burgerSeattle has to offer.

Dick’s does not expect its employees to remainwith the company after they have graduated.However, it does want them to stay with the com-pany until they graduate. And, here lies the rea-son why Dick’s can afford to motivate its employ-ees with generous pay and benefits. Employeeturnover at the large burger chains is frequentlymore than 100% a year. In other words, a typicalrestaurant has to replace all of its employees atleast once a year. As a result, these chains haveto constantly hire and train new employees to getthem up to speed. This is expensive and signifi-cantly increases their operating costs.

Dick’s has discovered that if its employeesstay with the company for at least six months,the resulting fall in operating costs more thanoffsets the extra pay and benefits employeesreceive. This makes for a “win-win” situation forthe company and its employees. From the com-pany’s perspective, providing employees withgreater rewards and a more satisfying workexperience actually helps boost the chain’sproductivity and its profitability. From the em-ployees’ perspective, they enjoy the supportive“family” atmosphere that prevails in the restau-rant, and they appreciate the good pay andbenefits that make it easier for them to gradu-ate from college. As Spady puts it, “Our philos-ophy is that if you want to be the best, youneed the best people, and if you want the bestpeople, you have to pay for them.” If a personhas to work his or her way through college,then Dick’s seems like a good place to do it.1 •

Overview

The principal determinant of an employee’s willingness towork hard is his or her work motivation. Work motivation isthe psychological force within people that arouses their interest,directs their attention, and causes them to persist and workintensely to find a way to achieve their work goals. Managers, ofcourse, try to motivate employees to work hard, but employees

ultimately control how much effort they will expend. This concept is illustrated inFigure 7.1.

Recall from Chapter 3 that employees can choose to do their jobs in a way that justallows them to meet minimum work performance requirements. Alternately, employ-ees can choose to search for ways to do their jobs more efficiently and effectively. The

Motivation in Business

Organizations





inner circle in Figure 7.1 represents the minimum required work performance level.The two outer circles represent the level of performance employees could potentiallyachieve if they were motivated to perform at higher levels.

Employees know that if they do not perform at the minimum level, they risk beingpunished or sanctioned. This may motivate them to put in enough effort and work toreach this point. But what pushes employees to perform beyond this point? for exam-ple, to perform at the higher level represented by the length of Arrow A. And whywould employees want to put in the enormous amount of effort and hard workneeded to reach their peak performance level? represented by the length of Arrow B.

This is where work motivation comes into play. A company’s owners and man-agers clearly want their employees to be motivated. But to achieve this, managers firstneed to understand the specific kinds of things that motivate them and then create awork setting in which this can happen. One principal factor that affects work motiva-tion is a manager’s approach to leadership, which we discussed in Chapter 6. Otherfactors relate to the psychological needs that affect the way the person thinks andfeels about his or her job and company. To understand how these factors affect moti-vation, we need to discuss five important theories that together give us a good pictureof the various sources of employee motivation.

Maslow’s Needs Hierarchy TheoryAs we discuss in Chapter 1, people engage in business and other forms of humanactivity to increase their utility, or satisfaction. Maslow’s needs hierarchy theory,illustrated in Figure 7.2, explains what specific needs people are trying to satisfythrough their work behaviors. Abraham Maslow, a U.S. psychologist, first argued inthe 1950s that unsatisfied needs motivate people to try to meet those needs in order tosatisfy themselves.

At the base of Maslow’s hierarchy are physiological needs, like the need for food,water, clothing, and sex. Only when their physiological needs are satisfied can peopleturn their attention to satisfying their needs for security, like the need for protection andsafety to help them and their families prosper over time. For example, to satisfy theirsafety needs, people might form clans and tribes to protect themselves from harmand improve their welfare.

Once their physiological and security needs are satisfied, people then search forways to satisfy the next higher-level need, the needs for belongingness. At this point,

Motivating and Managing People and Groups in Business Organizations 211

Figure 7.1VoluntaryEmployeeBehavior

work motivation Thepsychological force withinpeople that arouses theirinterest, directs theirattention, and causesthem to persist to achievetheir work goals.

Proactive work behaviors thatgo beyond job requirements and areopportunities for an employee to find

ways to improve their work performance

B A

Behavior thatmeets minimum

work performancerequirements

Maslow’s needshierarchy theoryA theory that specifies why and how people try tosatisfy their needs throughtheir behaviors at work.





Maslow argued, the desire for affection and love becomes increasingly important.Another kind of belongingness need is the desire to feel a part of something biggerthan oneself, such as a clan, community, or nation. Patriotism and the love of one’scountry are behaviors driven by the need for belongingness.

Once people have satisfied their belongingness needs, they can then search forways to satisfy their esteem needs—the need to be recognized for their skills, expertise,and contributions to society. This need can be satisfied when people achieve a level ofprestige and a measure of recognition from others. Achieving such social approvalbecomes a visible sign of their personal success.

Once people have satisfied these kinds of “lower-level” needs, Maslow argued, theybecome free to search for ways to satisfy their “higher-level” needs for self-actualization.Self-actualization is the desire for personal self-fulfillment—a person’s desire to be thebest he or she can be. At this level, a person is driven to excel in an activity for its ownsake; mastering an activity becomes an end in and of itself, in other words.

Self-actualization differs from person to person, however. Some people mightachieve self-actualization by continually striving to improve their occupational orother skills. A stamp collector, for example, might be driven to obtain every singlestamp issued by a particular country. A runner might become obsessed with buildingthe personal fitness necessary to compete in a marathon. Other people might achieveself-actualization by immersing themselves in the arts or by helping other people. Ascientist might achieve self-actualization by working intensely for years to find a curefor a particular disease.

MANAGERIAL IMPLICATIONS Maslow’s hierarchy is useful in a business con-text because it identifies the many different kinds of needs people try to satisfy at workand clues as to how to motivate them. Some of the many rewards or outcomes thatmotivate employees are listed in Figure 7.2. These rewards include things like salaries,bonuses, and greater job responsibility and autonomy. Outcomes include being recog-nized for one’s successes, being in control of an organization’s resources, and havingthe power to determine the rewards other people receive. The point here is that differ-ent employees desire different things, and a manager’s job is to figure out what thosethings are. That said, employees will often be motivated to fulfill their basic needsbefore their higher-level needs. For example, if a firm lacks basic health-care insurance

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Figure 7.2Maslow’s Hierarchyof Needs

Self-Actualization

Needs

• Responsibility for profitability• Challenging job assignments

• Control over organizational resources

Types of Rewards and Outcomesthat Satisfy Unmet Needs

• Promotion to senior positions• Company recognition• Recognition by stakeholders

• Strong culture, values, and norms• Supportive leader–employee relations

• Group cohesiveness

• Fringe benefits• Safe working environment• Job security

• Pay• Bonuses• Company housing

Esteem Needs

Belongingness Needs

Security Needs

Physiological Needs

self-actualizationThe desire for personalself-fulfillment; that is, aperson’s desire to becomethe best he or she iscapable of becoming.





(a safety need), its employees are likely to bemore motivated to find jobs that offer thesebenefits than they are motivated to meet thefirm’s goals.

The next four theories we discuss focus onhow employees can be motivated to work hardin order to obtain the outcomes and rewardsthey personally desire. These theories also de-scribe how specific factors in the work settinginfluence this motivation.

Expectancy TheoryExpectancy theory argues that work motiva-tion is a function of an employee’s belief (a)that working hard will allow the person to per-form at a high level, and (b) that if the person

does perform well, he or she will be rewarded for it (see Figure 7.3). According to thisview, motivation is therefore a two-stage process. Several factors determine whetheror not employees believe that working hard will lead to a superior job performance.Each of these factors is discussed next.

FACTORS AFFECTING THE EFFORT-TO-PERFORMANCE LINKAGEEmployees’ past experience frequently provides them with information about howlikely they are to succeed at a particular task. Employees who have repeatedly failedto achieve certain work goals in the past will tend to doubt their ability to achieve itin the future. As a result, their motivation to work hard will be diminished.

The implication for managers is that they need to do everything they can tostrengthen the effort-to-performance linkage. The idea is to encourage employees tobelieve that if they do apply themselves and work hard, they will succeed. For example,managers should provide support and training to employees who are underperforming.Perhaps more experienced employees can teach the underperforming employees howto do their jobs more efficiently. Expressing confidence in an employee is also animportant way managers can strengthen the effort-to-performance linkage. In this way,managers can help increase an employee’s self-efficacy, the belief a person holds abouthis or her ability to succeed.

Second, to strengthen the effort-to-performance linkage employees also need tobelieve that nothing in the work situation, outside their control, will prevent their hardwork from resulting in superior performance. Suppose the level of one employee’s jobperformance depends upon the job performance of other employees, such as when acarpenter assembles furniture parts made by two other carpenters. Suppose the carpen-ter has learned from past experience that the two other carpenters often make irregulartable legs or table tops and that fitting together the pieces is a difficult, time-consumingprocess. The carpenter may come to believe that it will be impossible to assemble ahigh-quality table quickly, and, as a result, not be motivated to put forth more effort.

The implication for managers is that they need to identify the factors in the worksituation that weaken the effort-to-performance linkage and reduce motivation. Ifmanagers can discover what’s worrying employees, they can search for ways to helpthem succeed. For example, if the carpenter’s manager discovers that the co-workers’


Managers must motivate their employees if they want them to perform well.What are some of the types of motivators a manager can use?

Figure 7.3Linkages inExpectancy Theory Work

Motivation

Effort-to-Performance

Linkage

Performance-to-Valued Outcome

Linkage= +

expectancy theory Atheory that argues that themotivation of employeesdepends upon whether or not they believe thatperforming at a high levelwill lead to the rewardsthey desire.

self-efficacy The beliefa person holds about hisor her ability to succeed ata certain task or in aparticular situation.





poor job performance is the source of his or her lack of motivation, the search for asolution can begin. Perhaps the two carpenters need further training, or perhaps thereal source of the problem is a low-level of group cohesiveness. A manager can thentry to solve these problems.

