Management © 2018 Cengage Learning Australia Pty Limited 6th Edition Danny Samson Copyright Notice Timothy Donnet This Work is copyright. No part of this Work may be reproduced, stored in a Richard L. Daft retrieval system, or transmitted in any form or by any means without prior written permission of the Publisher. Except as permitted under the Copyright Act 1968, for example any fair dealing for the purposes of private Publishing manager: Dorothy Chiu study, research, criticism or review, subject to certain limitations. These Senior publishing editor: Michelle Aarons limitations include: Restricting the copying to a maximum of one chapter or Developmental editor: Kate Doherty 10% of this book, whichever is greater; providing an appropriate notice and Project editor: Amelia Fellows-Blaskett/Sutha Surenddar warning with the copies of the Work disseminated; taking all reasonable steps Art direction: Olga Lavecchia to limit access to these copies to people authorised to receive these copies; Cover designer: OetomoNew ensuring you hold the appropriate Licences issued by the Text designer: Astred Hicks Copyright Agency Limited (“CAL”), supply a remuneration notice to CAL and pay Editor: Sylvia Marson any required fees. For details of CAL licences and remuneration notices please Proofreader: Jamie Anderson contact CAL at Level 15, 233 Castlereagh Street, Sydney NSW 2000, Permissions/Photo researcher: Jessica Boland (Boland Consulting) Tel: (02) 9394 7600, Fax: (02) 9394 7601 Cover Illustration: OetomoNew Email: info@copyright.com.au Website: www.copyright.com.au Typeset by MPS Limited For product information and technology assistance, Any URLs contained in this publication were checked for currency in Australia call 1300 790 853; during the production process. Note, however, that the publisher in New Zealand call 0800 449 725 cannot vouch for the ongoing currency of URLs. For permission to use material from this text or product, please email Fifth edition published by Cengage in 2015 aust.permissions@cengage.com Authorised adaptation of Management, 12th edition by Richard L. Daft, published by Cengage Learning, 2016. National Library of Australia Cataloguing-in-Publication Data Creator: Samson, Danny, author. Title: Management / Danny Samson, Timothy Donnet However, if any infringement has occurred, the publishers tender Edition: 6th edition their apologies and invite the copyright holder to contact them. ISBN: 9780170388412 (paperback) Subjects: Management--Textbooks. Acknowledgements Every effort has been made to track and acknowledge copyright. and Richard L. Daft. Industrial management--Textbooks. Organizational effectiveness--Textbooks. Other Creators/Contributors: Donnet, Timothy, author. Daft, Richard L, author. Cengage Learning Australia Level 7, 80 Dorcas Street South Melbourne, Victoria Australia 3205 Cengage Learning New Zealand Unit 4B Rosedale Office Park 331 Rosedale Road, Albany, North Shore 0632, NZ For learning solutions, visit cengage.com.au Printed in China by China Translation & Printing Services. 1 2 3 4 5 6 7 21 20 19 18 17 BRIEF CONTENTS PA R T O N E I N N O VAT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D 1 2 PA R T T W O PA R T T H R E E 93 3 4 5 6 94 142 182 228 277 Organisational planning and goal setting Strategy formulation and implementation Managerial decision making ORGANISING Designing Managing Managing Managing organisation structure change and innovation human resources diversity LE ADING 14 15 16 17 18 PA R T S I X The environment and corporate culture Managing in a global environment Ethics, social responsibility and sustainable development Managing start-ups and new ventures PL ANNING 10 11 12 13 PA R T F I V E 2 48 THE ENVIRONMENT OF MANAGEMENT 7 8 9 PA R T F O U R The changing world of management The evolution of management thinking 1 Individual behaviour in organisations Leadership Motivating employees Communication in organisations Leading teams CONTROLLING 19 Managerial and quality control 20 Managing the value chain, information technology and e-business Capstone chapter: Making effective management happen 278 318 362 399 402 448 488 530 567 568 614 656 700 742 781 784 824 862 v CONTENTS Guide to the text Guide to the online resources Preface About the authors Acknowledgements PART ONE xvii xxiv xxvii xxxii xxxiv INNOVATIVE MANAGEMENT FOR A CHANGING WORLD_________ 1 CHAPTER 1 THE CHANGING WORLD OF MANAGEMENT___________________________ 2 1.1 WHY INNOVATIVE MANAGEMENT MATTERS_____________ 6 Current challenges for managers 7 Challenges for government 7 Challenges for business 8 Challenges for the individual employee 9 1.2 MANAGERS WHO MAKE A DIFFERENCE_________________ 9 The definition of management 10 1.3 THE FOUR MANAGEMENT FUNCTIONS_________________ 12 Planning 12 Organising 12 Leading 13 Controlling 13 1.4 ORGANISATIONAL PERFORMANCE____________________ 14 1.5 MANAGEMENT SKILLS______________________________ 16 Conceptual skills 16 Human skills 17 Technical skill 18 When skills fail 18 1.6 MANAGEMENT TYPES______________________________ 20 Vertical differences 20 Horizontal differences 22 1.7 WHAT IS IT LIKE TO BE A MANAGER?__________________ 23 Making the leap: becoming a new manager 23 1.8 MANAGERIAL ACTIVITIES___________________________ 25 Adventures in multitasking 25 Life on speed dial 27 Where does a manager find the time? 28 Manager roles 29 1.9MANAGING IN SMALL BUSINESSES AND NOT-FOR-PROFIT ORGANISATIONS____________________ 32 1.10 STATE-OF-THE-ART MANAGEMENT COMPETENCIES__________________________________ 34 1.11TURBULENT TIMES: MANAGING CRISES AND UNEXPECTED EVENTS__________________________ 36 Stay calm 36 Be visible 37 Put people before business 37 Tell the truth 37 Know when to get back to business 37 1.12AUSTRALIA’S MANAGERS: IMPROVING FROM A LOW BASE________________________________ 37 STUDY TOOLS Online study resources 40 ◗◗ CourseMate Express for Management ◗◗ Search Me! Management 40 40 Response to the management challenge 40 ◗◗ PETRONAS 40 Discussion questions Ethical challenge 41 42 ◗◗ Can management afford to look the other way? 42 Group challenge 43 ◗◗ Your best and worst managers 43 Case for critical analysis 43 ◗◗ SharpStyle Salons 43 On the job video case 44 ◗◗ Camp Bow Wow: Innovative management for a changing world 44 CHAPTER 2 THE EVOLUTION OF MANAGEMENT THINKING________________________ 48 2.1 MANAGEMENT AND ORGANISATION__________________ 54 The things of production versus the humanity of production 54 Is social business the answer? 55 2.2 CLASSICAL PERSPECTIVE___________________________ 56 vi Scientific management Bureaucratic organisations Administrative principles 58 59 62 2.3 HUMANISTIC PERSPECTIVE__________________________ 63 Early advocates 63 The human relations movement The human resources perspective The behavioural sciences approach 63 65 68 2.4 MANAGEMENT SCIENCE____________________________ 68 ◗◗ Search Me! Management 84 Response to the management challenge 84 ◗◗ Cemex: managing in chaotic circumstances 84 Discussion questions Ethical challenge 85 86 2.5 RECENT HISTORICAL TRENDS________________________ 70 Systems thinking 71 Contingency view 72 Total quality management 72 ◗◗ The supervisor 86 Group challenge 86 2.6INNOVATIVE MANAGEMENT THINKING FOR A CHANGING WORLD___________________________ 74 Contemporary management tools 74 Managing the technology-driven workplace 76 The shifting world of e-business 76 Big data analytics 78 Knowledge management 78 Supply chain management 79 Social media programs 80 Managing the people-driven workplace 80 ◗◗ More hassle from HR? 87 On the job video case 88 ◗◗ Barcelona Restaurant Group: The evolution of management thinking 88 STUDY TOOLS Online study resources 84 ◗◗ CourseMate Express for Management 84 PART TWO ◗◗ Turning points on the road to management 86 Case for critical analysis 87 CHAPTER CASE STUDIES Switching to GreenPower Brumby’s Bakeries cooking along Atlassian: supporting collaboration and innovation 51 70 77 PART 1 CONTINUING CASE: INNOVATIVE MANAGEMENT FOR A CHANGING WORLD_____________ 90 THE ENVIRONMENT OF MANAGEMENT____________________ 93 CHAPTER 3 THE ENVIRONMENT AND CORPORATE CULTURE__ _____________________ 94 3.1 THE EXTERNAL ENVIRONMENT_______________________ 99 General environment 100 Task environment 107 3.2 THE ORGANISATION–ENVIRONMENT RELATIONSHIP_____112 Environmental uncertainty 113 Adapting to the environment 114 Influencing the environment 117 3.3 THE INTERNAL ENVIRONMENT – CORPORATE CULTURE________________________________________120 Symbols 122 Stories 123 Heroes 123 Slogans 123 Ceremonies 124 3.4 TYPES OF CULTURE_________________________________125 Adaptability culture 125 Achievement culture 127 Involvement culture 127 Consistency culture 127 3.5 SHAPING CORPORATE CULTURE FOR INNOVATIVE RESPONSE___________________________128 Managing the high-performance culture 128 3.6 CULTURAL LEADERSHIP_____________________________131 Changing and merging corporate cultures 131 STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management Response to the management challenge ◗◗ Microsoft: coping with change Discussion questions Ethical challenge ◗◗ Competitive intelligence predicament Group challenge ◗◗ Should you go global? Case for critical analysis 134 134 134 134 134 135 136 136 136 136 137 ◗◗ Richmond Supply Co. 137 On the job video case 138 ◗◗ Camp Bow Wow – the environment and corporate culture 138 CHAPTER CASE STUDIES Growing a business from scratch – lavender! Green power McDonald’s 109 122 126 CONTENTS vii CHAPTER 4 MANAGING IN A GLOBAL ENVIRONMENT 4.1A BORDERLESS WORLD: GLOBALISATION, MULTINATIONAL CORPORATIONS AND THE INTERNATIONAL LANDSCAPE____________________146 Globalisation 146 Developing a global mindset 148 The changing international landscape 149 Multinational corporations 150 Globalisation backlash 152 Serving the bottom of the pyramid 152 4.2 GETTING STARTED INTERNATIONALLY_________________155 Exporting 155 Outsourcing 156 Licensing 157 Direct investing 157 4.3 THE INTERNATIONAL BUSINESS ENVIRONMENT_________158 4.4 THE ECONOMIC ENVIRONMENT______________________160 Economic development 160 Infrastructure 160 Economic interdependence 161 Resource and product markets 162 Exchange rates 162 Inflation, interest rates and economic growth 162 4.5 THE LEGAL–POLITICAL ENVIRONMENT_________________163 Political risk 164 Political instability 164 Laws and regulations 165 142 4.6 THE SOCIOCULTURAL ENVIRONMENT__________________166 Social values 166 Communication differences 169 4.7 INTERNATIONAL TRADE ALLIANCES___________________170 GATT and the World Trade Organization 171 European Union 171 North American Free Trade Agreement (NAFTA) 173 Association of South East Asian Nations (ASEAN) 173 STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management Response to the management challenge ◗◗ Achieving international competitiveness Discussion questions Ethical challenge 175 175 175 175 175 176 176 ◗◗ Quality or closing 176 Group challenge 177 ◗◗ Considerations for overseas expansion Case for critical analysis ◗◗ Shui Fabrics On the job video case ◗◗ Black Diamond equipment: managing in a global environment 177 177 177 178 178 CHAPTER CASE STUDIES The axis of India 148 CHAPTER 5 ETHICS, SOCIAL RESPONSIBILITY AND SUSTAINABLE DEVELOPMENT__ __ 182 5.1 WHAT IS MANAGERIAL ETHICS?______________________186 Ethical management today 187 The business case for ethics and social responsibility 188 5.2 ETHICAL DILEMMAS – WHAT WOULD YOU DO?__________189 5.3 CRITERIA FOR ETHICAL DECISION MAKING_____________191 Utilitarian approach 191 Individualism approach 191 Moral rights approach 192 Justice approach 192 Practical approach 192 5.4 THE INDIVIDUAL MANAGER AND ETHICAL CHOICES______193 Givers versus takers 196 5.5 WHAT IS CORPORATE SOCIAL RESPONSIBILITY?_________198 Organisational stakeholders 198 5.6 THE GREEN MOVEMENT_____________________________203 Sustainability and the triple bottom line 203 5.7 EVALUATING CORPORATE SOCIAL RESPONSIBILITY______206 5.8MANAGING COMPANY ETHICS AND SOCIAL RESPONSIBILITY____________________________208 Code of ethics 210 Ethical structures 211 Whistleblowing 212 viii CONTENTS 5.9MANAGERIAL ETHICS AND SUSTAINABLE DEVELOPMENT IN AUSTRALIA_______________________213 Organisational sustainable development 214 The ‘why’ of sustainable development 215 The ‘what’ of sustainable development 216 The ‘when’ of sustainable development 217 STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management Response to the management challenge ◗◗ Monsanto’s ethical challenges Discussion questions Ethical challenge ◗◗ What is right? Group challenge 219 219 219 219 219 220 221 221 222 ◗◗ Ethics and business costs 222 Case for critical analysis 222 ◗◗ Too much intelligence? 222 On the job video case 223 ◗◗ Theo Chocolate: managing ethics and social responsibility 223 CHAPTER CASE STUDIES A leadership dilemma at Timberland A crisis to milk 204 212 CHAPTER 6 MANAGING START-UPS AND NEW VENTURES_______________________ 228 6.1 WHAT IS ENTREPRENEURSHIP?______________________231 Entrepreneurship as an option 232 6.2 ENTREPRENEURSHIP INTERNATIONALLY_______________233 Entrepreneurship and the business environment 235 Impact of entrepreneurial organisations 238 Organisational innovation 239 6.3 WHO ARE ENTREPRENEURS?________________________244 Traits of entrepreneurs 246 6.4SOCIAL ENTREPRENEURSHIP – AN INNOVATIVE APPROACH TO SMALL BUSINESS_____________________248 6.5 STARTING AN ENTREPRENEURIAL FIRM________________250 Start with the new-business idea 250 The business plan 250 Choosing a legal structure 251 Arranging financing 253 Tactics for becoming a business owner 255 Starting an online or mobile app business 259 6.6 STAGES OF GROWTH_______________________________261 Planning 262 Organising 263 Decision making 264 Leading 264 Controlling 264 Growing through intrapreneurship 266 PART THREE STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management Response to the management challenge ◗◗ Challenges of traditional retailers Discussion questions Ethical challenge ◗◗ To grow or not to grow? Group challenge ◗◗ What counts? Case for critical analysis ◗◗ Emma’s Parlour On the job video case ◗◗ Bissell Brothers brewing: managing start-ups and new ventures 268 268 268 268 268 269 269 269 270 270 271 271 272 272 CHAPTER CASE STUDIES Cleanevent (division of Spotless Group) Competitive innovation in the mining industry Wesfarmers The high and lows of franchising entrepreneurship Franchises in Australia and New Zealand 237 243 244 257 258 PART 2 CONTINUING CASE: CULTURE, ETHICS AND SUSTAINABLE DEVELOPMENT AT TOYOTA AUSTRALIA_____________________________________274 PL ANNING__________________________________________ 277 CHAPTER 7 ORGANISATIONAL PLANNING AND GOAL SETTING___________________ 278 7.1 GOALS, PLANS AND PERFORMANCE___________________281 Messages and values contained in goals and plans 283 7.7 INNOVATIVE APPROACHES TO PLANNING______________307 Set stretch goals for excellence 307 7.2 GOALS IN ORGANISATIONS__________________________285 Organisational mission 285 Goals and plans 286 Aligning goals with strategy maps 289 STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management Response to the management challenge 7.3 OPERATIONAL PLANNING___________________________291 Criteria for effective goals 291 Management by objectives 294 Single-use and standing plans 298 ◗◗ Well-laid plans and their vulnerability to external forces 7.4 BENEFITS AND LIMITATIONS OF PLANNING_____________299 ◗◗ Inspire Learning Corporation 7.5 PLANNING IN A TURBULENT ENVIRONMENT____________301 Contingency plans 301 Scenario planning 302 7.6 CRISIS PLANNING_________________________________303 Pre-event 304 Response and recovery 305 Post-event 305 Discussion questions Ethical challenge Group challenge ◗◗ Course goal setting Case for critical analysis ◗◗ Central City Museum On the job video case ◗◗ Mi Ola Swimwear: managerial planning and goal setting 311 311 311 311 311 312 312 312 313 313 313 313 314 314 CONTENTS ix CHAPTER CASE STUDIES Planning and implementing the infrastructure of the future Siemens 293 295 CHAPTER 8 STRATEGY FORMULATION AND IMPLEMENTATION___________________ 318 8.1 THINKING STRATEGICALLY__________________________321 What is strategic management? 322 Purpose of strategy 322 Levels of strategy 326 8.2 THE STRATEGIC MANAGEMENT PROCESS______________329 Strategy formulation versus implementation 332 SWOT analysis 332 8.3 FORMULATING CORPORATE-LEVEL STRATEGY___________335 The portfolio strategy 335 The BCG matrix 336 Diversification strategy 337 8.4 FORMULATING BUSINESS-LEVEL STRATEGY____________339 Porter’s competitive forces and strategies 339 8.5 FORMULATING FUNCTIONAL-LEVEL STRATEGY 343 8.6 NEW TRENDS IN STRATEGY__________________________344 Innovation from within 344 Strategic partnerships 345 8.7 GLOBAL STRATEGY_________________________________347 Globalisation strategy 348 Multidomestic strategy 349 Transnational strategy 349 8.8 STRATEGY IMPLEMENTATION________________________351 Implementing global strategies 353 Testing the quality of strategy 354 STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management Response to the management challenge ◗◗ Netflix: Proof that companies need to adapt, or fail Discussion questions Ethical challenge ◗◗ A great deal for whom? Group challenge ◗◗ Developing strategy for a small business Case for critical analysis ◗◗ Costco: a different approach On the job video case ◗◗ Theo Chocolate: strategy formulation and execution 356 356 356 356 356 357 358 358 358 358 359 359 360 360 CHAPTER CASE STUDIES MYOB Apple Inc.’s strategy: much more than iPod, iPhone, iPad and Mac 325 327 CHAPTER 9 MANAGERIAL DECISION MAKING_________________________________ 362 9.1 TYPES OF DECISIONS AND PROBLEMS_________________365 Programmed and non-programmed decisions 366 Facing uncertainty and ambiguity 366 9.2 DECISION-MAKING MODELS_________________________371 The classical model: rational decision making 371 How managers actually make decisions 372 The political model 374 9.3 DECISION-MAKING STEPS___________________________376 Recognition of decision requirement 377 Diagnosis and analysis of causes 377 Development of alternatives 378 Selection of desired alternative 380 Implementation of chosen alternative 381 Evaluation and feedback 381 Personal decision framework 382 9.4WHY DO MANAGERS MAKE POOR JUDGEMENTS?_______________________________385 Innovative decision making 386 Start with brainstorming 386 Use hard evidence 387 Engage in rigorous debate 388 Avoid groupthink 389 x CONTENTS Know when to pull the plug Do a postmortem 389 389 STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management Response to the management challenge ◗◗ Balancing uncertainty, risk and reward Discussion questions Ethical challenge ◗◗ The no-show consultant Group challenge ◗◗ A new approach to making decisions Case for critical analysis ◗◗ Decisions at Paradox On the job video case ◗◗ Mi Ola Swimwear: managerial decision making 391 391 391 391 391 392 393 393 394 394 394 394 395 395 CHAPTER CASE STUDIES H&M 370 PART 3 CONTINUING CASE: PLANNING AND ORGANISING THE TRANSITION AT TOYOTA AUSTRALIA____________________________397 PART FOUR ORGANISING _ _ _______________________________________ 399 CHAPTER 10 DESIGNING ORGANISATION STRUCTURE___________________________ 402 10.1 ORGANISING THE VERTICAL STRUCTURE_______________405 Work specialisation 406 Chain of command 407 Authority, responsibility and delegation 407 Span of management 410 Centralisation and decentralisation 412 10.2 DEPARTMENTALISATION____________________________414 Vertical functional approach 415 Divisional approach 418 10.3 MATRIX APPROACH________________________________421 How it works 421 10.4 TEAM-BASED APPROACH___________________________424 How it works 424 Virtual network approach 426 10.5ORGANISING FOR HORIZONTAL COORDINATION___________________________________431 The need for coordination 431 Task forces, teams and project management 433 Relational coordination 434 10.6 FACTORS SHAPING STRUCTURE______________________435 Structure follows strategy 436 Structure fits the technology 437 STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management Response to the management challenge ◗◗ Unlocking the value of strategic alliances: Renault and Nissan Discussion questions Ethical challenge ◗◗ A matter of delegation Group challenge ◗◗ Family business Case for critical analysis ◗◗ Coles On the job video case ◗◗ Honest Tea: designing organisation structure 441 441 441 441 441 443 443 443 444 444 444 444 445 445 CHAPTER CASE STUDIES Strida Bicycles: a globally networked company 429 CHAPTER 11 MANAGING CHANGE AND INNOVATION____________________________ 448 11.1 INNOVATION AND THE CHANGING WORKPLACE_________451 Why do people resist change? 452 Disruptive innovation 453 The ambidextrous approach 454 STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management 481 481 481 11.2 CHANGING THINGS: NEW PRODUCTS AND TECHNOLOGIES______________________________455 Exploration 455 ◗◗ Reinventing Samsung 481 11.3 COOPERATION____________________________________460 Innovation roles 464 Discussion questions Ethical challenge 482 483 ◗◗ Crowdsourcing 483 Group challenge 484 11.4 CHANGING PEOPLE AND CULTURE____________________467 Training and development 469 Organisation development 469 11.5 IMPLEMENTING CHANGE___________________________473 Creating a sense of urgency 474 Resistance to change 475 Use implementation tactics 476 Response to the management challenge ◗◗ Are you ready to implement personal change? Case for critical analysis ◗◗ Malard Manufacturing Company On the job video case ◗◗ Honest Tea: managing change and innovation 481 484 485 485 485 485 CHAPTER CASE STUDIES Building a better mouse … General Electric A mini crisis of culture and performance 454 468 478 CHAPTER 12 MANAGING HUMAN RESOURCES_________________________________ 488 12.1THE STRATEGIC ROLE OF HRM IS TO DRIVE ORGANISATIONAL PERFORMANCE____________________491 The strategic approach 492 Building human capital to drive performance 493 12.2THE CHANGING NATURE OF CAREERS______________________________________495 The changing social contract 495 Innovations in HRM 496 CONTENTS xi 12.3 FINDING THE RIGHT PEOPLE_________________________499 Human resource planning 500 Selecting 504 12.4 DEVELOPING TALENT_______________________________509 Training and development 509 Performance appraisal 513 12.5 MAINTAINING AN EFFECTIVE WORKFORCE_____________517 Compensation 517 Benefits 519 Rightsizing the organisation 519 Termination 520 STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management 523 523 523 Response to the management challenge ◗◗ HRM as a vehicle for understanding cultural differences Discussion questions Ethical challenge ◗◗ Roles and responsibilities Group challenge ◗◗ Management competencies Case for critical analysis ◗◗ The right way with employees? On the job video case ◗◗ Barcelona Restaurant Group: managing human resources 523 523 524 525 525 526 526 526 526 527 527 CHAPTER CASE STUDIES Container Store VIVO Cafe: all in the family … the business is people Biotechnology companies in turbulent environments and challenging times 503 516 521 CHAPTER 13 MANAGING DIVERSITY__ ________________________________________ 530 13.1 DIVERSITY IN THE WORKPLACE_______________________534 Diversity in the corporate world 534 The changing nature of diversity in Australia 536 Diversity on a global scale 537 13.2 MANAGING DIVERSITY_____________________________538 Diversity and inclusion 540 Diversity of perspective 541 Dividends of workplace diversity 542 13.3 FACTORS SHAPING PERSONAL BIAS__________________544 Workplace prejudice, discrimination and stereotypes 544 Ethnocentrism 546 13.4 FACTORS AFFECTING WOMEN’S CAREERS______________547 The glass ceiling 547 The opt-out trend 548 The female advantage 549 13.5 DIVERSITY INITIATIVES AND PROGRAMS_______________550 Enhancing structures and policies 550 Expanding recruitment efforts 551 Establishing mentor relationships 551 Increasing awareness of sexual harassment 551 PART FIVE Encouraging employee affinity groups Positive assistance for women at work in Australia 552 553 STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management Response to the management challenge ◗◗ Breaking barriers to diversity: the career of Major General Liz Cosson Discussion questions Ethical challenge ◗◗ Sunset prayers Group challenge ◗◗ Personal diversity Case for critical analysis ◗◗ Waterway Industries On the job video case ◗◗ JetBlue: managing diversity 557 557 557 557 557 558 558 558 559 559 560 560 561 561 PART 4 CONTINUING CASE: LEADING AND MANAGING PEOPLE IN TOYOTA AUSTRALIA___________________________563 LE ADING_____________________________________________ 567 CHAPTER 14 INDIVIDUAL BEHAVIOUR IN ORGANISATIONS_______________________ 568 xii 14.1 UNDERSTANDING YOURSELF AND OTHERS_____________572 The value and difficulty of knowing yourself 572 14.3 PERCEPTION______________________________________580 14.2 ATTITUDES_______________________________________574 High-performance work attitudes 575 Conflicts among attitudes 579 14.5 PERSONALITY AND BEHAVIOUR______________________583 Personality traits 583 CONTENTS 14.4 ATTRIBUTIONS____________________________________582 Attitudes and behaviours influenced by personality Problem-solving styles and the Myers-Briggs Type Indicator 586 589 14.6 EMOTIONS_______________________________________591 Positive and negative emotions 591 Emotional intelligence 592 14.7 MANAGING