FACTORS AFFECTING PERFORMANCE-TO-OUTCOME LINKAGE Thesecond stage of motivation, according to expectancy theory, relates to how stronglyemployees believe that a superior performance will result in the outcomes they value.Managers therefore must reinforce the idea that there is a strong job performance-to-outcome linkage. One way to do this is to create an incentive structure that clearly linksa certain performance level with certain rewards. This is the goal behind creating apiece-rate pay system. For example, in a piece-rate system, employees might be paid$2 for each of the first 50 units of a product they make each day, but then receive $4for each additional unit they make over and above 50 units.

As we discussed earlier, different employees value different outcomes differently.For many people, pay is their principal incentive. These employees will thereforerespond positively to attempts to strengthen the performance-outcome linkage byusing money as the reward. By contrast, other people might be more motivated byjobs that are more interesting or flexible, offer further training, and greater responsi-bility over the firm’s resources.

Managers need to consider how the various components of a company’s incen-tive system work together to encourage employees to perform at a high level. Con-sider the issue of promotion. Some companies predominantly hire experiencedmanagers from other companies to fill vacant job positions. If this is a common com-pany practice, however, the company’s employees who are motivated by theprospect of being promoted and earning a higher salary will come to believe thatthere is little chance of this occurring. The performance-to-promotion outcome link-age will be weak, and these employees will be more inclined to leave the company.This is why companies are often advised to “promote from within.” By contrast,when employees are already being paid relatively well for what they do—like stu-dents working at Dick’s Restaurants are—managers might need to reward them dif-ferently. For example, Dick’s might offer students more flexible work hours or extradays off to study or take trips home.

Employees also must believe that nothing in the work setting outside their controlwill prevent them from obtaining the valued outcomes they seek. Suppose anemployee has a manager who is well known for taking credit for the achievements ofhis or her subordinates. In this case, the manager’s employees will have no motiva-tion to come up with better ways to do their jobs because they do not expect to berecognized for their superior performance.

Finally, it is important to understand that even ifa company’s employees have strong effort-to-perfor-mance and performance-to-outcome expectancies,this does not guarantee they will be motivated tobehave the way the company desires. Employees arealso motivated by the needs they can satisfy outsideof the workplace, so managers must factor this intotheir decision making. If employees value time withtheir families, for example, then satisfying this needwill have an impact on how much effort they exertand the performance level they aim for. These em-ployees will not necessarily be motivated to performat a high level if their jobs are so demanding theyare required to work late or on weekends, for exam-ple. By contrast, an employee with a large familymight be motivated by a job that offers good pay,health benefits, and job security. And, if this meansworking long hours, so be it.

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Employees who value time with their families will not be motivatedto perform at a high level by the prospect of being promoted tojobs that require them to work late and on weekends.





Remember, employees choose how much effort they expend at work. Their motiva-tion is under their control, although managers can attempt to influence it. Theexpectancy theory of motivation focuses on the thought processes that go on insidean employee’s head as he or she calculates how hard to work to obtain the outcomesdesired. Three other motivation theories that throw additional light on the way man-agers can strengthen the effort-to-performance and performance-to-outcome linkagesare discussed next.

Goal-Setting TheoryPeople never know exactly what they are capable of achieving, until they actually try.You perhaps have heard the saying: “Nothing ventured, nothing gained.” This is theidea behind goal-setting theory. To help managers evaluate how well their employeesare performing, psychologists recommend that work goals be established for theirjobs and that these goals be used to assess their performance. A work goal is some-thing an employee is trying to accomplish when doing a job. A goal might be to makea particular piece of work, meet a work quota, demonstrate improved job skills, or toreduce the number of complaints from the company’s customers.

Goal-setting theory suggests that the goals used to assess job performance shouldhave five properties if they are going to encourage employees to try to achieve thosegoals. The five properties of goals are that they be specific, challenging, measurable, resultsoriented, and specify a timeframe for completion. These five properties are shown in Fig-ure 7.4.

For example, a bank manager who tells employees to “do your best” is not provid-ing any information that tells them how and what they should do to improve theirperformance. By contrast, a bank manager who tell employees “you have threemonths to develop a new IT program that shortens the time it takes to get an oldbank statement to a customer who has requested one from seven days to two days”has set a specific goal. Now employees can focus on how to solve this specific problem.Based on their own knowledge of the bank’s IT system, the manager needs to be rea-sonably sure that employees can achieve this goal, however. If employees believe the


Figure 7.4Five Characteristicsof Motivating Goals

Motivatinggoals are

Challenging

Specific Measurable

Resultsoriented

Specify time-frame for

completion

work goal Somethingspecific an employee istrying to accomplish whendoing a job.

goal-setting theoryA theory that suggests that if goals are to motivateemployees, they should be specific, challenging,measurable, resultsoriented, and specify atimeframe for completion.





goal is much too ambitious, they will not be motivated to put forth the effort neededto achieve it. Goals should be challenging but not unattainable.

For similar reasons a goal should be stated in a way that allows both managers andemployees to measure and evaluate the progress that has been achieved towards meet-ing the goal. It should be results oriented, in other words. If, after one month, employeesare able to report they have reduced the request-fulfillment time to four days, every-one has a clear idea of what has been achieved and how far there is still to go. In gen-eral, goals should be set that relate to the four building blocks of gaining a global com-petitive advantage, discussed in Chapter 4—achieving superior productivity, quality,innovation, and responsiveness to customers. These goals provide ways to measure acompany’s performance and evaluate the success of its business model.

Finally, when managers set a timeframe for the completion of a goal, this alsoallows them and their employees to judge the progress made towards meeting it. Inmany cases, reaching a goal is usually the consequence of accomplishing a series ofspecific “subgoals.” Although these subgoals are goals in their own right, they are partof what needs to be done to meet a principal goal—in this case, reducing the customer-response time to two days.

In turn, the bank’s customer-response goal might be part of a larger, companywidegoal set by the bank’s president to “increase work productivity by 10% in order tosave $200 million in operating costs.” Remember, that the owners of the bank haveset a goal for the bank manager, just as the lower-level manager in the bank set a goalfor its IT employees. Goal setting occurs up and down the organizational hierarchy.The ultimate goal is that sought by the bank’s stockholders: Increase the bank’s prof-itability and its stock price. This hierarchy of goals is illustrated in Figure 7.5.

When these five principles are used to established work goals, they act as clear sig-nals managers and employees can use to gauge performance: Employees understandwhy their efforts have, or have not, led to improved job performance (and betterrewards). Managers can also give employees more accurate feedback about how theyhave performed, if they have met minimum performance requirements, and howthey have performed relative to their co-workers. In the example of the carpentersabove, a manager could tell the carpenter who assembles tables that other carpentersassemble five tables a day, whereas he only assembles four. The manager and carpen-ter could then discuss why this is happening.

When their work performance can be measured, employees can also calculate ifthe outcomes and rewards they receive are in line with how they have performed.Now, the reason for the carpenter’s below-average pay raises becomes clear, and thecarpenter can work with the manager to find ways to solve the problem.

WHY GOAL SETTING INCREASES MOTIVATION In general, there arethree reasons why goal setting helps to increase work motivation. First, a goal directsand focuses an employee’s efforts toward achieving that goal. Second, the goal moti-vates the employee to be persistent. In other words, a goal is a constant reminderabout what ultimately must be accomplished. Third, when people become used toachieving one goal after another, this helps them develop personal goal-attainmentstrategies that make them more effective over time.

Research has shown, in fact, that people who are successful tend to be goal oriented. They view the long run in terms of a series of specific, short-run subgoalsthat need to be achieved. Successful students, for example, might have a four- to five-

year goal to obtain a degree. Theyhave found that the best way toachieve this goal is to view each ofthe 40 different courses they musttake as 40 specific, measurable, sub-goals that must be met to achievethe main goal—a degree. Moreover,after a number of classes, they learnhow to refine their goal-attainment

216 Chapter Seven

Did You Know?In addition to the five universal needs in his hierarchy, AbrahamMaslow believed two additional human needs are present in eachindividual: A need to understand the world around and a need forbeauty.2





strategies; they figure out better ways to study more productively and what they needto do to get an A, B, or C. Similarly, pursuing specific work goals will lead to a gen-eral increase in an employee’s job performance.

MANAGEMENT BY OBJECTIVES Managers can use goal-setting theory toincrease employee motivation by developing a management by objectives (MBO)work-performance review system. MBO systems are used to strengthen the effort-toperformance and performance-to-outcome linkages discussed earlier. This involvessetting specific, challenging goals and then reviewing employees’ progress towardsachieving them. The three stages in the MBO process are illustrated in Figure 7.6.

The MBO process begins when managers analyze employees’ jobs to determinewhich specific, challenging goals need to be set to achieve a certain objective. Whenthese goals have been selected, managers then develop work standards that establishclearly what constitutes a below-average, average, or above-average job performance.Employees should participate in the goal-setting process and provide input as to whata reasonable goal for them to achieve is. When employees are allowed to participatein the process, they tend to be more committed to the goals set. The employees’ man-agers are also less likely to set unrealistic goals, which might actually hinder their per-formance or hurt their self-confidence. Also, both managers and employees tend tobe more committed to finding ways to achieve jointly set goals because failing to doso reflects badly on both parties.

Let’s return to the example of Tony Knowles, the snack food distributor, to illus-trate each of the stages in the MBO process. Assume Knowles has been in business


Figure 7.5A Hierarchy ofCompany Goals

Board of directorsand stockholdersset goals for CEO

CEO sets goalsfor top managers

Top managers set goals for

middle managers

Middle managersset goals for first-linemanagers and groups

and teams

First-line managersset goals for employeesand groups and teams

management byobjectives A work-performance reviewsystem that involvessetting specific andchallenging goals and thenreviewing employees’progress towardsachieving those goals.





for two months, and his five drivers have learned their routes and are meeting their25-visits-per-day quota. Moreover, Knowles’s intuition has proven correct: Con-sumers like the new snack foods, and the number of outlets he needs to service isincreasing quite rapidly.

Knowles tells his drivers that he plans to introduce an MBO performance reviewsystem. He plans to drive the routes again with his drivers and wants their input intohow many extra visits per day would be a reasonable goal for them to achieve. Hisdrivers are not particularly happy. They have just learned their jobs and alreadyKnowles wants them to do more. However, he explains that meeting the higher visits-per-day goal will be linked to higher rewards. After covering their routes, Knowlesand his drivers agree on the challenging goal of 30 visits per day.

At step 2 in the MBO process, the manager and employee “brainstorm” todevelop an “action plan” that lays out specific behaviors needed to achieve theagreed-upon goals. Knowles and his drivers, for example, examine how the busi-ness’s operations could be changed so that the drivers could increase the number oftheir daily sales visits to 30 a day. His drivers tell Knowles that they won’t be able toreach the higher visits-per-day goal if the snack food supplies are not ready for pickup in the morning and in the afternoon when they need to restock their vans. Thetime it takes them to get the snack foods out of the warehouse and into their vans istime lost driving their routes. Given that snack food sales are increasing, Knowlesdecides to hire a new employee to take charge of getting the snack foods to the load-ing dock for quick pickup.

At step 3 in the MBO process, the manager meets with his or her employees toreview their progress towards meeting the agreed-upon goals and gives them feed-back on their job performance. Managers need to approach the review process in apositive way. The review should focus on providing support to employees and iden-tifying ways they can improve their performance. Knowles’s drivers are required tocomplete written reports of their daily outlet visits. Knowles then uses these reportsto review their progress towards meeting their goals. The reports can also be used topinpoint any emerging problems. He can then intervene selectively to correct theseproblems. In addition, to strengthen the commitment of his employees, Knowlesplans to reward them as promised when they meet their goals.

218 Chapter Seven

Figure 7.6Motivation throughGoal Setting andManagement byObjectives

Step 1

Analyze jobs and setgoals for employeesand work teams that are:

• Specific Attainable Measurable Results Oriented Specify Time Target for Completion

• Link goals to improvements in efficiency and effectiveness

• Develop work standards that establish below average, average, and above average work performance

Step 2

Develop an action planto achieve goals:

• Identify obstacles and roadblocks that might prevent goals from being achieved

• Outline specific actions necessary to overcome roadblocks and achieve goals

Step 3

Review progress towardachieving goals andprovide feedback toemployees:

• Reward employees based on their job performance

• Reexamine agreed upon goals and modify as necessary

• Identify new obstacles and roadblocks that may have emerged





The time period for reviewing progress and providing feedback varies depending onthe nature of the job. For more complicated jobs, a longer time period of six months toa year might be appropriate. For less-complex jobs, a weekly or monthly review mightbe most suitable. In Knowles’s case, a once-a-week review might be appropriate at thestart. Then this period can be extended as he and his employees get up to speed.

STRETCH GOALS AND JOB LEARNING Most businesses today use sometype of MBO system to motivate their employees. Often, MBO systems are used tomaintain minimum performance standards and ensure employees put in a “fair day’swork for a fair day’s pay.” But managers and employees can get into a rut—a routine ofdoing their jobs the same way over and over again. To prevent this from happening,some companies use modified MBO systems to encourage employees to “stretch”themselves. Stretch goals are highly ambitious goals put in place to energize employ-ees to think “outside of the box” and perform at an even higher level. The idea behindstretch goals is to encourage employees to develop a learning orientation and to con-stantly question the way things are done. Stretch goals challenge them to experimentto find new and better ways of doing things. This facilitates creative, entrepreneurialwork behavior. In a global environment, continuous experimentation and learning areneeded for companies to survive and prosper.

Stretch goals sometimes go unmet, but the important thing is to keep on trying.When the stretch goals are met, companies usually reward their employees more

handsomely than they do for meeting their regulargoals. This also helps motivate employees to continu-ously strive to act entrepreneurially. Jack Welch, theformer CEO of General Electric, used stretch goalswith great success at GE, and the practice later be-came widespread.

In Tony Knowles’s case, once his drivers have metthe higher, 30-visits-per-day goal, Knowles could thendecide to challenge them with a stretch goal. A stretchgoal might require each driver to provide sales leadsthat result in five new outlets being signed up eachmonth. Knowles could then reward a driver whoachieves this goal with a $200 bonus. Later, Knowlesmight consider adopting an even more ambitiousapproach: A team goal for his drivers. If together thedrivers can devise a way to work their routes moreefficiently and sign up even more accounts, he willpay each of them an even higher bonus.

Equity TheoryAccording to equity theory, employees will be motivated to achieve a goal only whenthey believe they will be rewarded equitably (fairly) for doing so. Basically, employeescompare their own performance to that of their co-workers. They select co-workerslike themselves—employees who do the same jobs, have similar education and experi-ence levels, and so on—and compare their inputs and outcomes versus those of thesepeople. Figure 7.7 illustrates three different possible results of the outcome-input com-parison process.

In Figure 7.7a, two employees, A and B, have compared their inputs and outcomesagainst those of employees, X and Y. and have decided that they have been fairlytreated. The perception that all employees have been evaluated and rewarded in asimilar way increases A and B’s beliefs that their performance determines the out-comes and rewards they will receive. This increases, or at least maintains, A and B’smotivation to work hard and perform at a high level.

In Figure 7.7b, employees A and B feel they have received more favorable evalua-tions and rewards for what they have achieved versus X and Y. In fact, A and B feel


Jack Welch, the former CEO of General Electric, once said, “Wehave found that by reaching for what appears to be impossible,we often actually do the impossible. And even when we don’tquite make it, we inevitably wind up doing much better than wewould have done.”

stretch goals Highlyambitious goals put inplace to motivateemployees to perform athigher levels.

equity theory A theorythat argues that employeeswill be motivated to achievea goal only if they believethey will be rewardedequitably relative to theirco-workers.





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Figure 7.7Equity Theory in Action

Outcomes(a) EquityEmployees A and Bfeel rewards havebeen fairly distributed

InequityEmployees A and Bfeel over-rewarded

InequityEmployees A and Bfeel under-rewarded

Inputs

Outcomes

Employees A and B Employees X and Y Result

Inputs

Outcomes(b)

Inputs

Outcomes

Inputs

Outcomes(c) Inputs

OutcomesInputs

over-rewarded. In Figure 7.7c, A and B feel they have received less-favorable evalua-tions and rewards for what they have achieved versus X and Y. A and B perceive theyhave been under-rewarded. Both of the inequitable results in Figure 7.7 lead employeesto question how accurately their managers are evaluating their performance and howfairly they are distributing rewards. They might even feel that they are being “pickedon” or that their managers are playing favorites. In either case, the fact that they don’tbelieve their efforts will be appropriately rewarded weakens their motivation.

According to equity theory employees A and B will withhold a significant amountof effort and perform only up to minimum standards. They are also likely to stopcooperating with their “over-rewarded” co-workers and feel less valued by the com-pany. This will take a toll on their job satisfaction and possibly diminish their self-confidence. The result might be that they are absent from work more frequently andbegin to search other jobs.

Tony Knowles has studied equity theory. He knows his five drivers are watching tosee if he treats different drivers differently. They will also compare their job strengthsand weaknesses against one another to try to determine if Knowles’s evaluationsmatch their own. In this way, drivers decide if he is distributing rewards in a fair andequitable way.

Knowles knows he should not act in a way that makes his employees think he is anunfair or arbitrary manager. He should take great care not to give the impression thathe favors certain employees for non-job related reasons or that he gives the drivers helikes best better routes to work, more reliable trucks, or simply more supportivesupervision. Using an MBO system and applying the same performance review stan-dards across all of his employees can help Knowles (and all managers) behave in afair and impartial manner. Suppose a driver starts to complain about unfair treatmentand suggests Knowles is treating another diver who is a poorer performer in a morefavorable way. If Knowles uses an MBO system and the same criteria to judge all ofhis drivers, he can show the driver that his or her poorer performance led to thepoorer performance evaluation. Knowles now has a way to justify why the driverreceived a smaller bonus.






VideoSmall

Business in Action

Debbie and Leslie BusfieldSummary: The original video on your Student DVD introduces Debbie andLeslie Busfield, the wife and husband owners of Strongfield Trimco, Inc. The com-pany provides framing for “high-end” homes in the Phoenix area. Prior to Deb-bie’s involvement, the company provided the whole range of building serviceswithout a focus on a market niche. However, they could not sustain a high level ofquality with such a diversified approach. The Busfields bought the business andfocused its product/service so that it only does one thing but does it with the bestquality—framing houses. Their sustainability for the business and business growthhas been primarily through word of mouth.

Debbie notes that communication is at the heart of a successful business. To besuccessful, the entrepreneur must be unafraid to make mistakes. Success demandsthat you make a decision, even if it is not the “best” one. In that case, you adjust.You have to have the ability to be flexible and innovative by trying new ideas.Maintaining flexibility is critical.

Both Debbie and Les emphasize the importance of motivating their workforceby keeping them involved. They see their responsibility as owners and managersto create a place where people want to come to work. To that end, their manage-ment style is oriented toward encouraging and developing their employees. Theytake the perspective that problems are challenges. They recognize that peoplecome to work for more than just a paycheck. They solicit ideas from employeesand, more importantly, provide feedback to employees on the status of their ideas.They also recognize the need to be flexible in making changes in the work envi-ronment that are consistent with employees’ needs. They are quite successful inthis arena; they have a highly motivated workforce with very low turnover.

Discussion Questions1. Using Maslow’s Hierarchy of Needs theory, explain how the Busfield’s “moti-

vate” their employees.2. Using equity theory, provide examples from the video that would illustrate

the theories’ principles.3. How does Strongfield Trimco, Inc. “empower” its employees?

Job Enrichment TheoryTo encourage employees to perform at a higher level and be more satisfied with theirwork, several researchers have proposed that managers should design jobs in such away that they offer employees greater rewards or desired outcomes. Job enrichmenttheory suggests that one way to motivate employees is to increase the degree ofresponsibility they have over the way they do their jobs. There are several ways ofdoing this.