YOURSELF______________________________594 Basic principles for self-management 594 A step-by-step guide for managing your time 595 14.8 STRESS AND STRESS MANAGEMENT__________________598 Challenge stress and threat stress 598 Type A and Type B behaviour 599 Causes of work stress 599 Innovative responses to stress 601 STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management Response to the management challenge ◗◗ Managing workplace behaviour Discussion questions Ethical challenge ◗◗ Should I fudge the numbers? Group challenge ◗◗ Personality role play Case for critical analysis ◗◗ Volkswagen’s Ferdinand Piëch On the job video case ◗◗ Mike Boyle strength and conditioning: understanding individual behaviour 605 605 605 605 605 606 607 607 608 608 608 608 609 609 CHAPTER CASE STUDIES Steve Jobs and Apple 588 CHAPTER 15 LEADERSHIP__________________________________________________ 614 15.1 THE NATURE OF LEADERSHIP________________________617 Bossless does not mean leaderless 618 15.2 CONTEMPORARY LEADERSHIP_______________________619 Level 5 leadership 619 Servant leadership 621 Authentic leadership 622 Gender differences 623 15.3 FROM MANAGEMENT TO LEADERSHIP_________________625 Leadership traits 626 Behavioural approaches 627 The Leadership Grid 628 15.4 CONTINGENCY APPROACHES________________________630 The situational model of leadership 630 Fiedler’s contingency theory 632 15.5 SITUATIONAL SUBSTITUTES FOR LEADERSHIP__________635 15.6 CHARISMATIC AND TRANSFORMATIONAL LEADERSHIP_____638 Charismatic leadership 638 Transformational versus transactional leadership 640 ‘Hard’ position power Personal ‘soft’ power Other sources of power Interpersonal influence tactics 644 645 646 647 STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management Response to the management challenge ◗◗ Leading a revitalisation Discussion questions Ethical challenge ◗◗ Does wage reform start at the top? Group challenge ◗◗ Which leadership styles are more effective? Case for critical analysis ◗◗ DGL International On the job video case ◗◗ Camp Bow Wow: Leadership 15.7 FOLLOWERSHIP___________________________________642 CHAPTER CASE STUDIES 15.8 POWER AND INFLUENCE____________________________644 News Corporation 650 650 650 650 650 651 652 652 652 652 653 653 653 653 629 CHAPTER 16 MOTIVATING EMPLOYEES_______________________________________ 656 16.1 INDIVIDUAL NEEDS AND MOTIVATION_________________661 Intrinsic and extrinsic rewards 661 Managers as motivators 664 Motivating in a bossless environment 664 16.3 PROCESS PERSPECTIVES ON MOTIVATION______________674 Goal setting 674 Equity theory 676 Expectancy theory 677 16.2 CONTENT PERSPECTIVES ON MOTIVATION_____________665 The hierarchy of needs 665 ERG theory 669 A two-factor approach to motivation 670 Acquired needs 672 16.4 REINFORCEMENT PERSPECTIVE ON MOTIVATION________680 Direct reinforcement 680 Social learning theory 682 16.5 JOB DESIGN FOR MOTIVATION_______________________684 Job enrichment 684 Job characteristics model 685 CONTENTS xiii 16.6 INNOVATIVE IDEAS FOR MOTIVATING__________________687 Building a thriving workforce 688 Empowering people to meet higher needs 688 Giving meaning to work through engagement 689 Keeping staff motivated in Australia and New Zealand 691 STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management Response to the management challenge ◗◗ Sandstrom Products: motivating employees Discussion questions 693 693 693 693 693 694 Ethical challenge ◗◗ Compensation showdown Group challenge 695 695 695 ◗◗ Should, need, like, love 695 Case for critical analysis 696 ◗◗ Lauren’s balancing act 696 On the job video case 697 ◗◗ Mike Boyle strength and conditioning: motivating employees 697 CHAPTER CASE STUDIES Managing motivation at Degussa Peroxide Ltd Nintendo Wii U: coping with fierce competition in the world’s video game market Outback Steakhouse 660 667 673 CHAPTER 17 COMMUNICATION IN ORGANISATIONS__ ___________________________ 700 17.1 COMMUNICATION IS THE MANAGER’S JOB_____________703 What is communication? 705 A model of communication 705 17.2 COMMUNICATING AMONG PEOPLE___________________707 Open communication climate 708 Communication channels 710 Communicating to persuade and influence others 713 Communicating with candour 714 Asking questions 716 Listening 717 Non-verbal communication 719 17.3 ORGANISATIONAL AND WORKPLACE COMMUNICATION____720 Social media 721 Personal communication channels 722 Formal communication channels 726 Crisis communication 730 STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management Response to the management challenge ◗◗ John McFarlane: communicate to build morale Discussion questions Ethical challenge ◗◗ The voice of authority Group challenge 735 735 735 735 735 736 737 737 737 ◗◗ Listen like a professional 737 Case for critical analysis 738 ◗◗ WA Manufacturing On the job video case ◗◗ Intermountain Healthcare: managing communication 738 739 739 CHAPTER CASE STUDIES General Electric Susan Williams 714 729 CHAPTER 18 LEADING TEAMS__ _____________________________________________ 742 18.1 THE VALUE OF TEAMS______________________________746 What is a team? 746 Contributions of teams 747 18.2 TYPES OF TEAMS__________________________________749 Functional teams 749 Cross-functional teams 749 Self-managed teams 750 Virtual teams 751 xiv Stages of team development Team cohesiveness Team norms 762 764 765 18.3 THE DILEMMA OF TEAMS___________________________755 18.7 MANAGING TEAM CONFLICT_________________________767 Types of conflict 767 Balancing conflict and cooperation 767 Causes of conflict 768 Styles to handle conflict 768 Negotiation 770 18.4 MODEL OF TEAM EFFECTIVENESS_____________________757 STUDY TOOLS Online study resources 18.5 TEAM CHARACTERISTICS___________________________759 Size 759 Diversity 759 Member roles 760 ◗◗ CourseMate Express for Management ◗◗ Search Me! Management 18.6 TEAM PROCESSES_________________________________762 Discussion questions CONTENTS Response to the management challenge ◗◗ NEC in Mulgrave: teams that work 773 773 773 773 773 774 Ethical challenge 774 ◗◗ Consumer safety or team commitment? Group challenge 775 ◗◗ Feedback exercise 775 Case for critical analysis ◗◗ Are we a team? 775 775 On the job video case 776 ◗◗ Tough Mudder: leading teams PART SIX 774 CHAPTER CASE STUDIES The team’s the thing The Aconex team in Melbourne Espresso 746 754 761 PART 5 CONTINUING CASE: TOYOTA’S BEHAVIOUR AND TEAMWORK_________________________________779 776 CONTROLLING_______________________________________ 781 CHAPTER 19 MANAGERIAL AND QUALITY CONTROL_____________________________ 784 19.1 THE MEANING OF CONTROL_________________________787 19.2 FEEDBACK CONTROL MODEL_________________________788 Steps of feedback control 789 The balanced scorecard 792 19.3 BUDGETARY CONTROL______________________________794 Expense budget 795 Revenue budget 795 Cash budget 795 Capital budget 796 Zero-based budget 796 19.4 FINANCIAL CONTROL_______________________________797 Financial statements 797 Financial analysis: interpreting the numbers 800 19.5 THE CHANGING PHILOSOPHY OF CONTROL_____________802 Hierarchical versus decentralised approaches 802 Open-book management 805 19.6 TOTAL QUALITY MANAGEMENT (TQM)_________________807 TQM techniques 808 TQM success factors 811 19.7 TRENDS IN QUALITY AND FINANCIAL CONTROL_________813 International quality standards 813 Corporate governance 813 19.8 QUALITIES OF EFFECTIVE CONTROL SYSTEMS___________815 STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management Response to the management challenge ◗◗ Controlling an empire at Dell Discussion questions Ethical challenge ◗◗ The wages of sin? Group challenge ◗◗ Create a group control system Case for critical analysis ◗◗ Lincoln Electric On the job video case ◗◗ Barcelona Restaurant Group: managing quality and performance 817 817 817 817 817 818 819 819 820 820 820 820 821 821 CHAPTER CASE STUDIES Semco’s open-book policy A lesson in quality from China The honeybee style 806 808 810 CHAPTER 20 MANAGING THE VALUE CHAIN, INFORMATION TECHNOLOGY AND E-BUSINESS______________________________________________ 824 20.1 THE ORGANISATION AS A VALUE CHAIN_______________828 Service and manufacturing operations 830 Supply chain management 831 20.2 FACILITIES LAYOUT_________________________________832 Process layout 834 Product layout 835 Cellular layout 835 Fixed-position layout 836 20.3 TECHNOLOGY AUTOMATION_________________________837 Radio-frequency identification (RFID) Advanced manufacturing systems Lean thinking 837 838 839 20.4 INVENTORY MANAGEMENT__________________________840 The importance of inventory 841 Just-in-time inventory 842 20.5 OPERATIONS DELIVER OUTCOMES____________________843 20.6 INFORMATION TECHNOLOGY HAS TRANSFORMED MANAGEMENT______________________844 CONTENTS xv Boundaries dissolve; collaboration reigns Knowledge management and Web 2.0 Enterprise resource planning systems 844 844 847 20.7 THE INTERNET AND E-BUSINESS_____________________848 E-business strategy: market expansion 850 E-business strategy: increasing efficiency 850 STUDY TOOLS Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management Response to the management challenge ◗◗ Controlling production at Boeing 853 853 853 853 853 Discussion questions Ethical challenge ◗◗ Manipulative or not? Group challenge ◗◗ Developing an online strategy Case for critical analysis ◗◗ SunBright Outdoor Furniture, Inc. 854 855 855 855 855 856 856 CHAPTER CASE STUDIES Managing the professional services firm IKEA 829 839 PART 6 CONTINUING CASE: TOYOTA AUSTRALIA: QUALITY AT THE HEART OF ITS OPERATIONS__________858 CAPSTONE CHAPTER MAKING EFFECTIVE MANAGEMENT HAPPEN___________________ 862 C.1FUNDAMENTAL PRACTICES COMMON TO WINNING ORGANISATIONS_______________________866 Leadership practices 866 People management practices 871 Customer focus practices 875 Quality management practices 876 Innovation practices 878 Knowledge management practices 879 STUDY TOOLS C.2DEEPER PRINCIPLES COMMON TO THE WORLD’S BEST ORGANISATIONS_________________881 CHAPTER CASE STUDIES C.3PUTTING IT ALL TOGETHER: THE ORGANISATION AS A SYSTEM____________________884 Glossary Name index Subject index xvi CONTENTS 889 900 906 Online study resources ◗◗ CourseMate Express for Management ◗◗ Search Me! Management Discussion questions Group challenge ◗◗ Understanding how an organisation works ‘Heartfelt Leadership’ pays off at Toyota Google (Alphabet Inc.): a great place to search – and work Values can come from Mars 887 887 887 887 888 888 869 874 884 Guide to the text As you read this text you will find a number of features in every chapter to enhance your study of management and help you understand how the theory is applied in the real world. PART-OPENING FEATURES PART T WO T HE E N V I RON M E N T O F M A N AGE M E N T A Chapter list outlines the chapters contained in each part for easy reference, along with an overview of the part ahead. Chapter 3 The environment and corporate culture Chapter 4 Managing in a global environment Chapter 5 Ethics, social responsibility and sustainable development Chapter 6 Managing start-ups and new ventures The environment surrounding a sporting foreign market, and how do customer preferences differ from those in the home market? contest plays a significant part in determining the outcome. In Test cricket, the nature of the pitch determines whether spin bowlers or fast bowlers are favoured for selection. In most football codes, the direction and strength of the wind can make a difference, and this certainly is also the These factors are dynamic, never static. In both sport and business, the environment in which we work and compete is forever changing. A change of wind can dramatically change a sailing competition or a football match, and these are difficult to predict in advance. In business, consider the massive changes going on in Europe such as Britain’s vote to leave the European Union, large influxes of refugees, and terror events. These situations bring changes to the environment in which organisations and their managers must work, and can also change consumer behaviour. The election of Donald Trump as President of the United States – which surprised many people – will impact on business conditions in the United States. case in sailing. In Davis Cup tennis contests, the playing surface chosen by the home team and the partisan home crowd are important parts of the environment that affect the outcome. In golf, the weather conditions, speed of the greens, pin placement and other factors are the environment that must be accounted for by competitors. Similarly, in business and management, the environment affects the outcome. When organisations are considering starting a business in a new country, the prevailing work culture plays a significant part in determining the outcome. So do the state of the market, the intensity of competition in an industry and economic circumstances, such as interest rates and unemployment rates. Each of these factors has an impact on the strategies and tactics managers must employ. What ethical standards are being applied in the industry and country of operation? What are the local idiosyncrasies in a Because of the changes to international trade conditions advocated in his election policies, many organisations around the world will feel the effects, should those promises become reality. In Part 2, you will study the environment of management, including the trend towards globalisation, the importance of managerial ethics and social responsibility, and entrepreneurship and smallbusiness management. 93 CHAPTER-OPENING FEATURES CHAPTER 2 2 T HE E VOL U T ION O F M A N AGE M E N T T HIN K ING 1 MANAGEMENT CHALLENGE CEMEX: MANAGING IN CHAOTIC CIRCUMSTANCES L E A R N I NG OBJ E C T I V E S Cementos Mexicanos (Cemex), based in Monterrey, Mexico, has been making and delivering concrete for over a century. The company specialises in delivering concrete in developing areas of the world, places where anything can, and usually does, go wrong. Even in Monterrey, for example, Cemex copes with unpredictable weather and traffic conditions, spontaneous labour disruptions, building permit chaos, and arbitrary government inspections of construction sites. In addition, more than half of all orders are changed or cancelled by customers, usually at the last minute. Considering that a load of concrete is never more than 90 minutes from spoiling, these chaotic conditions mean high costs, complex scheduling, and frustration for employees, managers, and customers. As competition in the industry increased, Cemex managers began looking for ways to stand out from the crowd. One idea was a guaranteed delivery time, but despite the efforts of employees, the best Cemex could do was promise delivery within a three-hour window. To make A F T E R ST U DY I N G T H I S C H A P T E R , YO U SHO U L D BE ABL E TO : 1 understand how historical 5 explain the major concepts of forces influence the practice of management systems thinking, the contingency view and total quality management 2 identify and explain major 6 name contemporary management developments in the history of management thought 3 describe the major components tools and some reasons that management trends change over time 7 describe the management changes of the classical and humanistic management perspectives 4 discuss the management science approach and its current use in organisations brought about by the technologydriven workplace, including the role of social media programs and customer relationship management (CRM). matters worse, the construction business itself was becoming increasingly complex and competitive, leading to even more disruptions and cancellations. Builders were sometimes lucky to get their orders delivered on the right day, let alone at the right hour. Cemex managers began to consider that the company needed a whole new approach to doing business – one that accepted rather than resisted the natural chaos of the marketplace. It would mean massive changes in operations, as well as finding ways to get dispatchers and drivers (who had an average of six years of formal education) to think like entrepreneurs. 1 Identify the key concepts that the chapter will cover with the Learning objectives at the start of each chapter. 2 The Management challenge at the start of each chapter presents a real-life management scenario that relates to key chapter concepts, and encourages you to think about how best to resolve it. 3 Later in the chapter, the Response to the management challenge offers a conclusion to this scenario, describing how the issue was resolved. 4 New manager self-assessments encourage you to analyse how you would respond to certain managerial situations and provide insight into what to expect and how you might perform as a manager. Sources: Petzinger, T. Jr. (1999). The New Pioneers: The Men and Women Who Are Transforming the Workplace and Marketplace. New York: Simon & Schuster, 91–3; (April 1999). In Search of the New World of Work. Fast Company, 214–20; Katel, P. (July 1997). Bordering on Chaos. Wired, 98–107. QUE S TI O N If you were a manager at Cemex, what changes would you implement to help the organisation thrive in the face of constant chaos? What advice would you give managers about their management approach and the kind of company they might create? Express Throughout this chapter, the CourseMate Express icons indicate an opportunity for online selfstudy, linking you to activities and other online resources. 49 48 84 50 STUDY TOOLS 4 ONLINE STUDY RESOURCES Visit http://login.cengagebrain.com and use the access code that comes with this book for 12 months’ access to the resources and study tools for this chapter. Express CO U R S E M AT E E X P R E S S F O R M A NAG E M E N T The CourseMate Express website contains: Explore Search Me! Management for articles relevant to this chapter. Fast and convenient, Search Me! Management is updated daily and provides you with 24-hour access to full text articles from hundreds of scholarly and popular journals, e-books and newspapers, including The Australian and The New York Times. Log in to the Search Me! Management database via http://login.cengagebrain.com and try searching for the following key words: revision quizzes • video cases self-assessments • audio summaries • and more! 3 NEW MANAGER SELF-ASSESSMENT ARE YOU A NEW-STYLE OR AN OLD-STYLE MANAGER? The following table provides examples of different types of behaviours that managers may display when relating to their staff. Read each statement carefully and rate each one as mostly true or mostly false to reflect the extent to which you would use that behaviour. MOSTLY TRUE MOSTLY FALSE 1 Supervise my subordinates closely in order to get better work from them. 2 Set the goals and objectives for my subordinates and sell them on the merits of my plans. S E A R C H M E ! M A NAGE ME NT • • P A R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D • management history • quality management • scientific management • big data • administrative principles • sustainable development. Search tip: Search Me! Management contains information from both local and international sources. To get the greatest number of search results, try using both Australian and American spellings in your searches, e.g. ‘globalisation’ and ‘globalization’; ‘organisation’ and ‘organization’. 3 Set up controls to ensure that my subordinates are getting the job done. 4 Make sure that my subordinates’ work is planned out for them. 5 Check with my subordinates daily to see if they need any help. 6 Step in as soon as reports indicate that progress on a job is slipping. 7 Push my people if necessary in order to meet schedules. 8 Have frequent meetings to learn from others what is going on. Scoring and Interpretation: Add the total number of mostly true answers and mark your score on the scale below. Theory X tends to be ‘old-style’ management, and Theory Y ‘new-style’, because the styles are based on different assumptions about people. To learn more about these, you can refer to EXHIBIT 2.4 and review the assumptions related to Theory X and Theory Y. Strong Theory X assumptions are typically considered inappropriate for today’s workplace. Where do you fit on the X-Y scale? Does your score reflect your perception of yourself as a current or future manager? Theory X RESPONSE TO THE MANAGEMENT CHALLENGE CEMEX: MANAGING IN CHAOTIC CIRCUMSTANCES One century-old company that is thriving as a technologydriven learning organisation is Cementos Mexicanos (Cemex), described at the beginning of the chapter. To help the organisation compete in a turbulent environment, managers looked for both technological and management innovations. A core element of the new approach is the company’s complex information technology infrastructure, which includes a global positioning satellite system and onboard computers in all delivery trucks that are continuously fed with streams of day-to-day data on customer orders, production schedules, traffic problems, weather conditions and so forth. Even more important are changes in how managers and employees think about and do their work. All drivers and dispatchers attend weekly secondary education classes for two years. Regular training in quality customer service and computer skills continues, with Cemex devoting at least 8 per cent of total work time to employee training and development. X-Y Scale 10____ 5 ____0 Theory Y Cemex is faced with a situation similar to many companies. The methods and patterns that kept the organisation successful in the past no longer seem enough to keep it thriving in today’s turbulent environment. Unexpected market forces or other changes in the environment can devastate a company. Australian companies such as Aurora Energy, United Energy, Energex and Origin Energy face a crisis because of increasing deregulation and the growth of small, independent power producers. These include renewable energy suppliers such as Pacific Hydro, which uses wind and hydro-power sources.1 The airline industry is another sector that has had to cope with a lot of change. Consider the changes that have occurred in the business environment surrounding Qantas over the past two decades, which have caused its executives and board of directors to make some big changes in the company’s strategy and operations. First, after around 90 years of essentially stable and profitable growth, its long-time competitor, Ansett, went bankrupt in 2001. Up until this time, Ansett and Qantas had enjoyed a cosy, two-airline duopoly, dominating Australian skies. The demise of Ansett, followed by the growth of low-cost carriers such as Virgin Airlines, discussed below, led to a substantial drop in the price of airfares. In addition, around this time, worldwide crises in the travel industry were caused by a rise in terrorist acts and, in around 2003, the outbreak of severe acute respiratory syndrome (SARS). As a result, many of the world’s longstanding airlines went bankrupt. xvii sometimes calling it frugal engineering.4 Will this be a buzzword that quickly fades from managers’ vocabularies, or will it become as ubiquitous in management circles as terms such as total quality or kaizen? Managers are always on the lookout for fresh ideas, innovative management approaches, and new tools and techniques. Management philosophies and organisational forms change over time to meet new needs. The Self-assessment at the beginning of this chapter describes two differing philosophies about 68 PA R T how people should be managed, and you will learn more about these ideas in this chapter. If management is always changing, why does history matter to managers? The workplace of today is different from 50 years ago – indeed, from even 10 years ago – yet historical concepts form the backbone 5 perspective provides managers with a broader O N Eof : I management N N O V AT I V E M education. A N A G E M E N TOne F O Rreason A C H A is N Gthat I N G aWhistorical ORLD way of thinking, a way of searching for patterns and determining whether they recur across time periods. It is a way of learning from others’ mistakes so as not to repeat them; learning from others’ successes so as to repeat them in the appropriate situation; and most of all, learning to understand why things happen to improve future. seem modern, T H E organisations B E H AVinIthe OU R ACertain L S Cmanagement I E N C Epractices S A Pthat P ROA C H such as open-book management or employee stock ownership, have actually been around for a long time. The behavioural sciences approach uses scientific methods and draws from sociology, psychology, behavioural sciences These techniques have repeatedly gained and lost popularity since the early twentieth century because approach anthropology, economics and other disciplines to develop theories about human behaviour and interaction A subfield of the humanistic of shifting historical forces.6 in an organisational setting. This approach can be seen in practically every organisation. One specific set of management perspective This chapter provides a historical overview of the ideas, theories and management philosophies that applies social science management techniques based in the behavioural sciences approach is organisation development. In the 1970s, in an organisational context, that have contributed to making the workplace what it is today. The final section of the chapter looks at organisational development evolved as a separate field that applied the behavioural sciences to improve the drawing from economics, some trends and current approaches that build on this foundation of management understanding. psychology, sociology andrecentorganisation’s health and effectiveness through its ability to cope with change, improve internal relationships other disciplines. This foundation illustrates that the value of studying management lies not in learning current facts FEATURES WITHIN CHAPTERS and increase problem-solving capabilities.47 The techniques and concepts of organisational development, and research, but in developing a perspective that will facilitate the broad, long-term view needed for which will be discussed in detail in Chapter 11 , have since been broadened and expanded to address management success. the increasing complexity of organisations and the environment, and it is still a vital approach for managers. Other concepts that grew out of the behavioural sciences approach include matrix organisations, selfSee Chapter 11 for a more managed teams, ideas about corporate culture, and management by wandering around. Indeed, the R EMEMBE R THIS detailed discussion of the behavioural sciences approach has influenced the majority of tools, techniques and approaches that techniques and concepts of Review the key points covered in the chapter with the Remember this lists throughout the chapter. These assist with quick reference and revision. organisational development managers have applied to organisations since theways, 1970s. the are remaining chaptersand of this is a dynamic field, always changing in some yetAll there some concepts ◗ Management book contain techniques that have stoodand themanagement test of time. applications that can be attributed to the behavioural sciences approach. research findings ◗ There is a lot that can be learned from what has and has not worked in managing organisations in the past, to inform managerial strategies going forward. R EMEMBE R THIS ◗ The humanistic perspective emphasised understanding human behaviour, needs and attitudes in the workplace. 