First, a manager can increase the number of different tasks an employee has to per-form in a particular job. This is called job enlargement. The manager might alsoencourage employees to develop new skills and abilities, perhaps by transferringthem to other departments temporarily or by paying for them to get additional edu-cation and training. This helps remove the monotony of continually doing the samejob, and many employees find it motivating. It also gives employees a better perspec-tive on a company’s overall operations and how they can work to improve them.

Second, a manager can empower employees. Empowerment involves continuallyexpanding employees’ tasks and responsibilities to give them more freedom andautonomy over the way work is performed. When employees have more control overtheir jobs, they can usually find a way to make them more interesting and satisfying.This can improve their efficiency and effectiveness and make them less likely to want

job enrichmenttheory A theory thatargues that employees willbe more motivated if theyhave more control over theway they do their jobs.

job enlargementMotivating employees byexpanding the range oftasks they do.

empowermentExpanding employees’tasks and responsibilitiesto allow them morefreedom and autonomyover the way work isperformed.





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self-managed teamsGroups of employees whoare given the responsibilityto supervise their ownactivities and to monitorthe quality of the goodsand services they provide.

to quit. Another way managers can make jobs more interesting is by setting specific,challenging goals for employees to achieve and then allowing them to decide how toorganize tasks or pace the work to get the job done. Frequently, allowing employeesto monitor and measure their own progress toward meeting their goals is a part of thisprocess.

Last, but not least, managers can create self-managed teams, groups of employeeswho are given the responsibility to supervise their own activities and monitor the qual-ity of the goods and services they provide. Members of self-managed teams assumemany of the responsibilities and duties previously performed by first-line managers.When self-managed teams are used, the role of the first-line manager is to act as acoach or mentor; not to tell employees what to do but to provide them with advice andguidance in order to help them find better ways to perform their tasks. The story ofJohn Deere, discussed in Business in Action, illustrates the way all these things canhelp improve employee motivation and improve a company’s performance.

Business in Action

A New Approach at John DeereIn the 1990s, John Deere, the well-known agricultural equipment maker based inMoline, Illinois, experienced intense competition from Caterpillar and Komatsu,the other leading makers of agricultural equipment. Deere began to experiencehuge losses. In an effort to turn around its performance, the company laid off thou-sands of employees to reduce costs. But this was not enough to stem John Deere’slosses. The man in charge of finding a solution, CEO Hans W. Becherer, was thenforced to make some even more dramatic changes.

Becherer decided that John Deere should pursue a business model based bothon improving product quality and lowering prices. To accomplish this, he knewthat he and his managers would have to find new and better ways to utilize thecompany’s employees and increase their motivation—despite the fact that manyof their co-workers had been laid off. Becherer gave his managers the responsi-bility to empower John Deere’s remaining employees and group them into self-managed teams.

Becherer also wanted his managers and employees to better understand whatthe company’s customers wanted from its products. As part of the empowermentprocess Becherer decided that all factory employees periodically would be sent outto meet the company’s customers. He empowered assembly-line employees totake limited leaves from their jobs so that they could interact with customers, justas the company’s marketing and salespeople did. In this way they would learnabout customers’ likes and dislikes.

The result was that John Deere’s factoryemployees brought a great deal of newfoundknowledge back to the company and passed italong to the engineers responsible for creatingimproved products for John Deer. Their con-tact with customers also helped make employ-ees more quality conscious. Becherer also tooksteps to increase the company’s productivity.He made it clear to employees that if Deerewere to survive and prosper, they had to findways to “work smarter.” Part of that effortincluded establishing an extensive trainingprogram to enhance the skills of John Deere’sworkforce. Every employee is expected toattend classes to learn better manufacturingtechniques. Becherer also linked employees’pay directly to their skill development. As a

In an effort to improve its business model and products, John DeereCEO Hans Becherer sent the company’s factory employees out to meet with its customers.





result, John Deere’s workforce has become one of the most skilled and productivein the industry.

John Deere’s self-managed work teams and employees now meet frequently as agroup to find ways to continuously improve the company’s work procedures toreduce its costs and increase its output. The overall result of the suggestions madeby the self-managed teams has been a 10% cut in manufacturing costs and a signif-icant reduction in customer complaints. John Deere is once again a profitable com-pany and its managers and employees are enjoying greater job security and higherwages.3


The performance gains John Deere achieved by moving to self-managed teams suggests that many companies could benefitfrom such an approach. Today, most companies use teams indifferent functions and in different levels of their organizations.Below we discuss why groups, and particularly teams, canenhance employee motivation and a company’s performance.We then look at some important types of groups and teams.

What Is a Group or Team?People can work alone to create goods or services, but in many cases they can alsowork in a group or team. A group is a collection of people who follow similar workrules and norms and work towards a common, specific, and measurable goal. A teamis a group of people jointly responsible for creating, managing, and changing thework rules and norms, if need be, to meet that goal. Once the goal is met, the teamthen establishes more challenging goals for itself to meet in the future.

Figure 7.8 illustrates how employees act when they work alone, in a group, or as ateam. In Figure 7.8a, each employee receives inputs (chair legs and table tops) andthen works alone to assemble a finished product (a table). In Figure 7.8b, the employ-ees work as a group. Inputs are received by employee X, who performs the first task,and then hands off the work-in-progress to Y, who performs the second task andhands it off to Z, who performs the last task needed to create a highly polished table.Under this setup, how well one employee performs is likely to affect how well each ofthe other employees performs. If X fails to create a level tabletop, Y will not be able

Creating High-PerformingGroups and

Teams

group A collection ofpeople who follow similarwork rules and norms andwork towards a common,specific, and measurablegoal.

team A group of peoplewho are jointly responsiblefor creating, managing,and changing work rulesand norms to find betterways to achieve currentand future goals.

As the story of John Deere suggests, managers who make job design choices thatempower employees are likely to find that they behave proactively. Tony Knowlescould learn some lessons from John Deere. Recall, that Knowles wants his drivers tobe proactive, learn each other’s routes, and search for new customers and ways to bet-ter satisfy their needs. One way for him to do this is to organize his drivers into a self-managed team, which would require a whole new leadership approach on his part.Because employees in self-managed teams are given the autonomy to make their owndecisions and control their own activities, Knowles would need to shift from a direc-tive leadership approach to a participative or achievement–oriented approach.

Once he is sure that his business is secure, the move to self-managed teams might bea good way for Knowles to keep his drivers motivated. Driving the same route everyday becomes uninteresting for many people. His drivers therefore might like more vari-ety and greater responsibility. They will also like the higher monetary rewards thataccompany the higher performance that self-managed teams are often able to achieve.The question is, how does Knowles go about creating a self-managed team? We discusshow next.





to thoroughly sand the tabletop, and Z will not be able to achieve a highly polishedfinish, so the performance of the group suffers.

Now look at Figure 7.8c, which illustrates how a team (versus a group) operates. Asyou can see, the employees do not merely hand off the work-in-progress sequentially.Instead, X, Y, and Z hand off the work to the member whose work contribution ismost needed—that is, the member who has the skills currently needed to complete thetask. This means that there is no fixed pattern of interaction between the members. Ifthe work is to progress smoothly, they must coordinate their activities much moreclosely to anticipate one another’s needs and respond quickly.

Types of Groups and TeamsThe most common type of team is a functional team. Functional teams are peoplegrouped together by their area of expertise or by their department—marketing, manu-facturing, accounting, sales, and so on. Frequently, subgroups composed of employ-ees who work on the same project, or who share a particular specialization, are foundinside each function or department. An example of a subgroup might be a group in acompany’s human resource department that focuses on employee training. A sub-group in the accounting department that specializes in accounts payable is anotherexample.

A functional team must also coordinate its work with the organization’s other func-tional teams. Take, for example, Verizon: When a cell-phone outage on Verizon’s net-work occurs, the company’s highly trained repair team swings into action. This teammust work closely with the company’s customer-service team to keep them informedabout when service will be restored. Likewise, to develop systems less prone to futureoutages, Verizon’s R&D team must work closely with the firm’s repair and customer-service teams.

As you might expect, teams are also created to bring together people with differentskills and expertise. A cross-functional team is a group of people from a company’svarious functions who work together to increase the organization’s efficiency andeffectiveness. Reducing the cost of making a product and getting the product morequickly to customers are examples. In Verizon’s case, a cross-functional team mightconsist of a member from repair, customer service, and R&D respectively.

When people are grouped into cross-functional teams, the artificial boundariesbetween functions disappear. Larger, companywide goals replace narrow, depart-mental goals. The result is often a dramatic improvement in performance: By usingcross-functional teams, Chrysler is now able to introduce a new car model in twoyears versus five years. Likewise, Black & Decker is now able to create new productsin months versus years. And Hallmark Cards can now get a new greeting card ontostore shelves in weeks versus months. Cross-functional teams have also dramaticallyimproved operations at Rubbermaid, as Business in Action suggests.

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Figure 7.8Patterns ofInteractionbetweenEmployees,Groups, and Teams

INPUTS

OUTPUTS

X XY

Y

Z

Z

X

Y

Z

INPUTS

OUTPUTS OUTPUTS

INPUTS

(a) (b) (c)

functional teamPeople grouped togetherby virtue of their expertise,typically, by departments.

cross-functional teamA group of people from acompany’s variousfunctions who pool theirtalents to increase theorganization’s efficiencyand effectiveness.






Business in Action

Using Teams at RubbermaidManagers at Rubbermaid, the well-known maker of over 5,000 differenthousehold products, were worried whenthe company’s rate of product innova-tion fell dramatically in the 1990s. To fixthe problem, Rubbermaid decided tocreate 20 cross-functional teams, eachconsisting of five-to-seven people frommarketing, manufacturing, research anddevelopment, and so on. Each teamfocused its energies on developing newand improved products for a particularproduct line, such as Rubbermaid’s gar-den, bathroom, or kitchen product lines.