2: THE EVOLUTION OF MANAGEMENT THINKING ◗ Mary Parker Follett and Chester Barnard were early advocates of a more humanistic approach to management. Follett emphasised worker participation and empowerment, shared goals and facilitating rather than controlling employees. Barnard’s contributions include the acceptance theory of authority. ◗ The human relations movement stresses the satisfaction of employees’ basic needs as the key to increased productivity. TAKE A MOMENT 79 The Hawthorne wereyou important shaping ideas concerning how managers should treat workers. ◗ today’s As a new manager in workplace,studies how would developinyour employees’ abilities to think independently, build◗relationships and share knowledge? Be prepared learn to use technology as a tool The human resources perspective suggeststothat jobs should be designed to meet people’s higher-level to tap into the insight and creativity of eachemployees person in the needs by allowing to organisation. use their full potential. ◗ The behavioural sciences approach draws from psychology, sociology and other social sciences to develop theories about human behaviour and interaction in an organisational setting. One segment of knowledge management is the use of sophisticated customer relationship ◗ customer relationship Many current management ideas and practices can be traced to the behavioural sciences approach. management (CRM) Apply the concepts discussed in the text and experiment with implementing the concept as a practising manager with the Take a moment pop-ups. management (CRM) systems. These collect and manage large amounts of data about customers and make Systems that help companies keep in close touch with customers, collect and manage customer data, and survey, for example, 58 per cent of companies reported using CRM, up from only 35 per cent of companies collaborate with customers in 2000, one of the largest and fastest usage increases ever revealed by the survey.76 to provide the most valuable management science products and services. Information technology has also contributed to the rapid growth ofchanges. outsourcing which means The Second World War caused many management The ,massive and complicated problems perspective contracting out selected functions or activities to global other organisations that can do the work moremakers cost with outsourcing associated with mass-scale warfare presented managerial decision the need for A management perspective that emerged after the Contracting to out treat to another effectively. Today’s companies are outsourcing to free cash for in long-term research emerged more sophisticated tools than everupbefore. Theinvestment management science perspective Second World War and company of a function or and innovation. Outsourcing – along with such as supply management, customer statistics those problems. This other view trends is distinguished for itschain application of mathematics, andcould other applied mathematics, activity that be, or statistics and other management, telecommuting and virtual teamwork – requires that managers decide exactly produced relationship quantitative techniques to management decision making and problem solving. Duringwas thepreviously, war, groups quantitative techniques to in-house. what problems. they can do competitively and whatphysicists they should getting other were firmsformed to do via a series of supply of mathematicians, andbe other scientists to solve military problems. Because those managerial them available to employees, enabling better decision making and superior customer service. The use of CRM has virtually exploded over the past several years. In Bain & Company’s 2011 management tool 2.4 MANAGEMENT SCIENCE and partnering relationships. 2: THE EVOLUTION OF MANAGEMENT THINKING 65 S U P P LY C H A I N M A NAG E M E N T Important Key terms are marked in bold in the text and defined in the margin when they are used in the text for the first time. A full list of key terms is also available in the glossary, which can be found at the back of the book. Supply chain management refers to managing the sequence of suppliers and purchasers, covering all stagesDespite of processing, from obtaining raw materials to distributing finished goods the to consumers. productivity. flawed methodology or inaccurate conclusions, the findings provided impetus 77 EXHIBIT 2.7 illustrates a basic supply chain model. shaped A supplymanagement chain is a network multiple businesses for the human relations movement. This approach theoryofand practice for well and 78 that are connected the human flow of relations products is orthe services. Many organisations manage overindividuals a quarter of a century, and thethrough belief that best area of focus for increasing the supply chaintoday. with sophisticated electronic technology. In India, for example, Walmart managers productivity persists have invested in an efficient supply chain that electronically links farmers and small manufacturers T Hdirectly E HtoU the M stores, A N maximising R E S OUvalue R Cfor E both S Pends. E R79SHowever, P E C Ttoday’s I V Eglobal supply chains create The human relations movement initially espoused a ‘dairy farm’ view of management – contented Suppliers Manufacturers Distributors Retailers cows give more milk, and so satisfied workers will give more work. Gradually, views with deeper content began to emerge. The human resources perspective maintained an interest in worker ICONS participation and considerate leadership but shifted the emphasis to consider the daily tasks that people perform. The human resources perspective combines prescriptions for design of job tasks with theories of motivation.45 In the human resources view, jobs should be designed so that tasks are not perceived as dehumanising or demeaning but instead allow workers to use their full potential. Two of the best-known contributors to the human resources perspective were Abraham Maslow and EXHIBIT 2.7 Supply chain for a retail human resources organisation perspective A management perspective that suggests jobs should be designed to meet higherlevel needs by allowing workers to use their full potential. Douglas McGregor. Abraham Maslow (1908–1970), a practising psychologist, observed that his patients’ problems usually Flow of products stemmed from an inability to satisfy their needs. From this, he generalised his work and suggested a hierarchy of needs. Maslow’s hierarchy started needs andand progressed Source: Adapted from an exhibit from the Global Supplywith Chainphysiological Games Project, Delft University the Universityto of safety, Maryland,esteem R. H. Smith School of Business, www.gscg.org:8080/opencms/export/sites/default/gscg/images/supplychain_ belongingness, and, finally, self-actualisation needs. simple.gif (accessed 6 February 2008). Douglas McGregor (1906–1964) had become frustrated with the early simplistic human relations notions while president of Antioch College in Ohio. He challenged both the classical perspective See Chapter 16 for a more detailed discussion of Maslow’s ideas. and the early human relations assumptions about human behaviour. Based on his experiences as a manager and consultant, his training as a psychologist and the work of Maslow, McGregor formulated 7 : O R G A N I S AT I O N A L P L A N N I N G A N D G O A L S E T T I N G his Theory X and Theory Y, which are explained in EXHIBIT 2.4.46 McGregor believed that the classical perspective was based on Theory X assumptions about workers. He also felt that a slightly modified version of Theory X would fit early human relations ideas. In other words, human relations ideas 307 Linkage icons draw attention to connections between topics within individual chapters and across the text; an in-text reference adjacent to the icon directs you to the relevant material. did not go far enough. McGregor proposed Theory Y as a more realistic view of workers for guiding 7.7 management thinking. INNOVATIVE APPROACHES TO PLANNING The process of planning changes over time, like other aspects of managing, to become more in tune with shifts in the environment and employee attitudes. A fresh approach to planning is to involve everyone in TAKE A MOMENT the organisation, and sometimes outside stakeholders as well, in the planning process. The evolution to If you haven’t already completed the self-assessment at the start of this chapter that pertains to old- and a new-style new approach begins with shift How to decentralised planningassumptions , which means that planning work management, take ita now. will your management about people fit intoexperts an organisation today? with managers in major divisions or departments to develop their own goals and plans as is indicated in EXHIBIT 7.8. Managers throughout the company come up with their own creative solutions to problems and become more committed to following through on the plans. As the environment becomes even more The point Theory Ysee is that organisations can take advantageplanning of the imagination and of all volatile, topofexecutives the benefits of pushing decentralised even further by intellect having planning their employees. Employees self-control and contribute goalsplans whenthat given experts work directly withwill lineexercise managers and front-line employeestotoorganisational develop dynamic meet decentralised planning Managers work with planning experts to develop their own strategic plans. thefast-changing opportunity. A few organisations today still use Theory X management, but many are trying Theory needs. Y techniques. The Danish company, Oticon Holding A/S, brings out the creativity and enthusiasm of itsthe In a complex and competitive business environment, strategic thinking and execution become employees by operating from Theory Y assumptions. 55 expectation of every employee. Planning comes alive when employees are involved in setting goals and determining the means to reach them. The following sections provide some guidelines for innovative planning. EXHIBIT 7.8 Structural location of decentralised planning staff Managing Director Planning support staff members Division Heads Line Managers Finance Frozen foods Breakfast cereals Production Marketing Finance Production Canned goods Marketing Finance Production Marketing S E T ST R E T C H G OA L S F O R E X C E L L E N C E Stretch goals are reasonable yet highly ambitious goals that are so clear, compelling and imaginative that they fire up employees and engender excellence. Stretch goals are typically so far beyond the current levels that people have to be innovative to find ways to reach them. Consider the following example from Amazon.com. xviii GUIDE TO THE TEXT stretch goal A reasonable yet highly ambitious and compelling goal that energises people and inspires excellence. Entrepreneurship icons highlight discussion of contemporary entrepreneurship and related activities, such as innovation, throughout the text. 2: THE EVOLUTION OF MANAGEMENT THINKING 57 Between 1880 and 1920, the number of professional managers in the United States grew from 161 000 to more than 1 million, and similar growth occurred in other Western nations, such as Australia, the United Kingdom and New Zealand.21 These professional managers began developing and testing solutions to the mounting challenges of organising, coordinating and controlling large numbers of people and increasing worker productivity. Thus began the evolution of modern management with the classical perspective. This perspective contains three subfields, each with a slightly different emphasis: scientific management, bureaucratic organisations and administrative principles.22 INNOVATIVE WAY SAMSUNG – EXPERIENCING THE THRILLS AND UNCERTAINTIES OF INNOVATION Source: Alamy Stock Photo/dpa picture alliance Even massively successful companies occasionally trip over. The very nature of business involves taking risks in order to get returns. In this world of uncertainty and turbulence Gain an understanding of companies and managers at the forefront of innovation in the field of contemporary management practice in both an Australian and global context from the Innovative way boxes. only one thing is certain: that not everything your company tries will work to plan. Even generally successful companies such as Samsung have had significant problems, including episodes of exploding batteries in their Galaxy Note7 mobile phones, as well as fatal errors with a waterproofing fault in some Samsung top loader washing machines that has caused the machines to catch alight and burn down homes. The subsequent massive recall was very expensive for Samsung, with the direct cost of abandoning the Galaxy Note7 phone reaching AU$3.9 billion and damaging the company’s reputation. Both the original and replacement Galaxy Note7 mobile phones were recalled and any further production of the Note7 costly mistakes, although this proved not to be so with the benefit of hindsight. Even if these products are successful, they provided ample illustration of the potential downsides of making massive investments in innovative new products was halted. Samsung wisely realised that consumers would most likely not trust a third incarnation of the Note7. With lowered consumer confidence in Samsung products, other Android competitors, such as Sony (e.g. Xperia XZ), Huawei (e.g. Mate 8), and Google (Pixel XL), are likely to see a small sales boost that have no guarantee of success. Sony has a great track record with Walkman, Discman and the first three models of Playstation. Companies like Sony need to keep on delivering a stream of breakthrough products to fuel continued growth and this presents great challenges and opportunities for on the back of the Note7 recall. Despite the worldwide recall, Samsung is still the biggest player by a huge margin in the up-and-coming managers. It requires effective investment in research and technology, and the ability to commercialise Android world, with its other phones, the Galaxy S7 and S7 Edge, unaffected by the issues associated with the Note7. Other examples of high-risk ventures include Microsoft’s Vista and Apple’s iPhone, which were clearly risky at the inventions (such as the recently launched Playstation 4). Sony’s reputation as market leader in its industries has been strongly challenged by newer players such as Samsung of Korea, which has aggressively attacked its ‘leadership’ time they were developed and may have ended up being market position, with considerable success. Sources: Adapted from Kidman, A. (12 October 2016). The Note7 is dead, but what does Samsung do now? Sydney Morning Herald, http://www.smh. com.au/technology/mobiles/the-note7-is-dead-but-what-does-samsung-do-now-20161012-gs0c92.html (accessed 24 October 2016); Han, E. (27 July 2016). Samsung admits to washing machine recall error that led to fire. Sydney Morning Herald, http://www.smh.com.au/business/consumer-affairs/samsungadmits-to-washing-machine-recall-error-that-led-to-fire-20160726-gqe7sb.html (accessed 24 October 2016); Schlender, B. (5 March 2007). Fortune, 26. INNOVATIVE WAY Twitter and square Ch 01, p. 6 Flight coordination Ch 10, p. 434 Budget blockbusters Ch 01, p. 16 Procter & Gamble Ch 11, p. 464 Clickcorp: Taking Ugg to the world Ch 01, p. 35 General Electric’s work out Ch 11, p. 472 Staying in the picture: Ted’s cameras Ch 11, p. 474 ENSR Ch 11, p. 477 Anglo American plc. Ch 12, p. 492 Taj Mahal Palace, Mumbai Ch 12, p. 510 Google Ch 13, p. 546 Women in IT Ch 13, p. 555 Innovation in a software business Ch 14, p. 578 eHarmony Ch 14, p. 583 Level 5 leadership at work Ch 15, p. 620 Charismatic leadership Ch 15, p. 639 Flexible work policies Ch 16, p. 670 Prudential UK and Europe Ch 16, p. 690 Virtual brainstorming Ch 17, p. 712 Cisco systems Ch 17, p. 717 Amgen Inc. Ch 17, p. 718 Tupperware Nordic Ch 17, p. 722 Spring company Ch 18, p. 753 McDevitt Street Bovis Ch 18, p. 769 7-Eleven Ch 19, p. 799 Campbell soup Ch 19, p. 804 The global success of eBay Ch 19, p. 812 Dell’s electronic communication systems Ch 20, p. 841 AGL Ch 20, p. 851 GE people/talent management Ch 21, p. 873 Samsung – experiencing the thrills and uncertainties of innovation Ch 02, p. 57 UPS: Leading the world in parcel delivery Ch 02, p. 61 Semco: Giving power to the employee Ch 02, p. 67 Morning star Ch 02, p. 81 Shopping online, even for cars Ch 03, p. 105 Costco’s winning formula Ch 03, p. 110 Zappos family Ch 03, p. 121 Hollywood studios Ch 04, p. 156 Gap Inc Ch 05, p. 199 Cultivating a service mindset Ch 05, p. 209 Google Ch 05, p. 210 Fast-growing companies: what are they like? Ch 06, p. 235 Planning for a bigger Toll Ch 07, p. 300 Jetblue Ch 07, p. 306 The birth of the Kindle Ch 07, p. 308 Amazon Prime Ch 08, p. 326 Dell Technologies Ch 08, p. 331 Facebook Ch 08, p. 334 Focuses innovation in marketing Ch 08, p. 345 The Dodo is not extinct! Ch 08, p. 350 Bremen castings Ch 09, p. 368 The New York Times Ch 09, p. 381 Caterpillar Ch 10, p. 408 Teams work at Imagination ltd. Ch 10, p. 425 GUIDE TO THE TEXT xix CASE STUDIES xx Switching to greenpower Ch 02, p. 51 Brumby’s Bakeries cooking along Ch 02, p. 70 Atlassian: supporting collaboration and innovation Ch 02, p. 77 Growing a business from scratch: lavender! Ch 03, p. 109 Green power Ch 03, p. 122 McDonald’s Ch 03, p. 126 The axis of India Ch 04, p. 148 A leadership dilemma at Timberland Ch 05, p. 204 A crisis to milk Ch 05, p. 212 Cleanevent (division of Spotless Group) Ch 06, p. 237 Competitive innovation in the mining industry Ch 06, p. 243 Wesfarmers Ch 06, p. 244 The high and lows of franchising entrepreneurship Ch 06, p. 257 Franchises in Australia and New Zealand Ch 06, p. 258 Planning and implementing the infrastructure of the future Ch 07, p. 293 Siemens Ch 07, p. 295 MYOB Ch 08, p. 325 Apple Inc.’s strategy: much more than iPod, iPhone, iPad and Mac Ch 08, p. 327 H&M Ch 9, p. 370 Strida Bicycles: a globally networked company Ch 10, p. 429 Building a better mouse … Ch 11, p. 454 General Electric Ch 11, p. 468 A mini crisis of culture and performance Ch 11, p. 478 Container Store Ch 12, p. 503 VIVO Cafe: all in the family … the business is people Ch 12, p. 516 Biotechnology companies in turbulent environments and challenging times Ch 12, p. 521 Steve Jobs and Apple Ch 14, p. 588 News Corporation Ch 15, p. 629 Managing motivation at Degussa Peroxide Ltd Ch 16, p. 660 Nintendo Wii U: coping with fierce competition in the world’s video game market Ch 16, p. 667 Outback Steakhouse Ch 16, p. 673 General Electric Ch 17, p. 714 Susan Williams Ch 17, p. 729 The team’s the thing Ch 18, p. 746 The Aconex team in Melbourne Ch 18, p. 754 Espresso Ch 18, p. 761 Semco’s open-book policy Ch 19, p. 806 A lesson in quality from China Ch 19, p. 808 The honeybee style Ch 19, p. 810 Managing the professional services firm Ch 20, p. 829 IKEA Ch 20, p. 839 ‘Heartfelt Leadership’ pays off at Toyota Ch 21, p. 869 Google (Alphabet Inc.): a great place to search – and work Ch 21, p. 874 Values can come from Mars Ch 21, p. 884 GUIDE TO THE TEXT Obtain an understanding of how leading practitioners are applying management theory from the real-world examples in the Case study boxes. 2: THE EVOLUTION OF MANAGEMENT THINKING discouraged. How different things are today! Many organisations depend on employees’ minds more than their physical bodies. In companies where the power of an idea determines success, managers’ primary goal is to tap into the creativity and knowledge of every employee. CASE STUDY ATLASSIAN: SUPPORTING COLLABORATION AND INNOVATION One company that has successfully tapped into the growing trend to work in virtual teams is Australian software firm Atlassian, which has designed software products to support collaboration among its team members. When cosmetic giant Lancôme looked to find a more effective way of coordinating the work of in-house and freelance web developers with creative staff from around the globe, they introduced Atlassian’s JIRA application. JIRA enables all team members to share access to the same information and track development changes, thus reducing confusion and costly time delays. It is a program that enables contributors to work cooperatively, view and participate in idea generation and make instant changes. This all speeds up the development process, allows ideas to be captured quickly and assists in new product innovation. With the company’s engineers being geographically displaced, the need for back and forth emails and the worry of trying to arrange meeting times across continents and time zones added to communication issues for Lancôme. JIRA improves collaboration and quickens the process of software development. Lancôme was so satisfied with how it enhanced their web development and the increased sales on their websites that they intend to roll it out to other divisions of the company. Around the world, over 60 000 companies rely on Atlassian to improve software development, project management, collaboration and code quality. Atlassian’s software supports a more technology driven workplace and a burgeoning desire to find ways to enhance intellectual capital and enable knowledge sharing. Another of their programs, called Confluence, is designed especially to prevent tacit knowledge being trapped in a person’s email inbox where it may not be accessed or even known to others who need the information. Being able to share knowledge and manage knowledge can often be a challenge for a large company, where the doubling up on the search for information can create costly delays and inhibit speedy decision making. Atlassian’s customers include Citigroup, eBay, NASA and Microsoft; in fact, more than 85 per cent of Fortune 100 companies are users of Atlassian products. Co-founders Scott Farquhar and Mike Cannon Brookes recognise that their ability to produce innovative new solutions for their customers’ problems is through Atlassian’s own capacity to attract and retain the best software engineers and have a company culture that encourages risk taking and collaboration. Their now famous ‘ShipIt’ days where employees are given 24 hours in which to problem solve, develop and pitch a new idea has resulted in the creation of 550 internal projects. One idea for a testing tool has collected more than US$2 million in sales. The management support and encourage risk taking and learning, and they value their employees’ ability to think creatively as they see this as an opportunity to keep an edge on their competitors. The company’s priority has been to create knowledge sharing among employees and cooperation with their customers through building strong relationships. They have even hosted a ShipIt day for one collaboration between employees. Many big companies now use a range of Atlassian products to assist them in managing of their customers Nintendo, to encourage the same sort of innovation and creativity that Atlassian has enjoyed. Sources: Atlassian (2013), http://www.atlassian.com (accessed 22 March 2012); Nintendo Named Winner of Atlassian’s 24-Hour FedEx Day Innovation Campaign, http://www.atlassian.com/it/company/press/press-releases/Nintendo-Named-Winner-of-Atlassians-24-Hour-ShipIt-Day-Innovation-Campaign (accessed 15 May 2013); ‘Atlassian’ (9 September 2012), http://www.atlassian.com/en/company/press/press-releases/new-atlassian-marketplace-surpassed1-million-in-transactions (accessed 14 May 2013); Geron, T. (3 March 2012). We’re All Coders. Forbes, 189:4, 44–6, http://www.forbes.com/forbes/2012/0312/ technology-software-atlassian-australian-all-coders.html (accessed 14 May 2013); Smith, F. (8 November 2012). Is Atlassian the Coolest Company in Australia? Business Review Weekly, http://www.brw.com.au/p/sections/features/is_atlassian_the_coolest_company_877SCYxXLwl7N9cNiMF6vJ (accessed 14 May 2013); http://www.atlassian.com/software/confluence/overview/team-collaboration-software (accessed 15 May 2013); Atlassian (2017) Customers, https://www.atlassian.com/customers?page=1&sortParam=date_created%20desc (accessed 20 February 2017). 