The results were astonishing. Withinthe first year, the teams developed over365 new products, and the rate of prod-uct innovation at Rubbermaid continuesto increase annually. Today, the mainchallenge Rubbermaid faces is not creating new products but selecting from thehundreds of new product ideas its teams have come up with.4

In the first year following their implementation,Rubbermaid’s cross-functional teams developedover 365 new products, and the rate of productinnovation continues to increase year by year.

A top management team consists of the top managers of a company’s majorfunctions or business units. Members of a top management team are responsible forincreasing the profitability of the company and improving its overall business model.Finally, virtual teams, teams whose members are connected by e-mail, the Internet,instant messaging, wireless laptops, and video teleconferencing, are an emerging fea-ture of multinational companies. Members of these teams might rarely, if ever, meetface to face. Multinational team members frequently move from client to client andcountry to country, communicating electronically with one another. The virtual teammembers of the consultant company Accenture are a good example. When Accen-ture’s consultants encounter problems, using their laptops, they are able to access aproblem–solution database. If they cannot find the solution to their clients’ problemsin the database, they contact their other team members via the Internet for help.

High-Performing Groups and TeamsWhy is it that employees often perform at a higher level when they work in groupsand teams than when they work separately?

First, when people work in teams, their shared identity and need for achievementcan make them want to work harder. (No one wants to “let the team down,” after all.)Recall from Chapter 6 that members of highly cohesive teams like each other and tryto help one another perform better. The most-skilled members of the team can helpthose who are less skilled so that the performance of the team as a whole increases.

Second, groups and teams frequently monitor the performance of their members.In some instances (particularly in self-managed teams), the team can penalize mem-bers who do not seem to be pulling their weight. Groups and teams also developnorms that facilitate cooperation. Members might be encouraged to be courteous toone another, arrive on time for work, or work overtime to accomplish a task.

A third performance advantage of teams is that they often facilitate the division oflabor and specialization. In a team, members can continually work out better waysto organize their tasks to get a job done more efficiently. Teams also generally allow

top managementteam A group consistingof the top managers of acompany’s major functionsor business units.

virtual teams Teamswhose members areconnected by e-mail, the Internet, instantmessaging, wirelesslaptops, and videoteleconferencing.





people to experiment with new ways to get the job done. More-over, team members, not managers are responsible for controllingtheir own activities. As such, they are less costly to monitor andsupervise.

Owens-Corning, the insulation maker, is another example of acompany that used teams. One hundred employees work in teamsin Owens-Corning’s Tennessee plant. Each employee reportsdirectly to the plant manager because all of the middle levels in theorganization’s hierarchy have been eliminated. Jointly, the mem-bers of the teams are responsible for making the plant’s operationaldecisions. The plant manager intervenes only when requested to doso by a team member, and even then, only to act as a facilitator tohelp the team solve its own problems. The teams make employeesmost affected by a problem, fix it. Owens-Corning does not just usethe teams to reduce costs, however. It does so to create an atmo-sphere of entrepreneurship and new opportunities for organiza-tional learning. This has increased the motivation of the plant’semployees tremendously.

In fact, the theories of work motivation we discussed earlier sug-gest several more reasons why groups and teams have an edgewhen it comes to performance. Employees’ effort-to-performanceand performance-to-outcome linkages can frequently be strength-

ened in a team because its members are frequently rewarded as a group. Moreover,many self-managed teams formally appraise the performance of their members. Notonly does this strengthen the performance-to-reward linkage, it promotes the percep-tion of equity and creates cooperation among the group. Groups and teams also makeit easier for people to satisfy their belongingness and esteem needs. Employees eachhave a clearly defined position, so their contributions can clearly be recognized.Finally, because teams set their own goals, their members often feel more committedto meeting those goals.

The performance-enhancing advantages of a group or team disappears, however,if it becomes too large. Several problems can hamper the group’s performance. First,team members begin to impede each others’ ability to perform their tasks—they “getin each others’ way,” in other words. Second, in large groups, people are more likelyto feel their contributions go unnoticed, which weakens the performance-to-outcomelinkage. When this happens, team members will have a greater tendency to “free-ride,” or “shirk.” That is, they will expend less effort and let their team membersshoulder the bulk of the work.

Thus, simply creating groups or teams is not enough to promote high work moti-vation and performance. The team members still have to figure out the best way toequitably allocate their tasks and coordinate their activities. They also have to createa system of rules and norms to facilitate the work process, set specific goals, and mea-sure how well they are achieving them.

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In large groups, people may feel that theirindividual work contributions are goingunnoticed and they begin to slack off.

Organizational conflict is the discord that ensues when a firm’sstakeholders attempt to thwart each other’s efforts to achievetheir goals and objectives. Conflict is an inevitable part of organi-zational life because the goals and interests of different stakehold-ers, such as managers and employees, are often incompatible.Organizational conflict also can exist between groups, teams,and functions that compete for resources, or between individual

managers in competition with one another for promotion, for example.The amount of conflict that occurs in a company reveals much about the level of

its performance. When there is little or no conflict, this signals that the company’smanagers value conformity more than they do new ideas. It indicates that on the

Conflict,Bargaining,

and Negotiation






organizational conflictThe discord that ensueswhen stakeholders thwarteach other’s attempts toachieve their goals andobjectives.

whole, they will resist change and strive to maintain the status quo—even if it hampersthe organization’s performance.

Suppose, however, different managers and functions actively disagree about how acompany should change its business model to improve its performance, and theyhave conflicting ideas they are trying to get adopted by their company. This conflictoften signals that a company is open to new ideas and that its managers and employ-ees are encouraged to look at problems from different points of view to increase effi-ciency and effectiveness. So, disagreements are often considered a necessary part ofeffective decision making.

Thus, not all conflict should be eliminated. Rather, it should be kept at a level thatfacilitates change and improvement. If the conflict becomes too great, however, theorganization can become dysfunctional. This happens when the conflict between man-agers is such that they waste a company’s resources to achieve their own goals versusthose of the company. It can also occur when managers become more concernedabout winning political battles than building the most competitive business model fortheir organization. If the conflict becomes so great that managers stop cooperatingwith one another, a company’s performance will suffer.

Types of ConflictManagers need to understand the types and sources of conflict and strategies to effec-tively deal with it. Three main types of conflict in companies are interpersonal, intra-group, and intergroup conflict. Interpersonal conflict is conflict between two or more peo-ple in a company. It often occurs because of differences in people’s goals, interests, andvalues. For example, two top managers might experience interpersonal conflict becausetheir values about the environment differ. One manager might argue that the organiza-tion should do only what is required by law to protect the environment. The other man-ager might counter that the organization should invest in pollution-abatement equip-ment even though the organization’s current level of emissions is below the legal limit.

Intragroup conflict is conflict that arises within a group, team, or department. Whenmembers of the marketing department in a clothing company disagree sharply overhow they should spend their limited advertising budget on, say, a new line of men’sdesigner jeans, they are experiencing intragroup conflict. Perhaps some of the mem-bers want to spend the entire budget on magazine advertisements; others want tospend half of the budget on billboards and ads posted on city buses and in subways.

Intergroup conflict is conflict that occurs between groups, teams, or departments. Acompany’s R&D department, for example, can sometimes experience intergroupconflict with its production department. The members of the R&D group mightdevelop a new product they believe production can make inexpensively using thefirm’s existing manufacturing capabilities. The members of the production depart-ment, however, may disagree. They might believe that the existing facilities are insuf-ficient and that the extra time and money it will take to make the product will hampertheir productivity and increase their costs.

Sources of ConflictConflict in a company can spring from a variety of sources. The sources we examinehere are incompatible goals, complex task interdependencies, incompatible rewardsystems, and scarce resources. Each of these sources is outlined in Figure 7.9.

INCOMPATIBLE GOALS A major challenge for managers is to group peopleinto functions and departments to achieve a company’s goals. Unfortunately, once thisis done, these functions and departments often naturally pursue incompatible goals.The result is conflict. Members of the production group, tend to focus on reducingcosts and improving efficiency. In order to do this, they have to pay attention to whatis presently coming off of the production line and how it affects current costs andproduct quality. This necessitates a short-term focus.





In contrast, marketing and marketing managers focus on ways to increase salesand responsiveness to customers. Their time horizon is longer than that of productionbecause they are trying to be responsive not only to customers’ needs today, but alsoin the future. The actual cost to make the products customers want on a day-to-daybasis is not an important priority for them. These differences in perspective are oftena breeding ground for conflict.

Suppose production is making a customized product needed quickly by an impor-tant buyer, and the department is behind schedule. The marketing departmentbelieves that the delay will significantly reduce the potential sales of this product. So,the head of marketing insists that the product must be delivered on time—even if thismeans that production’s costs will increase sharply (because of the need to pay pro-duction employees overtime, for example). The production manager says that shewill do this if marketing will pay for the costs of overtime and so on. Both managers’positions are reasonable from the perspective of their own departments. Conflict isstill likely, however, because the goals of the two groups differ so sharply. Managersfurther up in the hierarchy need to prevent these conflicts from escalating by priori-tizing the firm’s goals across its different departments.

COMPLEX TASK INTERDEPENDENCIES Have you ever been assigned agroup project for one of your classes and one group member consistently failed to getthings done on time? This probably created some conflict within your group becausethe other members were dependent on the late member’s contributions to completethe project. Whenever individuals, groups, teams, or departments are interdependent,the potential for conflict exists. Managers of marketing and production with differinggoals and time horizons come into conflict precisely because their departments areinterdependent. Marketing depends on production to make the products it sells asquickly as possible, and production depends on marketing to create customerdemand for the products it makes.

INCOMPATIBLE REWARD SYSTEMS The way in which interdependentgroups and departments are evaluated and rewarded can be another source of con-flict. Production managers are evaluated and rewarded on their ability to reduce pro-duction costs, maintain product quality, and stay within their operating budgets. Con-sequently, they are reluctant to make decisions that will increase costs, such as payingemployees overtime to complete an order a customer needs right away. Marketingmanagers, in contrast, are evaluated and rewarded for attracting more customers andgenerating increased sales revenue. Consequently, they think that higher overtimepay is a small price to pay for increased responsiveness to customers that generates

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Figure 7.9Sources ofOrganizationalConflict

Organizationalconflict canresult from:

IncompatibleGoals

Complex TaskInterdependencies

ScarceResources

IncompatibleReward Systems





higher sales. Thus, conflict between production and marketing is to be expected.Business in Action illustrates how incompatible rewards caused a great deal of conflictat a prominent bank.


Business in Action

Dysfunctional Conflict in a BankThe merger of two smaller banks, First Boston (based in New York), and CréditSuisse (based in London), formed CS First Boston, a large investment bank. Fromthe beginning, the U.S. and U.K. units of the new bank were at odds. Although themerger was formed to take advantage of the growing global investment bankingbusiness, the bankers in the two units wouldn’t cooperate with one another.Bankers in both units openly criticized the banking practices of the other unit toanyone who would listen.

As long as the performance of one unit of the bank did not affect the other, thelack of cooperation between them was ignored. Analysts, however, pointed outthat this lack of cooperation kept CS First Boston out of the top ranks of invest-ment banks. In the 1990s, the performance of the European unit began to affectthe American unit, and the conflict escalated.

First Boston was making record profits from issuing and trading fixed-incomedebt securities, so its managers were expecting hefty bonuses. However, thosebonuses were not paid. Why? The London unit had made huge losses, andalthough the losses were not the fault of the Boston unit, the company’s top man-

agers decided not to pay bonuses to their U.S.employees because of the European unit’s losses.

Punishing the bank’s U.S. employees for an out-come that they could not control led to consider-able conflict in the company. Relations betweenthe U.S. and European units of the bank becameeven more strained and infighting between thefirm’s top managers ensued. Many of the employ-ees affected by the conflict decided that the situa-tion would not soon change, so they quit. More-over, a large number of them were hired bycompetitors such as Merrill Lynch and GoldmanSachs. As a result, CS First Boston was left in disar-ray. Clearly, designing a reward system that doesnot promote conflict between groups, teams, andunits should be a top priority for managers.5

What managers at CS First Boston lacked was a reward systemthat promoted cooperation, rather than conflict between thecompany’s groups, teams, and units.

SCARCE RESOURCES Competition for scarce resources also produces conflictwithin companies. For example, functions and divisions often compete for moreresources and a larger budget so that they can pursue a greater range of activities andhire more people. However, money is always limited, so conflict can occur as a CEOdecides how best to allocate capital.

Resolving Conflict through Negotiationand BargainingIf a company is to achieve its goals, its managers must be able to resolve conflictsbetween employees and groups of employees. It is always best when the parties inconflict can find the “middle ground” and resolve the conflict amicably. Compro-mise is possible when each party is willing to engage in a give-and-take exchange





and to make concessions until a reasonable resolution is reached. When parties arewilling to cooperate to find a solution each finds acceptable, a company is morelikely to achieve its goals.

Managers use negotiation and bargaining to increase the chances that parties inconflict will reach a compromise. Via negotiating and bargaining, the parties try tocome up with mutually acceptable ways to reconcile their differences. But sometimesone or both parties view the negotiation and bargaining process as a “win or lose” sit-uation in which one benefits only at the other’s expense. This makes the bargainingprocess competitive and adversarial. As time goes on, each party draws an increas-ingly “hard line.” They may begin to make unrealistic demands or become belliger-ent, and the conflict escalates.

The people involved in the bargaining process need to prevent this situation fromdeveloping. Instead, they need to work to create a situation that both parties canview as a win-win situation—as a situation in which they both get most of what theywant. This is similar to the “make everyone a winner” political tactic discussed in thelast chapter.

There are four specific tactics that managers can use to structure the negotiationand bargaining process to make compromise more likely: emphasize common goals;focus on the problem, not the people; create opportunities for joint gain; and focus onwhat is fair.

EMPHASIZE COMMON GOALS Common goals are goals that all partiesagree on regardless of the source of their conflict. Increasing organizational effective-ness, increasing responsiveness to customers, and gaining a competitive advantageare just a few of the many common goals that members of a company can emphasizeduring bargaining. Emphasizing common goals helps parties in conflict keep the “bigpicture” in mind—that they are cooperating to help a company succeed despite theirdisagreements.

FOCUS ON THE PROBLEM, NOT THE PEOPLE Parties who are in conflictmay be unable to resist the temptation to focus on the shortcomings and weaknessesof the other party. Instead of attacking the problem, they attack one another; they talkabout the mistakes the other has made or criticize the personality or habits of theother party. This approach is inconsistent with reaching a compromise through bar-gaining. All parties to a conflict need to keep focused on the problem at hand andresist the temptation to discredit one another.

CREATE OPPORTUNITIES FOR JOINT GAIN Once the parties to a conflictfocus on resolving the source of the conflict, they can focus on finding creative solu-tions that will benefit them all. The parties try to come up with new alternatives thatbenefit each of them in ways they may not even have considered before.

FOCUS ON WHAT IS FAIR In many bargaining situations, the parties naturallyadopt the position that will benefit them the most. Each party will prefer the alterna-tive that best achieves their objectives. To counter this tendency, one that willinevitably lead to conflict, it is useful to emphasize the need for fairness. This can helpthe parties come to a mutual agreement about the right way to proceed.

When managers pursue these four strategies and encourage other members of acompany to do so, they are more likely to resolve their conflicts effectively throughnegotiation and bargaining. Again, a measure of conflict can increase a company’sperformance. Conflicts that go unresolved, however, can adversely affect a company,as CS First Boston discovered.

230 Chapter Seven

negotiation andbargaining A techniquemanagers use to increasethe chances thatconflicting parties willreach a compromise.






The principal de-terminant of anemployee’s desireto perform at ahigh level is his or

her work motivation. Psychological forces withinpeople affect how motivated they are. Managers canincrease the motivation of their employees by under-standing the six different theories of motivation dis-cussed in this chapter and putting them into practice.They can also increase the motivation of theiremployees via job enrichment, enlargement, andempowerment techniques, as well as by implement-ing self-managed teams and controlling the amountof conflict in their organizations. This chapter madethe following points:

1. Maslow’s needs hierarchy theory explains thespecific needs people are trying to satisfy throughtheir behaviors at work.

2. Expectancy theory argues that people are motivatedto pursue work behaviors they believe will result inthe outcomes and rewards that satisfy their needs.

3. Goal-setting theory suggests that setting specific,challenging, measurable, results-oriented, and time-specific goals motivates employees to perform at ahigh level.

4. Management by objectives (MBO) is a popularperformance review system that involves settingspecific and challenging goals and then reviewingemployees’ progress towards achieving those goals.

5. Equity theory proposes that an employee’s perceptionof the fairness of a company’s review and rewardprocess is an important determinant of his or workmotivation. Employees compare their performanceand rewards to those of other employees to evaluatewhether or not they have been fairly treated.

6. Job enrichment theory suggests that the motivationof employees depends on the degree of controlthey have over the way they do their jobs.

7. A group is a collection of people who follow similarwork rules and norms and work towards a common,specific, and measurable goal. A team is a collectionof people who are jointly responsible for creating,managing, and changing work rules and norms tofind better ways to achieve their current goals andestablishing more challenging future goals.

8. Several types of teams are functional (departmental)teams, cross-functional teams, top managementteams, and virtual teams.

9. There are several performance advantagesassociated with the use of groups and teams.However, these advantages can only be realizedwhen managers design and manage the firm’steams correctly. When teams become too large,problems can ensue that hamper theirperformance.

10. Organizational conflict is the discord that ensueswhen an organization’s stakeholders attempt tothwart each other’s efforts to achieve their goalsand objectives.

11. Four important sources of conflict are incompatiblegoals, complex task interdependencies,incompatible reward systems, and scarceresources.

12. Negotiation and bargaining is a conflict resolutiontechnique used by managers to increase thechances that conflicting parties will reach acompromise.

13. Managers can use four specific negotiation andbargaining tactics to make a compromise morelikely: emphasize common goals; focus on theproblem, not the people; create opportunities forjoint gain; and focus on what is fair.

Summary ofthe Chapter

Developing Business Skills

1. In what sense is employee moti-vation voluntary, or under a person’sdirect control?2. What is self-actualization? Why

is it a person’s highest need, accord-ing to Maslow?

3. In what ways can managers use (a) expectancy,(b) goal-setting, and (c) equity theory to encourageemployees to take a proactive approach and performat a high level?4. Think of a business setting in which you haveworked. Use the six theories of motivation to describehow managers motivated employees in that setting?To what degree do you think they were successful?

QUESTIONS FOR DISCUSSION AND ACTION





232 Chapter Seven

A Lack of Teamwork: Free-Riding, or Shirking

As the chapter notes, sometimeswhen groups or teams become too

large, their members are more likelyto shirk, or free-ride—that is, let other

members of the team bear the bulk of the work bur-den. If this happens, there is likely to be conflict.

ETHICS IN ACTION

Using the material on ethics from Chapter 5, thinkabout the following issues:

• How do the four ethical principles explain theorigin of free-riding in a group setting?

• How can managers design teams to eliminatethis problem? What can the members of teamsdo to eliminate this problem?

• When and why does conflict in groups becomeunethical?

How to Motivate New Teams

After reading the following scenariobreak up into groups of three or fourpeople and discuss the issues involved.

Be prepared to share your thinkingwith the rest of the class.

You are managers in a large building-products sup-ply company. In the past, each of you was responsi-ble for managing a different department consisting of10 employees who stock shelves, answer customers’questions, and check out customers. You havedecided that you can operate more efficiently if youorganize these employees into work teams. Youbelieve that the old system did not encourageemployees to behave proactively. Indeed, you think

SMALL GROUP EXERCISE

that the way the work situation was designed pre-vented them from finding ways to improve the busi-ness’s operating procedures.