77 make self-sacrifice for the sake of a larger purpose an increasingly beneficial characteristic. In one study, Grant found that the single biggest predictor of a team’s effectiveness was the amount of help and support that members gave to one another. Grant says that, in the past, takers (people who put their own interests first) could climb to the top over the backs of givers, but that is changing as the nature of work has shifted. For example, Howard Lee, who was heading the South China office for Groupon, received a flood of applications for sales jobs. By searching social media, he could identify that some candidates had a pattern of self-serving behaviour. He quickly weeded those out and focused on the applicants who demonstrated a track record as givers.49 The shift toward admiring and rewarding givers over takers can bring significant positive changes within organisations. The simple categories of giver and taker help people understand how they might contribute to or detract from an organisation’s ethical culture. MANAGEMENT IN PRACTICE GUIDELINES FOR ETHICAL DECISION MAKING 132 If a 60 Minutes crew was waiting on your doorstep one ✚ Is the action you are considering legal? Is it ethical? If you are morning, would you feel comfortable justifying your actions not sure, find out. to the camera? One young manager, when confronted with ✚ Do you understand the position of those who oppose the PA Rethical T T W Odilemmas, : T H E E N V I gives R O N M them E N T Othe F M ‘60 A N AMinutes G E M E N Ttest’. Others action you are considering? Is it reasonable? say they use such criteria as whether they would be proud ✚ Who does the action benefit? Who does it harm? How much? to tell their parents or grandparents about their decision, or For how long? whether they could sleep well at night and face themselves in ✚ Would you be willing to allow everyone to do what you are the mirror in the morning. Managers often rely on their own considering doing? personal integrity in making ethical decisions. But knowing TAKE A MOMENT ✚ Have you sought the opinion of others who are what to do is not always easy. As a future manager, you will Consider an organisation in which you have worked, been a repeat customer, or for some other reason knowledgeable on the subject and who would be objective? surely face ethical dilemmas one day. The following guidelines been able to closely observe the workplace culture. Describe that culture, and consider how it developed will not tell you exactly what to do, but taken in the context of ✚ Would your action be embarrassing to you if it were made and has been led to its current state. the text discussion, they will help you evaluate the situation known to your family, friends, co-workers or superiors? more clearly by examining your own values and those of your There are no correct answers to these questions in an organisation. The answers to these questions will force you absolute sense. Yet, if you determine that an action is potentially to think hard about the social and ethical consequences of harmful to someone or would be embarrassing to you, or if you REMEM B ER THIS your behaviour. do not know the ethical or legal consequences, these guidelines will help you clarify whether the action is socially responsible. ◗ Managers create and sustain adaptive high-performance cultures through cultural leadership. are not sure, find out. ◗ Cultural leaders define and articulate important values that are tied to a clear and compelling mission, SOURCE: Pagano, A. M.through and Verdin,their J. A. (1988), The External Environment of Business, Chap. 5. New York: Wiley. which they communicate widely and uphold actions ✚ Is the problem or dilemma really what it appears to be? If you MANAGEMENT IN PRACTICE Analyse practical applications of management concepts in the Management in practice boxes which highlight specific aspects of management and offer in-depth, practical advice about how to address them in a work context. UNLOCKING INNOVATIVE SOLUTIONS THROUGH PEOPLE – IT IS POWER (AND RESPONSIBILITY) TO THE PEOPLE Feeling all too burdened by responsibility, 24-year-old Ricardo Semler created a new vision for the culture of his family’s business in 1983, while recuperating from a stress-related illness. When Semler had taken over Brazil-based Semco Corporation from his father in 1980 as a freshly minted Harvard MBA (one of the youngest ever to earn the prestigious degree), the company was manufacturing equipment for a Brazilian shipbuilding industry that was in abysmal shape. As Semco’s president and majority owner, Semler fired most of the top management and used a series of strategic acquisitions to steer the company into more viable markets. Ironically, as the company’s fortunes began to revive, Semler’s own health took a nosedive. As he lay in a hospital bed, Semler had a vision for a new way to manage – by relinquishing control to his employees. Thus began a five-year process of building a radically democratic culture based on open information and employee participation. Semler started modestly – letting employees choose their uniform colour, for example – and eventually moved to the creation of egalitarian project teams that had complete responsibility for particular projects, total authority regarding how to perform them, and the opportunity for team members to pocket a substantial percentage of any profits generated. Today, self-directed teams form the basis of the company’s loose, flexible organisation structure. People typically have a chance to choose what projects they will work on, based on how they think they can best make a contribution. Semco uses few job titles and only three management levels: counsellors (the name Semler now goes by); partners; and associates. The CEO position rotates every six months among the counsellors. Workers set their own hours, elect and evaluate supervisors, and have major input into how they are compensated, with some actually setting their own pay rates. All financial information, including salaries, is available to everyone, and any employee is eligible to attend any meeting, including board meetings, where two seats are reserved for employees on a first-come, first-served basis. The result of applying these rather radical cultural values is that Semco has not only survived but prospered in Brazil’s often chaotic economic and political climate. The conglomerate now produces a diverse range of products and services, from manufacturing giant oil pumps to participating in mail processing joint ventures. Its revenues grew from US$4 million in 1982 to approximately US$240 million recently. ‘It’s about competitive advantage,’ Semler says. ‘Once you stop trying to control employees,’ he insists, ‘you release the powerful twin forces of self-discipline and peer pressure. Performance becomes the only criterion for success.’ At Semco, treating employees like responsible adults is just good business. With this MANAGEMENT IN PRACTICE Do you really want to be a manager? Ch 01, p. 27 Change your frame Ch 13, p. 542 Time management tips for new mangers Ch 01, p. 28 Getting the right fit Ch 14, p. 571 Management tools and trends Ch 02, p. 75 The rise of the introverted manager Ch 14, p. 585 Creating Guanxi in China Ch 03, p. 102 How to delegate Ch 15, p. 632 Are you a charismatic leader? Ch 15, p. 638 How to utterly destroy motivation Ch 16, p. 663 Unlocking innovative solutions through people – it is power (and responsibility) to the people Ch 03, p. 132 Challenging the boss on ethical issues Ch 05, p. 194 The carrot-and-stick controversy Ch 16, p. 683 Guidelines for ethical decision making Ch 05, p. 196 Gender differences in communication Ch 17, p. 707 Why start-ups fail Ch 06, p. 252 Leaping over the language barriers Ch 17, p. 732 Who sets the goals? Manager versus coalition Ch 07, p. 288 How to be a great team leader Ch 18, p. 758 Will strategy ever be the same? Ch 08, p. 330 Team leader qualities Ch 18, p. 766 Evidence-based management Ch 09, p. 387 Quantify yourself Ch 19, p. 790 How to delegate Ch 10, p. 410 A German factory shows how to be fast and flexible Ch 20, p. 834 Would you like to work in your pyjamas? Ch 10, p. 430 Putting performance dashboards to work Ch 20, p. 845 Use six thinking hats for better ideas Ch 11, p. 459 The right way to interview a job applicant Ch 12, p. 507 Two useful theoretical frames: resources and capabilities Ch 21, p. 865 GUIDE TO THE TEXT xxi AUSTRALIAN MANAGER PROFILES Noreen Kam, National procurement manager, Silliker Australia Ch 02, p. 67 Justin Pierce, Cotton On group Ch 3, p. 119 Glenn Barnes, Chairman Ansell ltd. and Australian Unity ltd Ch 4, p. 153 Susan Mizrahi, Human rights advocate Ch 05, p. 202 Laura Mae Davey, Founder and director of Maer snowboarding Ch 06, p. 265 Meet real Australian managers in the Australian manager profiles and gain an insight into some of the organisation challenges that Australian managers have had to overcome in their careers. Maureen and Tony Wheeler, Co-founders, Lonely Planet Ch 07, p. 284 Publications James Campbell, Biotech executive Ch 08, p. 338 Grant Anderson, Chief executive officer, the ANACA Group Ch 09, p. 379 Rachael Robertson: Leadership lessons from the world’s toughest workplace Ch 10, p. 417 Yanna Talpis, Business development consultant Ch 11, p. 457 Nadine Boghdadi, Manager partnership development, strategy & business optimisation Ch 14, p. 597 Aston Ladzinski, Continuous improvement lead Ch 15, p. 637 Rockio Bustinza, From engineer to manager Ch 16, p. 679 Jane Evans, Program manager Ch 17, p. 730 Peter Richardson, Invention is singular; innovation is plural 284 P A R T T H R E E : P L A N N I N G Ch 18, p. 751 Justin Ryan, Head of logistics Ch 19, p. 793 Richard Goyder,17Managing director of Wesfarmers Ch 21, p. 872 per cent, managers will have exceeded their prescribed standard. The overall planning process prevents AUSTRALIAN MANAGER PROFILE When they began producing a travel guide, Maureen and Tony Wheeler did not realise that it would bloom and grow into a significant corporate empire from its base in Melbourne (see http://www. lonelyplanet.com). MAUREEN AND TONY WHEELER, CO-FOUNDERS, LONELY PLANET PUBLICATIONS After arriving in Sydney with 27 cents and a passion for travel, Maureen and Tony Wheeler started Lonely Planet Publications in 1973 in a basement flat. Since then, Lonely Planet has become a powerful brand right across the world, having printed over 100 million books in nine languages. The company’s website, http:// www.lonelyplanet.com, has become a gathering point for global travellers, and the business is now a mature success story. From its humble origins, Lonely Planet became the acknowledged leader in travel publications. In publishing, you pay for everything upfront – shipping, printing and research. There is a wait of months for a return on investment. The Wheelers’ operation grew from a do-it-yourself business to a global enterprise, with at one point over 450 staff working around the world and 200 authors contributing. Lonely Planet products have expanded to include phrasebooks, travel maps, pictorials, travel literature and reference books. The website receives millions of visitors per month and its active Thorn Tree forum receives 100 000 new posts each month. The books are now sold in many languages including French, Italian, Spanish, German, Chinese, Korean and Japanese. In reflecting on the company’s early life, Tony Wheeler says: ‘When Maureen and I put together Across Asia on the Cheap – that first amateurishly produced guidebook to kicking around Asia – we had no idea we were starting on the long road to running an amazingly successful business. First of all, we had a very good idea. Of course, we didn’t realise at the time how clever we’d been – so clearly there was a major element of luck in that good idea. Secondly, once we’d had that good idea we ran with it for all we were worth; the 1 per cent inspiration was definitely followed by the 99 per cent perspiration. Then, when our dream began to take wing, we haven’t been afraid to let other people take the controls; in fact we’ve welcomed that because flying isn’t all fun and I’m only too happy to escape from the routine. ‘Way back down the evolutionary scale you can forget the little details. Will it fly or is it going to crash is all that matters. I’ve never been afraid to have a go at things; if it was something that I felt was going to work we’d try it. Gut feeling has always been just as important as careful analysis.’ In 1984, Lonely Planet opened its US office. In the late 1980s, it opened an office in England serving Africa, Europe, the Middle East and Great Britain. In late 2007, the Wheelers sold a majority interest in the Lonely Planet business to BBC Worldwide, the main commercial arm of the British Broadcasting Corporation (BBC). The company has moved forward and embraced digital media, continuing to lead its industry. In 2011 BBC Worldwide took total control of the company when the Wheelers sold their remaining 25 per cent share for $67 million. Both Maureen and Tony still travel and are concerned with charitable causes. Their Planet Wheeler Foundation, which is funded solely by the two of them, supports educational and health projects in developing countries. SOURCES: Lonely Planet website, http://www.lonelyplanet.com (accessed 21 December 2013); Sweney, M. (21 February 2011). BBC to Buy the Rest of Lonely Planet. http://www.theage.com.au/business/bbc-to-buy-the-rest-of-lonely-planet-20110220-1b112. html (accessed 19 March 2014). 1 0 : D E S I G N I N G O R G A N I S AT I O N S T R U C T U R E The Antarctic winter is harsh – temperatures hover around minus 35 degrees Celsius, there are constant blizzards, months of darkness, and you can’t get in or out of the place. Work becomes tedious and you know that nothing will change until the resupply ship arrives, a distant nine months away. It sounds extreme. But the reality is every workplace has an Antarctic winter. Every business has a period of time where the work slows down and work is just work. Three tools kept my team inspired, motivated and resilient through the long Antarctic winter. ✚ No triangles. The practice of only having direct conversations built respect within my team and resulted in very high performance. We had a simple rule: ‘I don’t speak to you about him, or you don’t speak to me about her’. No triangles; go direct to the source. It is a powerful tool that reduces conflict and clarifies accountability. It ensures you deal with the important issues and avoid wasted time handling personal disputes that simply burn energy. ✚ Manage your bacon wars. A major dispute once threatened to shut down the station: Should the bacon be soft or crispy? Your workplace will have Bacon Wars. They are seemingly small, irrelevant issues that grate on people but build up until they become distractions and affect productivity. It may be dirty coffee cups, people who are consistently late for meetings, people playing on phones while someone is talking – they are offences that appear to be small but are often a symptom of a deeper issue. We must identify and probe our Bacon Wars, find out what’s underneath and resolve it quickly. If left and ignored, small problems will fester and undermine all the good things you are doing. AUSTRALIAN MANAGER PROFILE ✚ Respect trumps harmony. My expedition team was the most diverse team I had ever worked with. I didn’t recruit them, I was handed them. We were from vastly different backgrounds and a mix of professions including scientists, engineers, IT, trades, pilots and weather specialists. The interpersonal pressure was intense and privacy was scarce. It was impractical to think we’d all get along with each other all the time. Instead of ‘happy families’, we aimed for respect. Simple, professional courtesy and respect. Striving for a harmonious workplace is dangerous for two reasons. First, dysfunctional behaviour doesn’t disappear, it just goes underground, so the illusion of harmony remains. Second, it stifles innovation. People are often too afraid to put up their hand and offer a different view because they don’t want to rock the harmony boat. So, in your team, aim for respect, because ‘respect trumps harmony’, every time. 417 Source: Courtesy Rachel Robertson from Lonely Planet Publications © 2008. Source: Reproduced with permission managers from thinking merely in terms of day-to-day activities. When organisations drift away from goals and plans, they typically get into trouble. RACHAEL ROBERTSON: LEADERSHIP LESSONS FROM THE WORLD’S TOUGHEST WORKPLACE SOURCE: Rachael Robertson (MBA, Melbourne), author, professional speaker and mentor. xxii GUIDE TO THE TEXT ADVANTAGES DISADVANTAGES Efficient use of resources, economies of scale Poor communication across functional departments In-depth skill specialisation and development Slow response to external changes, lagging innovation Career progress within functional departments Decisions concentrated at top of hierarchy, creating delay Top manager direction and control Responsibility for problems is difficult to pinpoint Excellent coordination within functions Limited view of organisational goals by employees High-quality technical problem solving Limited general management training for employees EXHIBIT 10.5 Advantages and disadvantages of functional structure END-OF-CHAPTER FEATURES 218 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T ◗ deep practices that achieve genuine improvements in sustainable development outcomes, rather than superficial tick-a-box efforts ◗ mature, leading-edge approaches that offer the best available value proposition for the business on the scale from comply through to transform ◗ well-integrated with other business practices, thus promoting efficiency and effectiveness in At the end of each chapter you will find several tools to help you to review, practise and extend your knowledge of the key learning objectives. implementation. 220 1 2 Sustainable development section describe aspects of sustainability that are relevant to the management concepts described in each chapter. Challenge the theory you have learned by considering the Discussion questions, perhaps in group discussion. PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T Explore the real-world ethical issues faced by managers in the Ethical challenge boxes. 4 Expand your teamwork and analytical skills with the Group challenge activities or exercises, suitable for tutorials. 5 Analyse in-depth real-world management cases with the Case for critical analysis. Each case concludes with a set of questions that encourage you to sharpen your diagnostic skills for management problem solving. 6 7 Deepen your understanding of the practical application of management theories using the on the job video cases. These ask questions about the videos located on the Management CourseMate Express. The Continuing case at the end of each Part offers a running description of the ongoing management issues faced by one organisation. Each case segment relates to the management topics described in the preceding Part. Australian organisations face a wide range of ethical challenges. ◗ Sustainability involves economic development that generates wealth and meets the needs of the current population while preserving the environment for the needs of future generations. Australian stakeholders are increasingly requiring higher standards of ethical and responsible behaviour from managers than ever before. Australian companies have increased the attention that they are paying the environmental and Monsanto has ◗published a pledge to stakeholders and ◗ conserving resources throughto developing seeds and traits bottom lines of their organisations. measures itself againstsocial this pledge: that use one-third fewer key resources per unit of output to we want to◗make the world amany betterchallenges place for future growofcrops while working lessenashabitat lossofand improve In Australia, exist in the domain managerial ethics,tosuch conflict interest. generations. As an agricultural company, Monsanto water quality can do this best by providing value through the ◗ helping improve the lives of all farmers who use our products and systems we offer to farmers. With the products, including an additional five million people in growth of modern practices that It is notagricultural possible to specifyand onecrops single formula that connects sustainable practices to businessinsuccess. resource-poor farmdevelopment families by 2020. And specifically SUSTAINABLE generate ever increasing yields, are helping Further, there is nowe definitive set farmers of sustainable development practices, there a single persuasive argument or Australia, support nor the is long-term viability of rural communities DEVELOPMENT around the motivation world to create a better future for human for embarking on them. However, it is possible to recognise the high-level framework for sustainable for future generations. TAKING beings, the environment, economies. development and thatlocal is common to advanced companies.Sources: From Wheeler, our observations, that are successful: D., Colbert, B. companies and Freeman, R. E. (Spring 2003). Focusing on MANAGERIAL Monsanto’s long term vision and sustainability strategy is that Value: Reconciling Corporate Social Responsibility, Sustainability, and a Stakeholder 1. review, recognise and acknowledge the company’s sustainability orientation as it develops as an integral part of ACTION by ON2030, Monsanto Approach in a Networked World. Journal of General Management, 28:3, 1–28; Post, globally commits to help farmers produce the business strategy and culture SUSTAINABLE J. E., Preston, L. E. and Sachs, S. (Fall 2002). Managing the Extended Enterprise: more and conserve more by: The New Management Review, 45:1, Fritsch, P. and DEVELOPMENT 2. canvass their specific sustainable development issues andStakeholder. businessCalifornia activities for opportunities to6–28.; make beneficial Mapes, T. (5 April 2005). Seed Money; In Indonesia, a Tangle of Bribes Creates ◗ developing improved seeds and traits that help farmers changes (implement sustainable development practices) Trouble for Monsanto. The Wall Street Journal; Monsanto website, http://www. double yields from 2000 levels for corn, canola, soybeans monsanto.com.au/sustainable_agriculture/default.asp,http://www.monsanto.com. 3. analyse the potential for these sustainable development practices to contribute to one or more of three and cotton, with a US$10 million grant also pledged to au/who_we_are/our_pledge.asp. strategic business requirements, namely stakeholder support, efficiency and market edge improve wheat and rice yields globally 4. choose, develop and implement their unique set of sustainable development practices 5. measure progress, adapt, review and extend their sustainable development practices within an evolving business environment, strategy, culture and business practice set. In short, companies can make the most of their sustainable development practices, not simply by reacting to a single stimulus like managing compliance 5 : E T H I or C Sprotecting , S O C I A L Rtheir E S P reputation. O N S I B I L I T YRather, A N D Sa Ustronger S TA I N A argument B L E D E V Efor L O Psustainable MENT 221 development practices rests in the creation of business advantage and innovation. DISCUSSION QUESTIONS 1 ownership. What is your opinion of this explanation in terms of Is it reasonable to expect that managers can measure their social ethics and social responsibility? and environmental performance on the same level as they measure financial performance with a triple bottom line? Discuss. 6 2 job applicants? Discuss. Imagine yourself in a situation of being encouraged by colleagues to inflate your expense account. What factors do you think would influence your decision? 8 4 Is it socially responsible for organisations to undertake political activity or join with others in a trade association to influence the WHAT RIGHT? ETHICAL CHALLENGE c government? work with the bosses on a plan toIS recognise the company’s Discuss. error andatset up abanks schedule rebates that would not 5 Managers some andof mortgage companies haveunduly argued penalise the company. mortgages was based on their desire to that providing It is often hard for a subprime manager to determine what is ‘right’ 6 even In give thismore morning’s mail, you received plans andinsamples for aofpromising poordifficult people ato chance to participate theinto dream home and put ethical behaviour practice. new product fromorientation a competitor’s disgruntled You: A manager’s ethical often brings employee. him or her into a with throw the plans away customers or bosses. Consider the conflict people, policies, b send the samples your research department following dilemmas. Howtowould you handle them?for analysis notify your competitor whatan is excellent going on record confides 1 Acwell-liked member of yourabout staff with thehepolice. todyoucall that has acquired immune deficiency syndrome (AIDS). A noted business executive once said, ‘A company’s first obligation is to be profitable. Unprofitable enterprises can’t afford to be responsible’. Discuss whyDo you agree or disagree withof this theirsocially own. Why might this happen? you believe being more statement. a ‘giver’ than a ‘taker’ will translate into greater career success for 7 Domanagers? you believe that it is ethical for organisational managers to try these Discuss. to get access to and scrutinise the Facebook pages of employees or In September 2013, Tokyo Electric Power Company (Tepco) reported contaminated water leaking fromthan a storage 10 Many peoplehighly think cheating is more common today it was atank at the Fukushima nuclear powerisplant in or thedoes March 2011 decade ago. Do you think cheating morecrippled common, it just ART TWO: THE ENVIRONMENT OF MANAGEMENT 222 P earthquake seem so? Why?and tsunami. From what you know of the ongoing disaster,studies discussthat theshow various stakeholder groups that 11 ThisFukushima chapter described that people work harder respond to in order to handleofthis latest crisis. and Tepco better should for managers who put the interests others above 3 3 R EMEMBE R THIS ◗ ◗ Which do you think would be more effective for shaping longterm ethical behaviour in an organisation, a written code of ethics combined with ethics training or strong ethical leadership? Which would have more impact on you? Why? 9 The technique of stakeholder mapping lets managers classify which A D D Istakeholders TI ONA L QUE STI ONS they consider more important and will invest more 1 time to satisfy.described Is it appropriate for management to define some Use theinguidelines in Management in practice, ‘guidelines stakeholders as more important than others? Should allbehaviour stakeholders ethical making’ to on determine the data appropriate Afor report youdecision completed, based inaccurate she provided, be considered in these cases. Doequal? you have all the information youasks need to for make has been criticised by management. Your manager you an an ethical decision? How would family or friends react to each explanation. You: youthe were in these situations? a alternative apologiseif for inaccuracies and correct the data tell your manager that the data supplied your colleague was 2 bWhich approach to ethical decision making by – utilitarian, the source of the problem individualism, justice or moral rights – seems most appropriate for c handling say your colleague has a problem and needs support these situations? Although his illness has not affected his performance, you are d tell your manager that because of your work load, you did not SOURCES: Game developed Nelson, K. (Spring 1990). the Boardreactions Games. OwenofManager, C. andtime Rice, D.to (December 1991).figures Office Ethics. Working Woman, 35–9; Kelly, K. and Weber, J. concerned about his futurebyhealth and about his 14–16; Dreilinger,have check the in the report. (20 May 1991). When a Rival’s Trade Secret Crosses Your Desk. BusinessWeek, 48. co-workers. You: 4 Your firm recently hired a new manager who is at the same level a tell him to keep you informed about his health and say nothing you are. You do not like the man personally and consider him a to his co-workers rival professionally. You run into a friend who knows your rival b arrange for him to transfer to an area of the organisation where well. You discover this man did not attend Sydney University, as he he can work alone GROUP CHALLENGE ETHICS AND BUSINESS COSTSstated on his résumé, and that he in fact has not graduated from c hold a staff meeting to inform his co-workers and ask them any institution. You know his supposed university background was how they feel about his continued presence on your team instrumental in getting him hired. You: Your group is theresources leadershipofficer team on of ahow company called suppliers would not bear those costs. So you are stuck in the middle d discussion consult your human to proceed. a expose the lie to your superiors Furniture Imports, which imports andstaff dining suites from between a customer who is holding to high ideals and suppliers who 2Aussie During a reorganisation, you are told lounge to reduce in the b without naming names, consult your human resources officer China and Vietnam and sells After them analysing to Australian retailers. Your biggest will not comply. Switching suppliers will lead to higher costs and cut department you manage. staffing requirements, you on how to proceed customer has job recently sent letter ifoftwo demand requiringwho thatare you your profitability to the bone. What policy will you adopt? Generate realise the would be you a lotaeasier professionals, c say nothing – the company obviously failed to check him out, provide with60, documentary evidence some alternative responses to your customer’s demand and evaluate both them over age would retire. You: that all the furniture you and the lie probably will surface on its own sellathem from thatlay-offs apply high standards of ethics, these, before making a decision. (This exercise is based closely on a saycomes nothing andfactories determine based purely on d confront the man with the information and let him decide workplace health and safety, and environmental performance. This is real situation, one that is becoming increasingly common in Australian performance and length of service what to do. a noble ideal, buta itmeeting costs extra do these things,and andask those foreign b schedule withtoboth employees if they would 5businesses.) During a changeover in the accounting department, you discover consider early retirement your company has been routinely overcharging members of the c schedule a meeting with all staff and ask if anyone is interested public for services provided to them. Your superiors say repayment in severance or early retirement of charges would wreak havoc on company profits. Your bosses d lay off the older workers. say the problem will never come to light and they will take steps to One ofFOR yourCRITICAL colleagues has recently experienced personalINTELLIGENCE? correct the problem so it never happens again. You: TOOtwo MUCH CASE ANALYSIS tragedies her husbandANALYSIS filed for divorceSHARPSTYLE and her mother died.SALONS a make the matter public, anonymously or otherwise CASE FOR –CRITICAL 3 Although you feel genuine sympathy for her, her work is suffering. The rapid growth of InPace Solutions occurred in no small part because b say nothing – it is now in the hands of the bosses InPace organisation. Awareness that some competitor sat on the verge of of sales managertakes Ken Bodine skills of savvy youngfor sales Jamie Westbrook pride inand herthe position asthe salon manager team he had assembled. prided himself on finding andthe hiring top SharpStyle Salon, one of aBodine chain of hairdressing salons under Gold a big sale always stirred Bodine’sCentre, passionthe for top-performing sales and ignitedsalon his desire to manager at Riverwood Shopping ‘one-up these guys’area and of grab sale out from under them. ‘If this was a located in an upscale thethe city. graduates from She twooversees major business in the state. In additiona to the poker game,’ one board member mused, ‘ InPace would win every Group umbrella. a staffschools of 15 including hairdressers, nail Distracted, Jamie walks past the receptionist, Marianne, whohand. top salaries offered by InPace, the graduates were attracted Bodine’s It’s likeanswering Bodine as well his staffHanging possess the ability to know technician, receptionists and hairdressing apprentices. Jamie by enjoys a is busily the as phones. up uncanny the phone, Marianne energy, innovative thinking can-do was care the embodiment theJamie cardsthat yourHolly company holding. Hetwo keeps a straight face, a low profile reputation as a manager whoand works veryattitude. hard andHetakes of her tells and isCarol Jean, popular hairdressers, of InPace culture – moving and throughout then he laystheir his cards on the table and people. Hairdressers want tofast work forahead her. of the knowledge curve in called in sick, the andgame, Jamieand now hassuddenly to reschedule clients. Jamie Following the salon’s policy, Jamie began a hairdressing high-tech. InPace’s sales new-hire force consistently stunned the as competition apprentice became a top hairdresser the company with theirand highquickly performance level. Among other in things, InPace had the through a combination of skill, a large and loyalCompetitors client base and long reputation for aggressive business intelligence. found both had denied their earlier request of town to attend a you’re sunk. Here at InPace, weto all travel love it.’out A former military intelligence concert, herbrought irritation is obvious. She orders Marianne to adding call officer,and Bodine that ‘sneaky’ air into the InPace culture, both women and instruct that, when they return‘With to work, a bit of excitement to the them day-to-day business of sales. a great hours at work. In 2016, retiring managerability Carla to Weems hand-picked they are each tostaff, bringand a medical certificate. ‘They had better amusing and frustrating the company’s outmanoeuvre others product, great great business intelligence,’ Bodine wasbe fond of Jamie her successor, the enjoyed board quickly Jamie shouts as she enters her office, slamming the door more and as capture accounts.and Bodine the air approved. of mystery surrounding the sick!’ saying, ‘you can dominate the market.’ He wanted everyone – customers, Initially, the salon, located in a suburban shopping centre, forcefully than she intended. Startled employees and early-morning managed a strong, steady increase, holding its position as one of the customers heard the outburst, and, after a momentary pause, they PA Rperformers. T T W O : T H But E E Nan V Ieconomic R O N M E N Tcrisis OF M N A Garea E M Ehard, NT 272 top company’s hitA the resumed their activities and quiet conversation, surprised by the with increases in unemployment and mortgage woes among current show of managerial anger. Jamie knows she has let Holly and Carol and potential customers. As families sought ways to save, the luxury of Jean get away with unwarranted absences before and worries that regular visits to the hair salon was among the first logical budget cuts. she will do it again. She needs every head of hair they can style to The past year has reflected this economic reality, and Jamie’s salon saw help the salon’s profit. a sharp decrease in profits. Jamie takes a deep breath and sits at her desk, turning on Jamie’s stomach is in knots as she arrives at the salon on Monday. the computer and checking emails, including one from the group Scheduled to fly interstate the next morning for a meeting at head manager reminding her to send the salon’s status report in advance of R Tfears O N Epotential : INNOV AT I V Ecuts, MAN A Gmore E M Eimportant, N T F O R Ashe C Hfears A N G I N Gtomorrow’s W O R L D meeting. She asks Marianne to have final figures for the 90 office,PA she staffing but BREWING: the loss of opportunity secure her dream BISSELL job, replacing BROTHERS the retiring report on her desk MANAGING by 1.00 p.m. ON THE JOBtoVIDEO CASE START-UPS AND NEW VENTURES Watch the following video to see how Bissell Brothers approaches its management functions. QUESTI ON S 1 What are some of the entrepreneurial traits found in the two Bissell brothers that help make them successful? Are there any skills or 80 Steven Greenhouse Stephanie Clifford, ‘U.S. Retailers traits you and think they could improve upon? Offer Safety Plan for Bangladeshi Factories’ The New York Times (10 July 2013), http://www.nytimes. com/2013/07/11/business/global/us-retailers-offer-safety-plan-for-bangladeshifactories.html?pagewanted=all&_r=0 (accessed 21 August 2013); and Kate O’Keeffe and Sun Narin, ‘H&M Clothes Made in Collapsed Cambodian Factory,’ The Wall Street Journal (21 May 2013), http://online.wsj.com/article/SB1000142412788732478700457849 7091806922254.html (accessed 21 August 2013). ENDNOTES 81 Rigby and Bilodeau. Management Tools and Trends 2011. Bain and Company, Inc., http://www.bain.com/publications/articles/Managementtools-trends-2011.aspx (accessed 22 June 2012). 1 Brian Stelter, ‘He Has Millions and a New Job at Yahoo!. Soon, He’ll Be 18,’ The New York 82 18 April 2012). Survey: Social Media to Check Candidates. Workforce. http://www. Times, 25 March37% 2013,Use http://www.nytimes.com/2013/03/26/business/media/nick-daloisioworkforce.com/article/20120418/NEWS01/120419964 (accessed 222013); June and 2012). 17-sells-summly-app-to-Yahoo!.html?_r=0 (accessed 26 March Sarah Kessler, ‘Exposing Fast Company (April 45. Company’s Story, 83 Roxane Divol andYahoo!’s ThomasStrategy,’ Fleming, The Evolution of2013): Work:40, One 2 Stelter, ‘He Has Millions and a111–115. New Job at Yahoo!.’ McKinsey Quarterly, Issue 4 (2012): 3 ‘Small Business Trends,’ U.S. Small Business 84 Tom Ashbrook, The Bossless Office, On Point withAdministration, Tom Ashbrookhttp://www.sba.gov/content/ (20 June 2013), http:// small-business-trends (accessed 6 September 2013). onpoint.wbur.org. 2 How would you summarise the steps the brothers took to launch their business? What challenges did they have to address? 3 Which one of the business tactics described in the text did the Bissell brothers use to become business owners? What are some possible reasons why they rejected the other options? 85 Hamel, First, Let’s Fire All the Managers. 86 This definition is based on Mercer Human Resource Consulting’s Employee Engagement Model, as described in Paul Sanchez and Dan McCauley, Measuring and Managing Engagement in a Cross-Cultural Workforce: New Insights for Global Companies, Global Business and Organizational Excellence (November–December 2006): 41–50. 87 Rigby and Bilodeau, Management Tools and Trends 2013. 88 Max Mihelich, Another Generation Rises: Looking Beyond the Millennials, Workforce (12 April 2013), http://www.workforce.com/articles/108-another-generation-rises-lookingbeyond-the-millennials (accessed 22 August 2013). 89Interview Matson, E. (October–November You Can Teachand This Old Company New Tricks. Fast with David Birch. Academy of 1997). Management Learning Education, 3:3, 289–92; Company, 44–6.U.S. Small Business Administration, http://www.sba.gov/advo/stats/ Office of Advocacy, 90sbfaq.pdf Toyota (accessed (2017) Guiding principles 19 August 2010). at Toyota, http://www.toyota-global.com/company/vision_ 16 Global Entrepreneurship Week 2012 Impact Report, p. 7, http://www.unleashingideas.org/ philosophy/guiding_principles.html (accessed 2 February 2017). (accessed August 2013). 91impact Toyota (2017)13 Toyota Way 2001, http://www.toyota-global.com/company/history_of_ 17 Doing Business, 2012. Doing Business in a More Transparent World, http://www. toyota/75years/data/conditions/philosophy/toyotaway2001.html (accessed 2 February 2017). 4 Donald F. Kuratko and Richard M. Hodgetts, Entrepreneurship: A Contemporary Approach, 4th ed. (Fort Worth, TX: Dryden Press, 1998), p. 30. 5 ITC Ltd Report and Accounts 2013, p. 61, http://www.itcportal.com/about-itc/shareholdervalue/annual-reports/itc-annual-report-2013/pdf/report-accounts-2013.pdf (accessed 20 August 2013) and http://www.itcportal.com/businesses/group-companies/technico.aspx (accessed 20 August 2013) 6 Quinlivan, B. (23 August 2001). Ahead of the Pack, with a High-tech Spud. Business Review Weekly, 60–1. 7 Study conducted by Yankelovich Partners, reported in Mark Henricks. (March 2000). TypeCast. Entrepreneur, 14–16. By 2014,8 Toyota verythesuccessful global automaker Moss, M. R.had (Maybecome 1998). FourthaTime’s Charm. Nation’s Business, 85; Tennesseanwith (19 April 1998). Please, Thank You Still Go a Long Way, 2E. 53 overseas manufacturing companies in 28 countries and regions, and 9 John A. Byrne. (9 April 2012). The 12 Greatest Entrepreneurs of Our Time. Fortune, 67–86; (2 November 2010). Asia170 200: Infosys Tops India’s Most Admired Companies. The Wall Street vehicles sold in more than countries and regions. Toyota was seen Journal Asia Online, http://online.wsj.com/article/SB100014240527023041737045755776836 by many industries researchers as aandbenchmark of ‘world’s best 13256368.htmland (accessed 2 October 2012); Asia 200 Interactive. The Wall Street Journal http://online.wsj.com/article/SB10001424052702304410504575559363431123480. practice’ inOnline, operational excellence, which in Toyota was referred to as html (accessed 2 October 2012). the Toyota Production System (TPS). 10 Siri Roland Xavier, Donna Kelley, Jacqui Kew, Mike Herrington, and Arne Vorderwülbecke, Entrepreneurship Monitor 2012 Global Report, 17 January 2013, http://www. More Global generally, Toyota built on the core values created by its gemconsortium.org/docs/2645/gem-2012-global-report (accessed 7 September 2013). Donna J. Kelley, Slavica Singer, and Herrington, Global Entrepreneurship Monitor founders11and had implemented itsMike ‘Toyota Way’ philosophy since 2001, 2011 Executive Report, 26 July 2012, http://www.gemconsortium.org/docs/2409/gem-2011based on two pillars of respect for people and continuous improvement, global-report (accessed 9 October 2012). 12 Donna J. Kelley, Candida G. Brush, Patricia G. Greene, and Yana Litovsky, Global driving customer value creation and constantly pursuing perfection. Entrepreneurship Monitor 2012 Women’s Report, 31 July 2013 http://www.gemconsortium. These approaches have raised Toyota to a point where2013). its vehicles were org/docs/2825/gem-2012-womens-report (accessed 7 September 13 Reported in J. D. Harrison, ‘New Rankings: The World’s Top Nations for Female viewed by many customers as being high in their ‘value proposition’, Entrepreneurs,’ The Washington Post, 17 June 2013, http://articles.washingtonpost. based on reliability and durability, especially at the competitive price com/2013-06-17/business/40035405_1_female-entrepreneurs-three-nations-fewerbusinesses (accessed 29 June 2013). points that were offered to customers. 14 Research and statistics reported in (29 May 2001). The Job Factory. Inc., 40–3. Mount. (March 2005). The Returnsome of the Lone Inventor. Fortune Small Business, Yet 15 inIan Australia, Toyota faced significant challenges. Its18; Magnus Aronsson. (2004). Education Matters – But Does Entrepreneurship Education? An doingbusiness.org/rankings (accessed 13 August 2013). 18 Hodgetts, R. M. and Kuratko, D. F. (2010). Effective Small Business Management, 7th ed. (New York: Wiley). 19 Case, J. (1995). The Wonderland Economy. Inc. special issue: The State of Small Business, 14–29; Daft, R. L. (1992). Management, 3rd edn, Fort Worth: The Dryden Press. 20 Bureau of Labor Statistics. Jobs for People with Green Thumbs. p. 34, Occupational Outlook Quarterly, Spring 2005, http://www.bls.gov/opub/ooq/2005/spring/art03.pdf (accessed 12 March 2014). 21 Global Entrepreneurship Monitor website, http://www.gemconsortium.org (accessed 27 February 2014). 22 Department of Industry, Innovation, Science, Research and Tertiary Education. Australian sourced from plants if necessary. Australia was one of the Small Business Keyother StatisticsToyota and Analysis December 2012, http://www.innovation.gov.au/ SmallBusiness/KeyFacts/Documents/AustralianSmallBusinessKeyStatisticsAndAnalysis.pdf very first plants that Toyota had established outside Japan, and Toyota (accessed 20 December 2013). 23 Galuskza, P. (1 June 1998). The $44 Mom-and-Pop. BusinessWeek, 74, 76; Useem, J.where it had a corporate sense of Million loyalty to its Australian operations, (December 1997). The New Entrepreneurial Elite. Inc., 50–68. had cut itsGreg teeth in some of managing manufacturing operations 24 Kumparak, (5 February 2015).ways ‘Slack’s co-founders take home the Crunchie for Founder Of The Year,’ https://techcrunch.com/2015/02/05/slacks-cooutside Japan, in aAvailable: Western culture, some decades ago. Further, founders-take-home-the-crunchie-for-founder-of-the-year/ (accessed 4 November Toyota globally corporately beenplans expanding overseas year on year, 2016); Tam, Donna (14had August 2013). ‘Flickr founder to kill company e-mails with Slack,’ Available: https://www.cnet.com/news/flickr-founder-plans-to-kill-companycontinuously for some 50 years, apart from during the 2008–10 global e-mails-with-slack/ (accessed 4 November 2016); Newton, Casey (3 November 2016). ‘Why Slackcrisis may live to regretall its smarmy letter to Microsoft,’ http://www.theverge. financial (when automotive companies experienced economic com/2016/11/3/13504932/slack-microsoft-teams-letter-wtf (accessed 4 November difficulties), and was completely unused to reducing or shutting down 2016); McCracken, Harry (9 February 2015). ‘Slack,’ Fast Company, Available: https:// www.fastcompany.com/3039579/most-innovative-companies-2015/slack operations or country level plants or business units,(accessed but rather was very 4 November 2016). well in1989). growing, upgrading and investing in these. 25 Johnversed Case. (June The Origins of Entrepreneurship. Inc., 51–3. 26 This discussion is based in part on Charles R. Kuehl and Peggy A. Lambing. (1994).Small The challenges facing Toyota of high local costs and a small Business: Planning and Management, 3rd ed. (Fort Worth, TX: The Dryden Press). domestic market also faced the other companies operating 27 Leigh Buchanan. (March 2012). The Motivation Matrix.two Inc., http://www.inc.com/ magazine/201203/motivation-matrix.html (accessed 20 August 2012). in Australia, Ford and General Motors Holden (GMH). When in 28 Quoted in Jessica Bruder. (25 May 2012). A Harvard Professor Analyzes Why Start-Ups Fail. The New YorkFord Times, http://boss.blogs.nytimes.com/2012/05/25/a-harvard-professor2013/4, first and then GMH announced the closing of their analyzes-whystart-ups-fail (accessed 9 August 2012). and all its other imported vehicles, such as RAV4, Corolla, Landcruiser, Hilux, Prius and others. Investments had been made in new model 06_Samson6e_sb_88412_txt.indd 272 operation. So in February 2014, Toyota announced their decision to close manufacturing operations at their Altona manufacturing facility. 