Teams will change how employees perform theirtasks in many ways. You are meeting to decide howto change the way you lead and motivate youremployees. Using the chapter material:

1. Discuss how the move to teams will affect yourvarious leadership approaches.2. Discuss how the firm’s incentive system can bechanged to encourage employees to work welltogether in their new teams.3. Identify the new kinds of motivational issues thatwill arise and how you can use the motivation theo-ries discussed in this chapter to deal with these issues.

What Motivates You?

Motivating employees is a complextask because employees essentiallycontrol their own performance levels.

To help you understand how the differ-ent kinds of motivational techniques are

likely to affect your own future work behaviors, use thechapter material to think about the following issues:

1. Using Maslow’s hierarchy of needs, think aboutyour past work and leisure behavior. Which kinds ofneeds have you been trying to satisfy the most?Which kinds of needs do you think you will be striv-ing to satisfy in the future? What kinds of thingsmight satisfy your needs for self-actualization?2. In general, are you the kind of person who ismost likely to want to perform at a minimum stan-dard level or the kind of person who will behaveproactively? Why? What could change this?

DEVELOPING GOOD BUSINESS SENSE

5. When does a group become a team?6. Why can groups and teams enhance an organi-zation’s performance? Under what conditions cangroups result in lower performance?7. Action. Find a manager who leads a group orteam. What kind of team is it? What kinds of issuesand problems arise when managing the team?

8. What is organizational conflict, and why can it beboth an advantage and a disadvantage for a company?9. What are the sources of organizational conflict?In what ways can negotiation and bargaining helppeople or groups in conflict resolve their problems?






Motivation

Go to any search engine on theInternet and type in “Anne PerlmanCEO Moai Technologies.” Then

browse through the articles you find

(especially the InformationWeek article). For more Webactivities, log on to www.mhhe.com/jonesintro.

1. What motivates Perlman to succeed in the e-commerce arena?2. What approach does she take to motivate peopleand groups?

EXPLORING THE WORLD WIDE WEB

CASE FOR DISCUSSION

Two Men and a Lot of Trucks

The Two Men and a Truck brand began simplyenough. To help drum up business for her sons’ part-time moving service in the early 1980s, Mary EllenSheets made a line drawing of two stick figures in atruck cab and placed an ad in the local paper.

It worked. In fact, too well. Sheets, a singlemother and data analyst for the State of Michigan,kept receiving moving inquiries—even after her sons,Jon and Brigham Sorber, left for college. “One day, Icame home from work and there were 12 messageson the answering machine,” she says.

Sheets was understandably hesitant to just turnaway business. So in 1985, she bought a used pickuptruck for $350 and hired two men to do the heavylifting. “That $350 was the only capital investment Iever made,” Sheets says. And seeds for the nation’slargest franchised moving company were planted.

SHORT HAULS. Today, Lansing, Michigan–based Two Men and a Truck operates in 27 states.The outfit made 250,000 moves last year, generating$150 million in revenue along the way.

Its success was born largely out of Sheets’s earlydiscovery that local, residential hauls—from Point Ato Point B within the same city, as opposed to long-distance—were a greatly underserved market. Sheinitially ran the part-time operation from her diningroom. But as orders kept coming in and the businesscontinued to grow, she found herself devoting moretime and energy, and began drafting formal businessplans and operating manuals.

In 1988, after putting her third and last childthrough college, Sheets finally felt comfortable withthe risk of leaving her government job to run thecompany full-time. “Everybody said I was crazy,” sherecalls. “I had a good-paying job with health benefitsand vacation.” But she also says she had caught theentrepreneurial bug. “It was going pretty well. I wasso scared, but I just wanted to do this so bad.”

MAN’S WORLD. That same year, at the urgingof a woman she met while speaking on a panel atMichigan State University, Sheets decided she couldleverage and grow Two Men through franchising. Ayear later, she sold her first franchise to daughterMelanie, a pharmaceutical sales representative. Thenher sons bought franchises, as did some of the mov-ing men. “After we had sold 10 franchises, my attor-ney said, ‘I think you are going to make it,’” she says.“But I always knew we were going to make it.”

Today, there are 152 franchise locations. Fran-chisees pay an initial fee of $32,000, but capital costs(including trucks and office space) bring total startupcosts to roughly $100,000. Royalties run 6% of grossrevenue, with an additional 1% for advertising—considered standard in the franchising world.

Along the way, however, there have certainlybeen bumps in the road. For one thing, Sheets wasnever exactly embraced by the traditionally male-dominated trucking business. At one point early on,she says, competitors reported her for minor viola-tions. She was eventually hauled into court whensome of her truckers drove 10 miles outside the com-pany’s zone. Says Sheets: “We made a lot of mistakesand learned the hard way.”

3. Using the six theories of motivation think care-fully about which theory or theories would do mostto strengthen your own personal beliefs that (1) moreeffort on your part will result in you performing at ahigher level and that (2) if you do so, you will obtainthe outcomes you desire.

4. Create your own “personal motivational model”that outlines the steps you could take to improveyour performance at school or work.





234 Chapter Seven

SATISFIED CUSTOMERS. Unlike the othermoving companies she had seen, Sheets decidedthat Two Men would put a premium on customerservice. “Moving had a cruddy reputation,” shesays. “I made sure everything was spotless. And wewent out of our way for the customers.” Sheets puther movers in uniforms and gave them businesscards, charged by the hour instead of weight, andpaid for any damage to be fixed. The company’smission statement remains: “Treat everyone the wayyou would want your Grandma treated.”

From the start, Sheets handed out postage-paidreply cards, with just five questions, to her cus-tomers. Last year, the company received 66,000responses. Sheets says that only 1% of the commentsare negative—and she uses them as an opportunity.“We want to get it right with our customers,” shesays. “Sometimes we send them flowers or a gift ifsomething went wrong.” As a result, Two Men getsabout 95% of its business from word-of-mouth refer-rals, eliminating the need for much advertising.

With no formal business background, Sheets saysshe has relied mostly on her own instincts and expe-rience. She credits her time volunteering at a hospitalcrisis intervention center with helping her to handlecustomers over the phone. “It taught me empathyand how to listen,” she says.

STICK MEN U. When it came to marketing,Sheets took a similar grassroots approach. Sheprinted brochures and placed them in apartmentbuildings, handed out mugs with the Two Men logofilled with jelly beans, and turned the trucks intomobile billboards—displaying the original stick-figurelogo. Her goal was, and remains, to bring a personaltouch to an industry known for its uniformity andstressed-out customers.

Like most successful franchisers, Sheets realized theneed for consistency. In 1998, she established StickMen University, a comprehensive training facilityat the company’s Lansing headquarters. Here, fran-chisees and movers learn the basics—from answering acustomer’s first phone call to a handshake after themove is done. On site, there is also a two-story houseset up to simulate many moving challenges, like trans-porting a piano down a narrow staircase and movingcrates of fragile china.

At Two Men’s computer lab, franchisees learn to paytheir royalties electronically, check their colleagues’spending patterns, and communicate with each otherabout what’s working and what’s not. “I want them tobe successful as fast as they can,” Sheets says.

COMING HOME. Richard McBee, a formerseventh-grade social studies teacher in Birmingham,Alabama, is the most successful among them. Elevenyears ago, he decided to go into business for himself,and has since become Two Men’s top franchisee—with $5 million in annual revenue, two locations, anda third in the works. “I’m still astonished at whatwe’ve done,” he says.

The Two Men system and a well-respected brandconvinced McBee to make his initial investment of$90,000. “I didn’t feel comfortable getting into abusiness without a lot of support,” he says. And onceup and running, McBee made his own success byexpanding his customer base slowly, and enlisting apayroll service and legal and tax advisers to helpavoid mistakes along the way.

Two Men is once again a family affair. Sheets isCEO and daughter Melanie Bergeron is presidentand chief operating officer. After stints in the corpo-rate world, Sheets’s sons have returned—Jon is a fran-chise owner and board member, while Brighamworks as director of licensing.

“I’m still shocked by our success,” Sheets says. “Iworked so hard, I never really knew how big it was.”Indeed, the company that began almost by accidentcould easily be re-named One Family and a Thou-sand Trucks. Or more simply, a family success story.

Stacy Perman, “Two Men and a Lot of Trucks,” BusinessWeek Online, April14, 2005.

QUESTIONS

1. What motivates Mary Ellen Sheets? What per-sonal qualities does she possess that makes her a suc-cessful entrepreneur and manager?2. Why are high-performing teams vital to thecompany’s success? What steps has Sheets taken totrain her franchisees and their employees to build acompetitive advantage?3. What kinds of conflicts with customers typicallyoccur in the moving business, and how does Sheetsdeal with them?

CASE FOR DISCUSSION

Siemens’s New Boss

Workers at a Siemens unit that makes X-raymachines and other diagnostic equipment wereshocked when, in 1998, a cocky new boss asked

them to work more flexible shifts to speed produc-tion. The new guy, a 40-year-old up-and-comernamed Klaus Kleinfeld, even wanted some people towork weekends, then practically unheard of. Yetemployee representatives knew the unit in the Bavar-






ian town of Forchheim was getting beat up by rivalGeneral Electric Co. and that shareholders were nag-ging Siemens to dump its medical equipment unit.Everyone’s job was on the line.

The negotiations were tough. But Kleinfeld wonover workers, hanging around the factory askingdetailed questions. He answered e-mails fromemployee reps almost immediately, even late atnight, recalls Werner Mönius, chairman of the work-ers council in Erlangen, Germany, home base ofSiemens Medical Solutions Division. “He was ableto motivate people to pull together,” says Mönius.The workers signed off on Kleinfeld’s plan, whichhelped cut the time it took to build a $100,000-plusdiagnostic scanner from six weeks to one. SiemensMedical is now Siemens’s most profitable business.

And that cocky young boss? This month Klein-feld, now 47, becomes chief executive of Munich-based Siemens, a $100 billion behemoth that oper-ates in 190 countries and makes subways, light bulbs,power plants, auto parts, automatic mail-sortingequipment, and more. With 430,000 employees and12 major divisions, Siemens is the rock of GermanyInc., which still needs to learn how to survive andthrive in a world where heavily taxed, slow-movingEuropean companies operate at a disadvantage. IfSiemens can reach new levels of profitability, maybethe rest of Corporate Germany has a chance, too.