22/08/17 development, new technology such as the new hybrid synergy drive for Camry. However, with the changing business environment, the Toyota’s global president, Akio Toyoda, visited the Melbourne plant to make the plant closure announcement, which was a solemn, sad ongoing viability of its Australian manufacturing operations was being questioned. The local market was small, and local costs of and momentous occasion for Toyota’s long serving employees, many of whom had been part of the company for over 30 years and had expected to be there until retirement. PART 1 CONTINUING CASE INNOVATIVE MANAGEMENT FOR A CHANGING WORLD Australian business was established in 1963, created a proud history of being the biggest selling brand in the Australian market. It was well ahead of all competitors, based mainly on the locally produced Camry manufacturing were high compared with many other countries. Australia was a place that had supplied Camry vehicles to Toyota’s Middle East markets for nearly 20 years, with about two thirds of the production volume from the Altona, Melbourne manufacturing facility being exported there. These 60 000 or so exported vehicles could be Australian operations as of 2016 and 2017 respectively, Toyota followed, because the whole supply chain and industry could not be sustained in Australia when it was ‘feeding’ only one assembly plant 12:31 pm This introduced a new challenge to Toyota executives and managers at all levels in Australia, of how to manage the operations, motivation, quality and continuous improvement in a business unit that was going to close and ultimately make over 2500 people redundant. GUIDE TO THE TEXT xxiii Guide to the online resources FOR THE INSTRUCTOR Cengage is pleased to provide you with a selection of resources that will help you prepare your lectures. These teaching tools are accessible via cengage.com.au/instructors for Australia or cengage.co.nz/instructors for New Zealand. MINDTAP MindTap is an interactive, customisable and complete online course solution. MindTap integrates authoritative text book pedagogy with customisable student ‘learning paths’, an innovative ‘app’ model of instructional utilities, LMS interoperability, and the power of social media to create a personal learning experience for today’s mobile students. To prescribe MindTap for your students, please contact your Learning Consultant. COURSEMATE EXPRESS CourseMate Express is your one-stop shop for learning tools and activities that help students succeed. As they read and study the chapters, students can access an eBook, self tests, cases and experiential exercises, review with flash cards and weblinks, listen to audio summaries as well as check their understanding of the chapter with interactive quizzing. CourseMate also features the Engagement Tracker that monitors student engagement in the content. Ask your Learning Consultant for more details. xxiv Express INSTRUCTOR’S MANUAL The Instructor’s manual includes: • • • • learning objectives chapter outlines discussion questions case question and project solutions • suggested class discussions and projects • videos • websites and readings. WORD-BASED TEST BANK This bank of questions has been developed in conjunction with the text for creating quizzes, tests and exams for your students. Deliver these though your LMS and in your classroom. POWERPOINTTM PRESENTATIONS Use the chapter-by-chapter PowerPoint slides to enhance your lecture presentations and handouts by reinforcing the key principles of your subject. ARTWORK FROM THE TEXT These digital files of graphs, pictures and flowcharts from the text can be used in a variety of media. Add them into your course management system, use them within student handouts or copy them into lecture presentations. MANAGEMENT LOCAL VIDEO PACKAGE This video package, featuring large and small local companies, provides a relevant and engaging visual teaching tool for the classroom. Scenarios will link the application of management concepts to key graduate outcomes. GUIDE TO THE ONLINE RESOURCES xxv FOR THE STUDENT New copies of this text come with an access code that gives you a 12-month subscription to the CourseMate Express website and Search Me! Management. Visit http://login.cengagebrain.com and log in using the access code card. COURSEMATE EXPRESS FOR MANAGEMENT Access your CourseMate Express website, which includes a suite of interactive resources designed to support your learning, revision and further research. Includes: • Self-tests • On-the-job videos • Revision quizzes • Case study activities • Audio summaries • Glossary and flashcards • And more! SEARCH ME! MANAGEMENT Expand your knowledge with Search Me! Management. Fast and convenient, this resource provides you with 24-hour access to relevant full-text articles from hundreds of scholarly and popular journals and newspapers, including The Australian and The New York Times. Search Me! Management allows you to explore topics further and quickly find current references. MINDTAP A new approach to highly personalised online learning, MindTap is designed to match your learning style and provides you with an engaging interface to interact with the course content, multimedia resources as well as your peers, lecturers and tutors. In the MindTap Reader, you can make notes, highlight text and even find a definition directly from the page. To purchase your MindTap experience for Management, please contact your instructor. xxvi GUIDE TO THE ONLINE RESOURCES Express PREFACE TA K I NG T H E L E A D The world seems to be changing ever faster, with social, technological, economic and political forces reverberating around the globe every day. Volatility seems to be increasing: just consider the 2011 earthquakes in New Zealand and Japan, and the 2008–10 global financial crisis and the political and military problems in Syria and Ukraine. Political turbulence increased in democracies such as the USA and UK in 2017, and Europe's economic future is being partially destabilised by the UK BREXIT vote, after decades of stability. Globally, managing increasing numbers of refugees is a challenge for many countries. Environmental issues, particularly global warming, present major challenges to society. Managers need to know what is going on in their industries and economies on a current and ongoing basis. In Australia, New Zealand and other Asia Pacific countries, the challenges and opportunities facing managers have never been greater. New technology and globalisation mean that managers in these countries must not just be competitive with the organisation ‘down the road’ or across the country, but must also recognise that the only realistic standard for comparison of performance in the new millennium is ‘world’s best’. The announced demise of Australia’s automotive assembly industry (effective 2017) after more than 50 years of operations demonstrates the intensity of global competitive forces. In every industry, competition is becoming fiercer each month, and there are always winners and losers. Winners grow and prosper, but uncompetitive companies quickly wither away and their shareholders lose their investments, while managers and other staff lose their jobs. Not-for-profit organisations such as government service suppliers, charities and clubs must also excel in their focus and use of resources, since their employees, consumers and suppliers have high expectations of effectiveness and output. Technological change is accelerating and driving exciting new competitive dynamics in most industries. This includes new process technologies such as manufacturing automation, and in particular the web-based and social networking technologies such as Facebook, Instagram, Google and Twitter that are making information available to people as never before. The Internet has a profound effect on all forms of organisation, business and consumer behaviour. Consider how Amazon and eBay have impacted on consumer shopping habits. New business models and innovative ways to combine products and services are made possible by the Internet, as well as much richer, faster, cheaper and more detailed information exchange between businesses. The cost of close coordination between organisations is lower as a result of these new technologies, leading to new networks of collaboration within supply networks. Another major trend that will impact on managers and businesses all over the world is the coming of age of the Chinese economy and, behind that, India, Brazil and others. These low-wage countries, which have over half of the world’s people living in them and hence huge internal developing markets, provide both opportunity and threat for all Asia Pacific-based companies and countries. In addition, political instability, terrorism, disease such as bird flu, climate change and other unanticipated events, coupled with the rise of regional trade blocs and free trade agreements, will impact substantially on the opportunities for companies to export and trade globally. Managers must be capable of planning and leading their organisations under both stable and unstable conditions. Risk management and crisis management are new processes with which managers must formally engage and become competent. Further, brought on by the collapse of major companies such as Lehman Brothers and many others as part of the global financial crisis, managers must now demonstrate the quality of governance in their systems and decisions, through compliance with strict new procedures, as legislated by governments and required by shareholders. xxvii And through all this, the fundamental management requirements – being highly competent in managing people, processes, customers, products and services; devising and planning strategies; organising resources; and leading and controlling work – have not gone away and never will. Rather, they must now be conducted at higher standards than ever in order to keep customers, employees and shareholders satisfied. A further requirement comes with the challenge of ‘sustainable development’, of being socially and environmentally responsible, while still maximising profits and behaving with high standards of ethics and integrity. This book gives the reader a realistic perspective of what management is and what managers really do. Management as a profession is dynamic, challenging and exciting for those who want to excel at it. Each day brings new and often unanticipated challenges despite the plans made by even the best managers and leaders. The relatively new challenges of sustainable development are integrated into every chapter of this book. Management involves creating and conducting the affairs of organisations so as to achieve valuable outcomes for many different stakeholders, particularly staff, owners, and clients or customers. In order to do this well, leaders in organisations must achieve many things at high levels – including motivating staff and themselves, ensuring that their products and services match customer requirements, efficiently managing finances and resources, and, above all else, assembling all this into an overall strategy that makes sense for all participants. Good managers need to understand and apply the fundamentals of fields as diverse as economics and psychology, as well as using various analytical techniques. We chose a sporting theme and analogy for this book because the challenges facing managers have so much in common with those of competitive sports. In both sports and management, no matter how well you’re doing, improvement is always possible. There is no such thing as the perfect tennis game, golf swing or score, and no such thing as the perfect manager or organisation. There is always room for improvement. In both sport and management, planning and strategising usually helps. What are our competitors likely to be doing? What are the conditions in the field, economy or marketplace that we participate in? In both sport and management, the best-laid plans often don’t come to fruition because things keep changing, so adjustments, sometimes radical, must be made to the planned business or sporting tactics. Decisions must be made under pressure – whether it’s during a tennis match or a business day – because unforeseen events occur, and unanticipated consequences develop in real time. At its extreme, this is referred to as ‘crisis management’. Finally, in both sport and management, there are always new competitors, new technologies, new strategies developing and new products that we must adapt to and find ways to turn into opportunities. Just like sport, management is dynamic and challenging. Just as new technologies, such as graphite tennis racquets and titanium golf clubs, changed those games and allowed for new levels of performance, so, too, has the Internet significantly created new opportunities and business strategies. Learning and innovation are the keys. For those who excel, the personal rewards that come from the satisfaction of achievement – as well as the creation of value for many stakeholders in the community – can be immense. While the challenges of achieving competitiveness and organisational effectiveness through excellent leadership and management have never been greater, the other side of the same coin is that for those who ‘get it right’, the opportunities have never been greater! Products and services can be developed by small and large companies and sold globally over the Internet. Consider Apple’s success with its iPhone and iPad, or the achievements of Samsung, Google or General Electric. Entrepreneurs are springing up and starting companies in all industries, challenging market leaders as never before. A small, new software company in Auckland, New Zealand, can now effectively sell and distribute its products in Sydney, Perth, Fiji, Moscow xxviii P R E FA C E and New York – which would have been far too expensive to contemplate in the ‘pre-Internet’ world of just a decade ago. These new international sales or ‘extended market reach’ will only occur if the products and services offered by the company are competitive and provide superior value for customers. One vital thing that all successful organisations need, no matter whether their products are very simple or incredibly sophisticated, is solid management. Even the strongest of technological leadership in a product or industry will not lead to commercial success if the enterprise that owns and controls it is not managed well. The field of management is continually changing, yet some fundamental foundations remain the same. Demands made on today’s managers go well beyond the techniques and ideas traditionally taught in management courses. The traditional management paradigm assumes that the purpose of management is to control and limit people, enforce rules and regulations, seek stability and efficiency, design a top-down hierarchy to direct people and achieve bottom-line results. The emerging paradigm recognises that today’s managers need different skills to engage workers’ hearts and minds, as well as take advantage of their physical labour. The emerging management paradigm focuses on leadership, on harnessing people’s creativity and enthusiasm, finding shared vision and values, and sharing information and power. Teamwork, collaboration, participation and learning are guiding principles that help managers and employees. One of the key skills of great managers is the ability to achieve a blending and balancing of controls needed within a business with the leadership actions to achieve high levels of human motivation across the organisation. It’s all about balance and ‘shades of grey’, not ‘black and white’. Both the new and the traditional paradigms are guiding management actions in the world today. Our vision for Management is to explore the new paradigm in a way that is interesting and valuable to students, while retaining the best of traditional management ideas. To achieve this vision, we have included the most recent management thinking and research, as well as the contemporary application of management ideas in organisations. The combination of established scholarship, new ideas and real-life applications gives students a taste of the energy, challenge and adventure inherent in the dynamic field of management. We have worked together to provide a textbook better than any other at capturing the excitement of organisational management. We wrote Management to provide a book of the highest quality – one that will create in students both respect for the changing field of management and confidence that they can understand and master it. The textual portion of this book has been enhanced by an engaging, easy-to-understand writing style and many in-text examples and boxed items that bring concepts to life for students. O RGA N I S AT I O N The chapter sequence in Management is organised around the management functions of planning, organising, leading and controlling. These four functions effectively encompass both management research and real-life characteristics of the manager’s job. Part one introduces the world of management, including the nature of management, the emerging management paradigm, the learning organisation and historical perspectives on management. Part two examines the environments of management and organisations. This section includes material on the business environment and corporate culture, the global environment, ethics and social responsibility, the natural environment, and the environment of entrepreneurship and small-business management. P R E FA C E xxix Part three presents chapters on planning, including organisational goal setting and planning, strategy formulation and implementation, and the decision-making process. Part four focuses on organising processes. These chapters describe the dimensions of structural design, the design alternatives managers can use to achieve strategic objectives, structural designs for promoting innovation and change, the design and use of the human resource function, and the ways in which managing diverse employees are significant to the organising function. Part five is devoted to leadership. This section begins with a chapter on organisational behaviour, providing a grounding in understanding people in organisations. This foundation paves the way for subsequent discussions of leadership, motivating employees, communication and team management. Part six describes the controlling functions of management, including basic principles of quality improvement, the design of control systems, information technology and techniques for control of operations management. Finally, our Capstone chapter integrates many of the themes of management and considers ‘best practices’ in organisations, at the cutting edge of our dynamic field. It provides a practical yet integrative way to think about the ‘world of work’, and how to succeed in it. S P E C I A L F E AT U R E S One major goal of this book is to offer better ways of using the textbook medium to convey management knowledge to the reader. To this end, the book includes several special features. ◗◗ Chapter objectives. Each chapter begins with a clear statement of its learning objectives. This device provides an overview of what is to come and can also be used by students to see whether they understand and have retained important points. ◗◗ Management challenge and response. The text portion of each chapter begins with a real-life problem faced by organisation managers. The problem pertains to the topic of the chapter and will heighten students’ interest in chapter concepts. The questions posed in the Management challenge are resolved in the Response at the end of the chapter, where chapter concepts guiding management’s actions are highlighted. ◗◗ Contemporary examples from all over the Asia–Pacific region – and, indeed, the world. Every chapter contains a number of examples of real-life management incidents. These are placed at strategic points in the chapters and are designed to demonstrate the application of management concepts in specific companies. These in-text examples include well-known companies such as National Australia Bank, BHP Billiton, McDonald’s, ANZ, General Electric and Google, as well as less-well-known companies and notfor-profit organisations such as Austel, Dryen Australia and TAC. These examples put students in touch with the real world of organisations so they can appreciate the value of management concepts. ◗◗ Exhibits. Many aspects of management are research based, and some concepts tend to be abstract and theoretical. To enhance students’ awareness and understanding of these concepts, many exhibits have been included throughout the book. These exhibits consolidate key points, indicate relationships among variables and visually illustrate concepts. They also make effective use of colour to enhance their imagery and appeal. xxx P R E FA C E ◗◗ Glossary. Learning the management vocabulary is essential to understanding contemporary management. This process is facilitated in three ways. First, key terms and concepts are coloured and defined where they first appear in the text. Second, brief definitions are set out in the margin for easy review and follow-up. Third, a glossary summarising all key terms and definitions appears at the end of the book for handy reference. ◗◗ ‘Remember this’ summaries and Discussion questions. Each chapter contains a number of Remember this boxes, summaries of key points that students should retain. The end-of-chapter discussion questions are a complementary learning tool that will enable students to check their understanding of key issues, to think beyond basic concepts and to determine areas that require further study. The Remember this summaries and Discussion questions help students to discriminate between the text’s main and supporting points, and provide mechanisms for self-teaching. ◗◗ Management in practice exercises. Management in practice, Ethical challenge, Group challenge, Case for critical analysis and New manager self-assessment exercises provide students with an opportunity to experience management issues in a personal way. These exercises take the form of questionnaires, scenarios and activities, and also provide opportunities for students to work in teams. ◗◗ Video cases. The chapters of the book conclude with video cases that illustrate concepts discussed in the text. The videos will enable students to consider the practical applications of management theory. ◗◗ Continuing case. Each Part of the book finishes with a contemporary continuing case study, of car company Toyota, which faces many managerial challenges and opportunities. ◗◗ Icons. The Linkage icon highlights links between topics within and across chapters, and the Entrepreneurship icon points to examples and issues related to new value creation. P R E FA C E xxxi ABOUT THE AUTHORS Danny A. Samson, BE, PhD, is Professor of Management and was Head of the Department of Management at the University of Melbourne, where he has also been Associate Dean (Development) of the Faculty of Economics and Commerce and Director of the Foundation for Sustainable Economic Development and the Centre for Manufacturing Management. Professor Samson has been a member of a number of boards of directors, committees and industry bodies, including appointments as a member of the TAC Board, Australian Manufacturing Council and the Commonwealth Government Industry Task Force on Leadership and Management (Karpin committee). He has written eight books in the fields of decision analysis, manufacturing and production strategy, strategy, e-business and technology management. He has won research and best paper awards from leading journals, as well as teaching excellence awards, and has been Associate Editor of various management journals, such as the Journal of Operations Management. His principal research interests are in the strategic competitiveness of organisations and in the effective use of operations systems towards achieving that competitiveness. He has won numerous competitive research grants and published in a variety of journals that reflect the breadth of his research interests, including the Academy of Management Executive, Journal of the Operational Research Society, European Journal of Operational Research, Journal of Risk and Insurance, Journal of Business Research, International Journal of Management Science, ASTIN Bulletin, Journal of Operations Management, Interfaces, Decision Sciences Journal, International Journal of Technology Management, Australian Accounting Review, Decision Support Systems and the International Journal of Production and Operations Management. In addition to teaching many thousands of business and commerce students over the past 25 years, Professor Samson has conducted over 100 public education short courses in engineering management, manufacturing management, strategy, general management and professional practice management, as well as numerous executive seminars in decision analysis, business strategy, total quality and related fields, logistics and statistical analysis. His work history includes three years as an engineer at ICI Australia, appointment as a lecturer at Australian Graduate School of Management, five years as an Assistant Professor of Business Administration at the University of Illinois, and 10 years as a professor at the Melbourne Business School, University of Melbourne. During his career he has been a consultant to senior executives in most manufacturing industries and in numerous service sector organisations in Australia, New Zealand, the US, the UK and Europe. These include major companies in food, building products, pharmaceuticals, aerospace, paper and printing, chemicals, processing, banking, government and other industries. He is currently a board member of the Australian Institute of Management. Timothy Donnet, PhD, is a lecturer in the School of Management at QUT Business School. Dr Donnet delivers a range of units including first year Management and final year Risk Management in the Bachelor of Business Management Major, as well as postgraduate-level studies in Managing Self and Others in the Australia-wide Public Sector Management Program. His research focuses on managerial decision making and broader policy making network, incorporating risk management perspectives to improve the effectiveness of governance frameworks for transport and urban infrastructure. xxxii Having only completed his PhD in 2012, Dr Donnet is relatively early in his research career, yet has already run lectures for over 5000 undergraduate students in the field of Management. He has secured commercial research funding for reviewing governance arrangements for enhancing the effectiveness of Queensland’s aviation networks, and developing business models that incorporate innovative technologies into air traffic control systems. His supervision of Higher Degree Research students from a range of backgrounds demonstrates the portability of his investigative techniques for managerial decision making, with recent research focusing on policy making networks for nutrition policy. His research has been published in Research in Transportation Business and Management, European Journal of Transport and Infrastructure Research, Public Health Nutrition and Obesity Reviews. Dr Donnet is an innovative lecturer with a focus on incorporating emergent trends in social media and video production into his teaching approach, including video interviews with local businesses and study vlogs into his delivery of unit content. Richard L. Daft, PhD, is Associate Dean for Academic Programs and the Brownlee O. Currey, Jr Professor in Management in the Owen Graduate School of Management at Vanderbilt University. Professor Daft specialises in the study of organisation theory and leadership, and enjoys applying these ideas in his roles as Associate Dean. Professor Daft is a Fellow of the Academy of Management and has served on the editorial boards of Academy of Management Journal, Administrative Science Quarterly and Journal of Management Education. He was the Associate Editor-in-Chief of Organization Science and served for three years as associate editor of Administrative Science Quarterly. Professor Daft has authored or co-authored 13 books and has also authored dozens of scholarly articles, papers and chapters. His work has been published in Administrative Science Quarterly, Academy of Management Journal, Academy of Management Review, Strategic Management Journal, Journal of Management, Accounting Organizations and Society, Management Science, MIS Quarterly, California Management Review and Organizational Behavior Teaching Review. Professor Daft has been awarded several government research grants to pursue studies of organisation design, organisational innovation and change, strategy implementation and organisational information processing. Professor Daft also is an active teacher and consultant. He has taught management, leadership, organisational change, organisational theory and organisational behaviour. He has been involved in management development and consulting for many companies and government organisations. ABOUT THE AUTHORS xxxiii ACKNOWLEDGEMENTS A gratifying experience for us was working with the teams of publishing professionals who were committed to the vision of producing the best management text ever. In particular, we thank the Cengage Australia team of Dorothy Chiu, Amelia Fellows-Blaskett, Michelle Aarons, Kate Doherty and many others who worked on this edition. Another group of people who made a major contribution to this textbook are the management experts who provided advice, reviews, answers to questions, and suggestions for changes, insertions and clarifications. We want to thank all of these colleagues for their valuable feedback and suggestions. Finally, we thank those professional managers from whom we have learned so much about ‘what works’ in building, running and sustaining effective organisations. xxxiv PART ONE IN NOVAT I V E M A N AGE M E N T F O R A C H A NGING W O R L D Chapter 1 The changing world of management Chapter 2 The evolution of management thinking Australia is often described as a country that punches above its weight when it comes to sporting achievement – an accurate description, as we see in the Australian team’s achievements at Olympic and Commonwealth Games. The same can be said for New Zealand in respect of its tremendously successful rugby union accomplishments. Most people can relate to sporting excellence and the levels achieved by elite athletes because they have played sports themselves. But what do sporting efforts and achievements have to do with management? Team sports in particular have a great deal to do with management. If they are to succeed, sporting teams require good planning, leadership, organising and control, and so do business teams. According to Rod Macqueen,1 the former coach and manager of the Wallabies, the team that took Australian rugby union to its unprecedented domination of the sport from 1990 to 2000, the answer is that sporting success and business management success come from the same roots. Macqueen says his success with the Wallabies resulted from his use of the same strategies and tactics that drove his own success in his business display and services organisation. He planned the Wallabies strategies by conducting strength, weakness, opportunity and threat (SWOT) analyses of their competitors. Macqueen motivated his staff and the Wallabies by using innovative ‘bottom up’ management techniques, so that staff and players take ownership of decisions, which in turn increases their motivation. What is the ultimate goal of a sportsperson, a team or a manager? Doing everything they can to achieve success by planning and implementing strategies and tactics that lead to that success. In management, as in sport, there are strong connections between actions – what you do – and outcomes – how well you do. This explains why so many high achievers in sport go on to achieve success in business or government. Examples abound, and there are too many leaders who were once great athletes for this to be a coincidence. Perhaps the common factor is sheer drive and ambition – or, as Rod Macqueen puts it, the same human and organisational factors and techniques that work when innovation and high levels of performance are needed, whatever the activity. In Part one of this textbook, we look at the skills and roles of managers, the history of management, and new management models. 1 CHAPTER 1 T HE C H A NGING W O R L D O F M A N AGE M E N T L E A R N I NG OBJ E C T I V E S AFTER STU DYI N G T H I S C H A P T E R , YO U S H O U L D B E A B L E TO : 1 understand the personal challenges involved in becoming a new manager in an organisation in today’s world 2 describe the four management functions and the type of management activity associated with each 3 explain the difference between efficiency and effectiveness and their importance for organisational performance, including in terms of innovation outcomes 4 describe conceptual, human and technical skills, and their relevance for managers and employees 5 describe management types and the horizontal and vertical differences between them 6 discuss the innovative management competencies needed to deal with today’s turbulent business environment, including issues such as diversity, globalisation and rapid change 7 explain the leadership skills needed for effective crisis management 8 discuss the future challenges for Australian managers 9 discuss the meaning of sustainable development. Express Throughout this chapter, the CourseMate Express icons indicate an opportunity for online selfstudy, linking you to activities and other online resources. 2 MANAGEMENT CHALLENGE PETRONAS The business environment, through which managers steer their companies to achieve their goals, is changing faster and is more unpredictable than ever before. Consider oil industry executives who are responsible for exploring, finding, evaluating, developing and producing oil and gas that is converted (refined) into valuable petroleum products. These products keep the world moving, and without them it would be more difficult to power cars, buses, planes, ships and trucks. These core products are also the raw materials for most forms of plastics, petrochemicals, fertilisers and other categories of goods that we all take for granted as consumers. For the better part of 200 years, companies such as Shell, Exxon Mobil and BP had a relatively stable world in which to operate. They were relatively unfettered by government controls on pollution and able to count on stable prices and predictable costs, and hence on profits and returns on invested funds. However, those factors have changed dramatically in the past decade, necessitating a complete rethink of how these businesses are run. Consider the very successful national oil company of Malaysia, called PETRONAS. From its beginning in 1974, this company operated in Malaysia, and more recently it branched out successfully into over 30 other countries, operating exploration, oilfield development and even petrol retailing outlets in countries as diverse as South Africa, Thailand and Sudan, as well as many other Asian, European and African countries. Recent major PETRONAS investments are in gas field development and export in Queensland and Western Australia. The world that these international oil companies operate in has changed a lot recently, for example, as the price of oil has spiked and fallen, often quickly and unpredictably. Consider other challenges, such as: ◗◗ PETRONAS executives have had to do their planning, investment decision making and run their operations as the global price of oil rose from around US$23 per barrel to over US$140 per barrel within a period of five years. They were then forced to plan for the possibility that the price would go up to a massive US$200 per barrel, which was being forecast by some industry experts. Such high prices made oilfields that were previously unfeasible into highly profitable enterprises. Large expansions became viable. But then the global oil price quickly and unpredictably fell to below US$40 per barrel, bottoming briefly at US$34. Plans went out the window: a new world emerged almost overnight. Then, just when PETRONAS was getting used to a world of low oil prices, low profit margins and tightening operations and costs, prices shot back up to over US$90 in 2011 and have hovered within this range since. What is next? Could it go back down below US$40? The environment in which managers must plan and execute their strategies is one of high uncertainty and unpredictable volatility. ◗◗ The unfortunate disaster experienced by BP in the Gulf of Mexico in April 2010, in which one of its oil wells leaked large amounts of crude oil (five million barrels) into the sea, led to governments and communities globally taking a negative attitude towards BP and the industry in general; this brought about tougher regulation, and, at least for a while, a ban on further exploration and oilfield development. Despite ‘best efforts’, this whole industry suffers from unpredictable safety and environmental events and outcomes. ◗◗ The global financial crisis (GFC) of 2008–10 was also in full swing during this period, such that consumer demand, including for oil and derivative plastics products, went into meltdown in the United States and then elsewhere. In countries such as Iceland, Spain, Ireland, Greece, Portugal and many others, unprecedented recessions took place. Not since the Great Depression of 1930 had such events occurred. ◗◗ More recently, major markets in which PETRONAS and other leading oil companies have investments and operations have experienced significant political instability, such as the ’Arab Spring’ revolutions in Egypt and Libya, and the splitting of Sudan into two countries. The major ongoing problems in Syria and Egypt make it even more challenging than usual to do business. What is next? ◗◗ The natural environment appears to be increasingly volatile. PETRONAS managers signed up for a major investment in Central Queensland, Australia, where major storms and cyclones in 2011 and 2017, for example, led to extreme flooding, delaying and disrupting operations, destroying assets and interfering with markets. ◗◗ PETRONAS is losing its staff on a significant and regular basis. They are being poached by competitors from developing Middle Eastern companies, which operate in countries that are oil-rich and able to offer large cash salary packages to the best engineers and others. ◗◗ Climate change and the danger of the world choking itself on carbon released from oil and coal into the environment are threats to the core business of companies in this industry, and come simultaneously with predictions that global oil reserves are dwindling anyway. The potential for carbon taxes and emission trading schemes can add costs and complexity to energy businesses. The ongoing low price of oil puts a great deal of pressure on PETRONAS in 2017 3 4 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D and beyond, with strong cost cutting pressure being exerted throughout this group. Sources: PETRONAS (2015) Annual Report 2015, http://www.petronas.com.my/ investor-relations/Documents/PETRONASAnnualReport2015.pdf (accessed 11 February 2017); http://en.wikipedia.org/wiki/2000s_energy_crisis (accessed 6 March 2014); Futures Trading Charts (2017) Crude oil EmiNY, http://tfc-charts.com/ chart/QM/W (accessed 6 March 2014). QU E S T I O N How can the managers in PETRONAS and other oil companies, large and small, have any confidence in their decisions and plans in an environment where the low prices for their main products are out of their control and unpredictable? NEW MANAGER SELF-ASSESSMENT ARE YOU READY TO BE A MANAGER? Welcome to the world of management. Are you ready for it? This questionnaire will help you see whether your priorities align with the demands placed on today’s managers. Rate each of the following items based on what you think is the appropriate emphasis for that task to achieve success as a new manager of a department. Your task is to rate the four top-priority items as high priority and the other four as low priority (that is, four of the items should be rated high and four rated low.) PRIORITIES HIGH PRIORITY LOW PRIORITY 1 Spend 50 per cent or more of your time in the care and feeding of people. 2 Make sure people understand that you are in control of the department. 3 Use lunches to meet and network with peers in other departments. 4 Implement the changes you believe will improve department performance. 5 Spend as much time as possible talking with and listening to subordinates. 6 Make sure jobs get done on time. 7 Reach out to your boss to discuss his expectations for you and your department. 8 Make sure you set clear expectations and policies for your department. Note: This questionnaire is adapted from research findings reported in Linda A. Hill, Becoming a Manager: How New Managers Master the Challenges of Leadership, 2nd ed. (Boston, MA: Harvard Business School Press, 2003); and John J. Gabarro, The Dynamics of Taking Charge (Boston, MA: Harvard Business School Press, 1987) Scoring and Interpretation: all eight items in the list may be important, but the odd-numbered items are considered more important than the even-numbered items for long-term success as a manager. If you checked three or four of the odd-numbered items, consider yourself ready for a management position. A successful new manager discovers that a lot of time has to be spent in the care and feeding of people, including direct reports and colleagues. People who fail in new management jobs often do so because they have poor working relationships or they misjudge management philosophy or cultural values. Developing good relationships in all directions is typically more important than holding on to old work skills or emphasising control and task outcomes. Successful outcomes typically will occur when relationships are solid. After a year or so in a managerial role, successful people learn that more than half their time is spent networking and building relationships. 1: THE CHANGING WORLD OF MANAGEMENT Most people think of Jon Bon Jovi as an ageing rock star. What many don’t realise is that Bon Jovi is still one of the world’s top-selling bands (in terms of both record sales and concert touring) because their lead singer is also a consummate manager. ‘In the late 1980s,’ one music historian wrote, ‘it seemed inconceivable that [the group] would last five years.’ In 2011, Jon Bon Jovi was ranked No. 2 on Forbes’s list of the year’s highest-paid musicians.2 As the group prepared for the launch of a tour in February 2013, Jon Bon Jovi was hidden away in the arena at the Mohegan Sun casino in Uncasville, Connecticut, for days, overseeing nearly 100 people organised into various teams such as lighting, sound and video. It is an activity that he performs again and again when the band is touring, managing a tightly coordinated operation, that is similar to setting up or readjusting a production line for a manufacturing business. Yet Bon Jovi is also performing other management activities throughout the year – planning and setting goals for the future, organising tasks and assigning responsibilities, influencing and motivating band members and others, monitoring operations and finances, and networking inside and outside the organisation. In 2016, Bon Jovi celebrated the 10-year anniversary of the Jon Bon Jovi (JBJ) Soul Foundation. The JBJ Soul Foundation was created to ‘combat issues that force families and individuals into economic despair’ and ‘support innovative community efforts to break the cycle of poverty and homelessness’.3 Efficiency and effectiveness are key words in his vocabulary. ‘Jon is a businessman,’ said former co-manager David Munns. ‘He knows how to have a great-quality show, but he also knows how to be efficient with money.’4 Jon Bon Jovi was smart enough to hire good people who could handle both production activities and the day-to-day minutiae that are integral to a successful global music business. However, it took several years to develop and hone his management skills. He assumed top management responsibilities for the band in 1992, about 10 years after founding it, because he had a vision that his professional managers weren’t supporting. ‘Most of my peers wanted to be on the cover of Circus [a magazine devoted to rock music that was published from 1966 to 2006],’ he said. ‘I wanted to be on the cover of Time.’5 One particular surprise for many people when they first step into a management role is that they are much less in control of things than they expected to be. The nature of management is to motivate and coordinate others to cope with diverse and far-reaching challenges. Many new managers expect to have power, to be in control, and to be personally responsible for departmental outcomes. However, managers depend on subordinates more than the reverse, and they are evaluated on the work of other people rather than on their own achievements. Managers set up the systems and conditions that help other people perform well. In the past, many managers exercised tight control over employees. But the field of management is undergoing a revolution that asks managers to do more with less, to engage employees’ hearts and minds as well as their physical energy, to see change rather than stability as natural, and to inspire vision and cultural values that allow people to create a truly collaborative and productive workplace. This textbook introduces and explains the process of management and the changing ways of thinking about the world that are critical for managers. By reviewing the actions of some successful and not-so successful managers, you will learn the fundamentals of management. By the end of this chapter, you will recognise some of the skills that managers use to keep organisations on track, and you will begin to understand how managers can achieve astonishing results through people management. By the end of this book, you will understand the fundamental management skills needed for planning, organising, leading, and controlling a department or an entire organisation. 5 6 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D INNOVATIVE WAY TWITTER AND SQUARE ‘By inventing Twitter, Jack may have well brought down dictators in North Africa and the Middle East,’ said Sir Richard Branson, Virgin Group Chief Executive Officer (CEO). He was talking about Jack Dorsey, one of the co-founders of the microblogging service Twitter, which has more than 313 million monthly active users, 1.3 billion registered users, and processes over 303 million tweets per day. As Branson’s comment reflects, tweeting isn’t just about gossiping or showing off. It’s used for all sorts of activities, from organising protests and spreading the word about political turbulence or natural disasters to marketing products and gathering customer feedback. Ultimately, though, Dorsey’s other company, Square, founded in 2010, may eventually have even greater impact and influence. Square started with one product – a simple credit card reader that can be plugged into the audio jack of a supported smartphone or tablet and allow anyone to accept credit card payments. On the iPad version of the Square Register app, the interface resembles a traditional cash register. Today, almost 2 million small businesses and individuals in the United States of America, Canada, Japan, and Australia use Square to process credit cards. Square is also creating a variety of other products and services and is growing rapidly. Much of the success of Twitter and Square can be attributed to managers’ high levels of innovation. Dorsey refers to new initiatives at Square as ‘resets’ because they aim to be so groundbreaking that they reset the nature of the financial world. ‘Everything we do is about getting people to be more open, more creative, more courageous,’ says Dorsey. In 2014, Fast Company featured Square on their World’s 50 Most Innovative Companies list. As of late 2016, with Jack Dorsey into his third stint as CEO, some commentators are wondering about the leadership stability and ongoing market leadership of Twitter, which is still going strong, but under threat from many new startups that want to disrupt its marketspace. Sources: Smith, C. (28 August 2016). Twitter Statistics and Facts (August 2016), http://expandedramblings.com/index.php/march-2013-by-the-numbers-afew-amazing-twitter-stats/ (accessed 21 October 2016); Mac, R. (17 February 2016). Square Makes Small Business Push for Growth Ahead of Earnings. http://www.forbes.com/sites/ryanmac/2016/02/17/square-small-business-payroll-capital-transition/#57df4e70420d (accessed 21 October 2016); Fast Company (10 Feburary 2014). Square. https://www.fastcompany.com/most-innovative-companies/2014/square (accessed 21 October 2016); Quoted in Ellen McGirt. (March 2012). 05: Square, For Making Magic Out of the Mercantile. Fast Company, 82–5, 146–7 (part of the section, The World’s 50 Most Innovative Companies); Will Self. (26 March 2012). Twitter Is Just a New Home for Old Bores. New Statesman, 53; (13 January 2011). Could Tunisia Be the Next Twitter Revolution? The Atlantic, http://www.theatlantic.com/daily-dish/archive/2011/01/could-tunisia-be-the-next-twitter-revolution/177302/ (accessed 11 June 2012); Alexander Mills et al. (2009). Web 2.0 Emergency Applications: How Useful Can Twitter Be For Emergency Response? Twitter for Emergency Management and Mitigation, http://denman-mills.net/web_ documents/jips_mills.etal._2009.07.22_finalsubmission.pdf (accessed 11 June 2012). http://www.vanityfair. com/news/2016/06/twitter-is-betting-everything-on-jack-dorsey 1.1 WHY INNOVATIVE MANAGEMENT MATTERS A major theme of this text is innovation, and related to that, sustainable development. To gain or keep a competitive edge, today’s managers have renewed their emphasis on innovation, shifting away from a relentless focus on controlling costs towards investing in the future. In a survey of nearly 1000 executives in North America, Europe, South America and Asia, 86 per cent agreed that ‘innovation is more important than cost reduction for long-term success’.6 Why does innovative management matter? Innovations in products, services, management systems, production processes, corporate values, and other aspects of the organisation are what keep companies growing, changing and thriving. Without innovation, no company can survive over the long run. Industries, technologies, economies, governments and societies are in a constant state of change, and managers are responsible for helping their organisations navigate through unpredictable environments with flexibility and innovation.7 The growing clout and expertise of companies in developing countries, particularly China 1: THE CHANGING WORLD OF MANAGEMENT and India, have many Western managers worried. In a hypercompetitive global environment, companies must innovate more – and more quickly – than ever. Throughout this text, we will spotlight various companies that reflect this new innovation imperative. In addition, Chapter 11 discusses innovation and change in detail. First, let’s begin our adventure into the world of management by learning about some of the current challenges for managers, and what it means to be a manager. C U R R E N T C H A L L E NG E S F O R M A NAG E R S Managers have both challenges and opportunities, whatever the size and industry or sector that they work in. We can consider the new challenges of the workplace at three levels: government, business and individual. C H A L L E NG E S F O R GOV E R N M E N T Imagine the vast range of challenging issues managers face in the three levels of government in Australia – federal, state and local (that is, local shire or council). Consider the challenges of providing competitive services and sound policy frameworks on such difficult issues as healthcare, education, transport, economic management, local services, defence and protection and environmental management, among a host of others. For example, what regulations should govern the growing telecommunications industry and the competition between mobile phone suppliers? The Australian Taxation Office is currently challenging itself to use innovation to improve both taxpayer service levels and its own effectiveness as an organisation. The same is so for virtually all of the hundreds of hospitals around Australia: they see innovation as the way of improving efficiency, effectiveness and especially patient outcomes. Other examples are: what safety standards should apply in the chemical industry; and what hygiene standards in the food industry? An issue may be specific, such as what to do about the acute shortage of capacity for aircraft movement in Sydney (solving the ‘second Sydney airport’ problem) or more general, such as what to do about floods, droughts and cyclones, how to combat climate change or how to fund healthcare as our population continues to age. The list of challenges for government at all three levels is virtually endless. Most involve allocating limited resources between alternatives, where conflicting objectives and tradeoffs between interest groups need to be considered. Although most of the challenges of government are managerial challenges, many are also policy challenges. Some are purely policy issues without much direct monetary cost to the government. For example, should the government preserve or relax the existing ‘four pillars’ policy in our banking industry, which prevents mergers or acquisitions between the big banks – ANZ, Commonwealth Bank, National Australia Bank and Westpac – and limits competition? Another example is the question of whether government should allow or disallow same-sex marriage. Governments across Asia have faced many challenges, including dealing with economic uncertainty and responding to the critical levels of air, water and land pollution that have occurred as they have industrialised. Many of Asia’s 4.5 billion people are breathing toxins at unacceptable levels as some of the world’s worst-polluted cities are in Asia. The past decades of growth and increased prosperity in Asia have led to these outcomes, which are not sustainable in the long term. The estimated total costs of pollution in China are as high as 10 per cent of gross domestic product (GDP). Hotels in Hong Kong have banded together to improve their energy consumption and reduce their pollutants. Pollution from forest burning in Indonesia is impacting on the air quality and reducing tourism in Indonesia, Singapore and Malaysia. See Chapter 11 for a detailed discussion on innovation and change. 