Siemens Chief Executive Heinrich von Pierer andthe company’s supervisory board, which includessuch corporate luminaries as Deutsche Bank CEOJosef Ackermann and former Allianz Group CEOHenning Schulte-Noelle, skipped over more sea-soned top managers to choose the ferociously ener-getic Kleinfeld. He’s a prime example of a new breedof German manager, fluent in English and comfort-able in settings from Tokyo to Toledo. “This genera-tion has grown up in a much stronger internationalenvironment than the earlier one,” says HermannSimon, chairman of Bonn consulting firm Simon-Kucher & Partners. “They understand the need to beglobal.” With his big laugh and knack for story-telling, Kleinfeld knows how to network globally aswell. He sits on several corporate and charitableboards abroad, including aluminum-products makerAlcoa and the Metropolitan Opera in New York. “Ilove him. He’s a generous, funny man,” says BeverlySills, chairman of the Met, who gushes about Klein-feld’s ability to appraise opera performances.

If nothing else, Kleinfeld should help put to reststereotypes about dour German execs. At a Novemberdinner in Munich with business journalists, one Italianscribe waved his Nokia mobile phone in Kleinfeld’sface and demanded to know how Siemens can com-pete with the handset industry’s market leader. Klein-feld replied by snatching the Nokia phone and drop-

ping it in a glass of water. The message: We’ll drownthe competition. (Kleinfeld later gave the journalist awaterproof Siemens phone instead.) But the reporter’squestion was legitimate. Does Kleinfeld have what ittakes to fix Siemens’s money-losing mobile-handsetbusiness and other underperformers?

In its home market of Germany, where Siemenshas 38% of its workforce—compared to 58% in 1994—employees are demonstrating a willingness to worklonger and accept modest pay raises to keep jobsfrom moving overseas. Abroad, Siemens can drawon a lower-cost workforce and decades of experienceto cash in on rapid growth in giant markets likeChina and India. In December, for example,Siemens won a $460 million order to supply locomo-tives to China’s state railway. Profit in the fiscal yearended was up 40% over 2003.

But Siemens still suffers in comparison to arch-rival GE, whose shares have had a total return of423% over the past 10 years, versus 273% for theGerman company. Von Pierer himself has admittedthat he wasn’t always able to push change as fast ashe would have liked. It’s not just a question of cuttingcosts. “In the innovation game, productivity andR&D matter more than cost structure,” says WilliamM. Castell, CEO of GE Healthcare. Siemens boaststhat its engineers and scientists generate more than8,000 inventions a year, but it needs to do more toturn those innovations into commercial products.Siemens was a leader in introducing mobile-phonehandsets with color screens and built-in MP3 musicplayers, for example, but wasn’t able to translate itstech edge into market strength.

Can Kleinfeld succeed? He doubtless has the drive.Kleinfeld’s father, a shipyard laborer who became anengineer by studying nights, died when the boy was10. That was a “brutal” experience, Kleinfeld says, butthe hardship that followed forged a determination tosucceed. An only child, he stocked grocery shelves atage 12 and has held a job ever since. After studyingbusiness at Georg August University in Göttingen,Kleinfeld put in stints at a Nuremberg marketresearch firm and at drugmaker Ciba-Geigy beforejoining Siemens’s corporate sales and marketingdepartment in 1987.

The new Siemens chief was a multitasker beforeanyone used the term. Many of his generation milkGermany’s free university system for years. ButKleinfeld completed his doctorate at the Universityof Würzburg while working full-time at Siemensand raising a young family. (His wife, Birgit, is ateacher, and they have two school-age daughters.)“That was an extreme burden,” recalls Ulli Arnold,now a business professor at the University of Stutt-gart, who supervised Kleinfeld’s thesis work on cor-porate identity and strategic management.





236 Chapter Seven

“ENDLESS ENERGY”His stamina is already legend inside Siemens.

“Working hard earns the right to play hard,” Klein-feld once told students at the University of RhodeIsland, and he lives the creed. George C. Nolen,CEO of Siemens Corp., the company’s U.S. unit,recalls returning from a European trip with Klein-feld, who runs or lifts weights every day. “I was deadtired, and he runs the New York City marathon. Theguy has endless energy,” Nolen says.

Kleinfeld’s résumé reflects ambition as well as tal-ent. He has held 10 jobs within the company in 17years, including building Siemens’s in-house consult-ing arm into a power center. The unit had eight con-sultants when he took it over in 1995. Under Klein-feld, it grew to 170 operating under direct control ofthe management board, and was involved in turn-arounds of divisions such as power generation. Ithelped formulate and run the TopPlus program, alate-’90s drive to apply stricter standards to man-agers and fix or prune marginal businesses.

His job-hopping and role as an internal consultanthave led to muttering that Kleinfeld is short on oper-ational experience. “He’s a bit full of himself,” saysone outsider who has worked with Kleinfeld. But hisstint as a consultant has also allowed him to exploreevery corner of the far-flung Siemens empire. Heenjoys regaling dinner partners with tales of hisadventures, such as an all-night session with the glummanagers of a troubled Japanese unit. By dawn,fatigue and sake loosened the managers’ reserve:They worked out a new business plan.

NOT SO LONELY AT THE TOPWinning friends and influencing people—and neu-

tralizing the rest—is crucial at a vast company wherelocal barons have built their fiefdoms over the years.Kleinfeld was one of the main inventors of OneSiemens, a program designed to get company unitsto cooperate better to win business. He got a chanceto put theory into practice when Siemens sent him tothe United States in January 2001, first as chief oper-ating officer, then, a year later, as CEO of New York-based Siemens Corp. Under Kleinfeld, units includ-

ing Medical Solutions and Power Transmission &Distribution joined together to supply diagnosticequipment, software, telecommunications, andpower to a new hospital being built in Temple, Texas,for Scott & White Healthcare System.

Kleinfeld won’t enjoy unlimited power as he triesto crunch Siemens into a seamless unit. Formally, heis not CEO but chairman of the management board,a body that operates on the principle of consensus.He probably can’t take such action without vonPierer’s support. But he may get it. Siemens is sched-uled to announce plans for the handset unit on Klein-feld’s first day as CEO, and von Pierer has said saleor closure are options. Even in labor relations, Klein-feld has room to maneuver. Labor leaders know thatthey must give way on wages and hours to slow theoutflow of jobs to Eastern Europe and China. “Wecan hinder it, but there’s not much we can do to stopit,” admits one top official of the IG Metall union,which represents Siemens workers.

A whole generation of young Siemens executives,keen to conquer the world and frustrated with thebureaucracy, is also rooting for Kleinfeld. Robert H.Schaffer, a Stamford, Connecticut, consultant who hashelped design training programs for Siemens as wellas GE, says that the mid-level managers at Siemens“are as bright and as aggressive as any I have met.”Bright and aggressive—that describes Kleinfeld, too.The talent is there. But the task—transforming theprime symbol of Germany Inc.—is huge.

Jack Ewing and Diane Brady, “Siemens’s New Boss,” BusinessWeekOnline, January 24, 2005.

QUESTIONS

1. What kinds of needs do you think Klaus Klein-feld is trying to satisfy at work? Which motivationtheory best explains his behavior?2. What is Kleinfeld’s approach to creating high-performing teams?3. Why has bargaining and negotiation been impor-tant at Siemens?

How do you react when someoneyells at you? Do you get angry andyell back or shut down and try toget away? Do you try to calm the

person down and seek a solution?Conflict is inevitable between indi-

viduals and between groups, even when they share

basic values and goals. Whether at work or in yourpersonal life, understanding your own style of han-dling conflict and recognizing the responses of otherscan be very helpful. To learn more about it, do theexercise on your Student DVD called “What Is YourPrimary Conflict Handling Style?”

BUILDING YOUR MANAGEMENT SKILLSKnow Thyself






The Container Store has no parallelin the retail industry. It pays itsemployees 50 to 100% above theindustry average, has a turnover

rate of 75% below industry average,and has the happiest, most empowered

employees in the industry.Garrett Boone, Co-Founder and CEO explains

the company’s philosophy throughout this video. Heexplains that the operating philosophy of The Con-tainer Store can be captured in the following maxim:“1 great person = 3 good people.” Their hiring prac-tices actually reflect these values. Their mission is notonly to satisfy customers but to exceed their expecta-tions. The video exemplifies this by citing examplesof employee kindness to customers well beyondwhat is expected.

The video then traces the history of managementtheory beginning with Taylor and concluding withVroom’s expectancy theory model. The video pro-vides examples from The Container Store that sup-port theoretical tenets across several models. Forexample, Theory Y and Theory Z management prin-ciples apply to the belief in people to work effec-tively without close supervision and to work in ateam environment. Herzberg’s motivators and

hygiene factors is exemplified by the 100% cross-training goal for all employees at the company.Development is also a key concern with Boone andhis team: Drucker’s MBO could apply here.

The video concludes by suggesting that one man-agement theory of motivation does not and cannot fitall company models. The Container Store sees itsbusiness as “situational” requiring flexibility in termsof customer response. Empowerment is the onlyanswer. Several of the values and practices of TheContainer Store clearly support a “situational”approach to management and motivation—they drawfrom Maslow, McGregor, Drucker, Herzberg andVroom. Open communication is at the heart of thecompany’s culture—it is a privately held firm butshares all information with employees including thefinancials. In a sense, the CEO sees “communica-tion” as being the #1 core value of The ContainerStore and as such is equivalent with leadership.

1. What examples from the video on The Con-tainer Store support Maslow’s motivational need forself-actualization?2. How is empowerment used in the video case?3. How does Herzberg’s theory of motivators andhygiene factors relate to The Container Store?

CHAPTER VIDEOThe Container Store

Documents

Jones: Introduction To II. The Human Side of 7. …myresource.phoenix.edu/secure/resource/BUS210R4/bus210...Dick’s approach to leading and motivating its employees begins when it