7 8 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D Governments also face many challenges in regulating how business does business. In Australia, New Zealand and elsewhere, government regulators are constantly working to ensure that businesses do not unfairly take advantage of consumers, workers or competitors. Governments make and implement laws against unfair trading, paying below minimum wage levels, unsafe workplaces or practices, pollution, nondisclosure of information, monopolistic practices and cartel behaviours, misinforming consumers and a host of other issues. Managers within government have great responsibility on their shoulders in advising politicians and interpreting and implementing policies. Managers in industry must ensure that their firms continuously comply with literally hundreds of laws. C H A L L E NG E S F O R B U S I N E S S The challenge of pollution control and sustainable development is not just for governments, but clearly also for the business sector and for individuals as consumers. For example, the tourism industry of a region or country can be significantly affected by air pollution, undrinkable water and other environmental problems. In Australia, the Murray-Darling River system has been compromised and continues to be threatened by pollutants, and salinity and water shortage are widespread problems in the farming sector. Vast resources are needed to address these problems and farming businesses will need to work cooperatively with governments for decades to come.8 Many Australian businesses sell their products and services overseas as well as domestically, and many Australian managers have consequently been exposed to the sharp competitive forces of the Asian, United States and European marketplaces in which they do business. As a result of this, Australian managers have learned a great deal about how to manage their businesses in the changing environment. Even more important has been the translation of that learning into improved and widespread knowledge, practices and behaviour in Australian-based organisations. Further, many Australian businesses are not just buying and selling their raw materials and products and services outside Australia, but are also establishing operations outside Australia. These include retailers, banks, mining companies, manufacturers, distributors, software houses, internet-based businesses and a variety of other enterprises. In the business sector, large enterprises such as Telstra, Coles and the big banks each employ tens of thousands of people and are constantly faced with the challenge of managing the enormous costs of these labour forces. The challenge is smaller in scale, but similar, in the local milk bar or petrol station. In essence, this challenge is to continually generate enough revenue to pay all the firm’s costs for labour, rent, materials, energy, advertising and other expenses, while also producing a profit for the business owner that will be a sufficient return on investment. And while doing all this, managers must ensure that they and their companies comply with myriad laws: tax laws, labour standards, reporting of information, environmental regulations, consumer protection and many others. The strategies and decisions that governments, businesses and individuals make increasingly are being taken in the face of uncertainty. A study of senior executives conducted at the London Business School found that decision making, negotiation skills and agility in dealing with people and customers were key to what makes for successful leaders and managers at all levels. And we must remember how easy it is to ‘fall off the log’ of success – just consider the National Australia Bank. It went from being a darling of the Australian market and the leader in its industry in the 1990s under the leadership of Don Argus to a scandal-ridden company with a falling share price after Mr Argus passed on the reins of leadership to a successor. This led to shareholders losing about a quarter of their wealth, and the embarrassing 1: THE CHANGING WORLD OF MANAGEMENT resignations of the board chairman, board members and the managing director. Many employees lost their jobs in the culminating restructure in 2004. This shows how even the mightiest companies can fall from grace when leaders and managers get it wrong. Under Don Argus, the bank grew its share price 600 per cent, moved towards globalisation and increased its annual profits from AU$500 million to over AU$3 billion. Its market leadership was unquestioned for a decade. Under the next CEOs, overseas assets were sold, the bank pulled back from the global model it had aspired to, and shareholders suffered badly with long-lasting negative impacts. In 2016, this company has still not been able to recover its industry leadership position. Currently its market share sits at 18.3 per cent, behind the Commonwealth Bank of Australia (20.9 per cent), Westpac Banking Corporation (19.9 per cent), and ANZ (18.8 per cent). Over the past five years, NAB has aimed to compete on price and focused on volume. By dropping its mortgage rates significantly below those of the other major banks, NAB has sought to increase its market share. The company’s strategy has achieved some success, but in the process, the bank has initiated a price war among the major players.9 C H A L L E NG E S F O R T H E I N D I V I D UA L E M P L OY E E For the individual who wants to exchange work for money in the labour market, getting and keeping a job means to demonstrate the skills, attitude and performance that enables the employer to justify the costs of employment. In a business environment that has spent the last decade shedding labour, individual competitiveness for jobs is a continuing challenge, and the notion of job security is, for most people, a thing of the past. The challenge to individuals then is planning for their next job. A career becomes a series of employment relationships. Most university graduates will have many different jobs throughout their working lives. How do individuals, who want to achieve a good return on the human capital they invest in their work, maximise their competitiveness in winning and retaining a series of suitable jobs? They must add value to the organisations that employ them. The challenge of being competitive in the workplace follows the challenge of being competitive in school, getting into a suitable course at university, then graduating and getting a job that meets their own expectations. For governments, companies and individuals, the challenge of being competitive is continuous. R EMEMBE R THIS ◗◗ ◗◗ The decisions made by managers are always challenged by turbulence in the business environment. Change is the only constant – whether it is in a mature industry such as oil and gas, or in the new economy such as Twitter – the competitive market forces that managers must face seem to only get more intense. 1.2 MANAGERS WHO MAKE A DIFFERENCE The turbulence and change in today’s competitive business environment has led to a revolution in the field of management. A new kind of leader is needed who can guide organisations through this turbulence – a strong leader who recognises the complexity of today’s world and realises there are 9 10 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D no perfect answers. Unanticipated crises must somehow be prepared for. As we discussed earlier, the revolution asks managers to see change as the normal nature of things rather than stability, and to create vision and cultural values that allow people to foster a truly collaborative workplace, even under the most difficult conditions. This new management approach is very different from a traditional mindset that emphasises a fixed, top-down control, employee separation and specialisation, and management by impersonal measurement and analysis. Australian enterprises that want to be part of a successful and positive economic future are responding to this revolution towards a new management paradigm, or way of thinking by embracing change. Making a difference as a manager today and tomorrow requires a different approach from yesterday. Successful departments and organisations do not just happen – they are managed to be that way. Managers in every organisation face major challenges and have an opportunity to make a difference. Flexibility and agility are important new approaches and capabilities needed by managers and their organisations. Chanut Piyaoui made a difference by changing the somewhat unsavoury reputation of Thai hotels as ‘places of entertainment’, as she delicately phrased it. With little initial capital, Chanut’s vision and management skills created Thailand’s leading hotel chain, one that Asiamoney magazine has ranked one of the 100 best-managed companies in Asia.10 An initial change in the market positioning of the chain was pivotal, and has now led to international expansion of the hotel group into China, Dubai and India – all growth markets – and the development and operation of other hospitality businesses, including a training college. With further international expansion into related businesses being planned, Chanut’s vision is coming to fruition. Such managers are not unusual. Every day, managers solve difficult problems, turn organisations around and achieve astonishing performances. To be successful, every organisation needs skilled managers. T H E D E F I N I T I O N O F M A NAG E M E N T So what do managers actually do? The late, famed management theorist Peter Drucker, who is often credited with creating the modern study of management, summed up the job of the manager by specifying five tasks, as outlined in EXHIBIT 1.1.11 In essence, managers set goals, organise activities, motivate and communicate, measure performance and develop people. These five manager activities apply not only to top executives such as Elon Musk at Tesla, Mark Zuckerberg at Facebook, Alan Mulally at Ford Motor Company and Ursula Burns at Xerox, but also to the manager of a restaurant in your home suburb, the leader of an airport security team, a supervisor at a web hosting service, or the director of sales and marketing for a local Coles or Woolworths supermarket. The activities outlined in EXHIBIT 1.1 fall into four core management functions: planning (setting goals and deciding activities), organising (organising activities and people), leading (motivating, communicating with and developing people) and controlling (establishing targets and measuring performance). Depending on their job situation, managers perform numerous and varied tasks, but they all can be categorised under these four primary functions. Following on from this, our definition of management is as follows: 1: THE CHANGING WORLD OF MANAGEMENT 11 EXHIBIT 1.1 What do managers do? 1. Set Objectives Establish goals for the group and decide what must be done to achieve them 5. Develop People Recognise the value of employees and develop this critical organisational asset 4. Measure Set targets and standards; appraise performance 2. Organise Divide work into manageable activities and select people to accomplish tasks 3. Motivate and Communicate Create teamwork via decisions on pay, promotions, etc., and through communication Source: Based on ‘What Do Managers Do?’, The Wall Street Journal Online, http://guides.wsj.com/management/developinga-leadershipstyle/what-do-managers-do/ (accessed 11 August 2010), article adapted from Alan Murray, The Wall Street Journal Essential Guide to Management (New York: Harper Business, 2010). Management is the attainment of organisational goals in an effective and efficient manner through planning, organising, leading and controlling organisational resources. This definition includes two important ideas: 1 the four functions of planning, organising, leading and controlling 2 the attainment of organisational goals in an effective and efficient manner. Let’s first look at the four primary management functions. Later in this chapter, we’ll discuss organisational effectiveness and efficiency, as well as the multitude of skills that managers use to perform their jobs successfully. R EMEMBE R THIS ◗◗ ◗◗ ◗◗ ◗◗ Managers get things done by coordinating and motivating other people. ◗◗ Managers at all levels, from those running a country to those managing just themselves or a small team, must meet many challenges of creating and delivering value to their organisation and its stakeholders. Management is often a different experience from what people expect. Innovative management is critical in today’s turbulent world. Management is defined as the attainment of organisational goals in an effective and efficient manner through planning, organising, leading and controlling organisational resources. management The attainment of organisational goals in an effective and efficient manner through planning, organising, leading and controlling organisational resources. 12 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D 1.3 THE FOUR MANAGEMENT FUNCTIONS EXHIBIT 1.2 illustrates the process of how managers use resources to attain organisational goals through the functions of planning, organising, leading and controlling. Chapters of this book are devoted to the multiple activities and skills associated with each function, as well as the environment, global competitiveness and ethics that influence how managers perform these functions. EXHIBIT 1.2 The process of management Management Functions Planning Select goals and ways to attain them Performance Resources Human Financial Raw materials Technological Information Organising Controlling Assign responsibility for task accomplishment Monitor activities and make corrections Attain goals Products Services Efficiency Effectiveness Leading Use influence to motivate employees P L A N N I NG planning The management function concerned with defining goals for future organisational performance and deciding on the tasks and resource use needed to attain them. Planning means identifying the future goals for the organisation and the tasks required and resources needed to attain them. In other words, managerial planning defines where the organisation wants to be in the future and how it will achieve this. A good example of planning comes from General Electric (GE) – a company that will be repeatedly referred to throughout this book – where managers have sold off such divisions as Plastics, Insurance and Media to focus the company’s resources on four key business areas: energy; aircraft engines; healthcare; and financial services. GE used to relocate senior executives every few years to different divisions so that they developed broad, general expertise. In line with its strategic priorities, the company now keeps people in their business units longer so they gain a deeper understanding of products and customers within each of the four core businesses.12 Good planning must be more than just aspirational statements such as, ‘how many can we make and sell?’ Good planning involves understanding the enterprise’s environment and how it is changing, forecasting changes as best you can, and considering how to position the enterprise to make its market offerings (products and services) attractive. Good planning, then, overlaps with organising – working out the details of the resources necessary to achieve all this, and how they will be marshalled. organising The management function concerned with assigning tasks, grouping tasks into departments and allocating resources to departments. O RGA N I S I NG Organising typically follows planning and reflects the way the organisation tries to accomplish the plan. Organising involves the assignment of tasks, the grouping of tasks into departments and 1: THE CHANGING WORLD OF MANAGEMENT 13 the allocation of resources to departments. For example, Hewlett-Packard, NAB and Xerox have all undergone structural reorganisations to accommodate their changing plans. Semco, a Brazilian company making industrial pumps, mixers, propellers and other products, reorganised from a highly structured, autocratic business into a company run on trust, freedom and democracy. Six people rotate as CEO, for six months each. Employees set their own work schedules, organising themselves to accomplish their tasks. Semco’s loose organisational structure has been so successful that executives from Mobil, IBM and hundreds of other organisations have travelled to São Paulo to study Semco and see the operation first-hand.13 Organising is a key task for Oprah Winfrey as she strives to turn around her struggling start-up cable network, OWN. Winfrey took over as CEO of the company, repositioned some executives and hired new ones, and cut jobs to reduce costs and streamline the company. She is hoping the structural changes will bring a lean, entrepreneurial approach that will get OWN on solid ground. Winfrey said, ‘I prided myself on leanness’, referring to the early days of her TV talk show. ‘The opposite was done here.’14 Oprah’s personal leadership has indeed led to a resurgence of that network, with some 80 million homes in the USA accessing OWN.15 The restructuring of the business has lead to a successful turnaround and future expansion plans. L E A D I NG Leading uses influence to motivate employees to achieve organisational goals. Leading means creating a shared culture and values, communicating goals to people throughout the organisation and infusing employees with the desire to perform at a high level. You don’t have to be a top manager of a big corporation to be an exceptional leader. Many managers working quietly in both large and small organisations around the world provide strong leadership within departments, teams, non-profit organisations and small businesses. Well-known managers such as Don Argus and the late Steve Jobs are (and were) exceptional leaders. They are able to communicate their vision throughout the organisation and energise employees into action. In times of uncertainty, international competition and growing diversity in the workforce, the ability of leaders to shape culture, communicate goals and motivate employees is critical to business success. Change is scary and difficult for the unimaginative manager, but a positive opportunity for those who are forward-looking.16 leading The management function that uses influence to motivate employees to achieve the organisation’s goals. CO N T RO L L I NG Controlling is the fourth function in the management process. Controlling means monitoring employees’ activities, determining whether the organisation is on target to meet its goals and making corrections as necessary. Managers must ensure that the organisation is moving towards its goals. New trends towards empowerment and trust of employees have led many organisations to place less emphasis on top-down control and more on training employees to monitor and correct themselves. At International Service System (ISS), the Danish company that grew from a local office-cleaning contractor to a US$2 billion multinational business, the entire control system is built on the belief that people at all levels will make the right decisions if they are provided with the appropriate information. Front-line employees are thoroughly trained to measure their own performance against company standards and make corrections needed. Ongoing training programs at Accenture (formerly Andersen Consulting) instil into every employee the controlling The management function concerned with monitoring employees’ activities, keeping the organisation on track towards its goals and making corrections as needed. 14 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D firm’s core values and standards of expected performance, enabling the firm to give its employees great freedom without endangering its high standards. However, managers must realise that what works in one organisation or one situation may not work in another. The Mars (Uncle Ben’s) pet-food operations in Australia are responsible for most of the major brands of pet food (such as Pal) in Australian supermarkets. The company runs an open-styled culture – at Uncle Ben’s head office in Wodonga, Victoria, even the most senior executives sit near sales clerks in a single, large, open-plan office area. However, an example of a managerial control in Mars is that everyone, without exception, clocks on when they arrive at work each day. It works for them, and is a part of the way Mars organises its employees all around the world.17 The challenge to managers is to find the right mix between employee empowerment and maintaining adequate control. New information technology is also helping managers provide necessary organisational control without strict top-down constraints. Companies such as Cisco Systems use the Internet and other information technology to coordinate and monitor virtually every aspect of operations, which enables managers to keep tabs on performance without maintaining daily authoritarian control over employees. Cisco employees have amazing freedom to make decisions and take action, but they also know that top managers can keep a close eye on what is going on throughout the company with just a few mouse clicks. R EMEMBE R THIS ◗◗ ◗◗ Managers perform a wide variety of activities that fall within four primary management functions. ◗◗ ◗◗ ◗◗ Organising involves assigning tasks, grouping tasks into departments and allocating resources. Planning is the management function concerned with defining goals for future performance and how to attain them. Leading means using influence to motivate employees to achieve the organisation’s goals. Controlling is concerned with monitoring employees’ activities, keeping the organisation on track towards meeting its goals and making corrections as necessary. 1.4 ORGANISATIONAL PERFORMANCE The other part of our definition of management is the attainiment of organisational goals by being efficient and effective. Organisations are important because organisations bring together knowledge, people and raw materials to perform tasks no individual could do alone. Without organisations, how could thousands of airline flights a day be accomplished without an accident? How could electricity be produced from large dams or wind generators, millions of cars be manufactured, or hundreds of films and books be made available for our entertainment? Organisations pervade our society. Many students will work in an organisation – perhaps a Coles or Woolworths supermarket, a BP or Shell petrol station, or a McDonald’s fast-food restaurant. McDonald’s employ some 100 000 people in Australia, and bring together the best management principles of high levels of efficiency and innovation, to create high levels of value for their customers. 15 This can only be implemented through the managers and employees at McDonald’s. Students are already members of several organisations, such as university or TAFE, sporting clubs, churches or social organisations. Students also deal with organisations every day to get or renew a driver’s licence, be treated in a hospital emergency department, buy food from a supermarket, eat in a restaurant or buy new clothes. Managers are responsible for these organisations and for seeing that resources are used wisely to attain organisational goals. Our formal definition of an organisation is a social entity that is goal-directed and deliberately organisation A social entity that is goalstructured. A social entity is made up of two or more people. Goal directed means being designed to achieve directed and deliberately some outcome, such as make a profit (all companies seek this), win pay increases for members (unions), structured. meet spiritual needs (any church) or provide social satisfaction (clubs). Being deliberately structured means that tasks are divided, and responsibility for their performance is assigned to organisation members. This definition applies to all organisations, whether profit-making or not-for-profit. Based on our definition of management, the manager’s responsibility is to coordinate resources in an effective and efficient manner to accomplish the organisation’s goals. Organisational effectiveness effectiveness The degree to which the is the degree to which the organisation achieves a stated goal. It means that the organisation succeeds organisation achieves a in accomplishing what it tries to do. Organisational effectiveness means providing a product or service stated goal. that customers value. Organisational efficiency refers to the amount of resources used to achieve an efficiency The use of minimal organisational goal. It is based on how much raw materials, money and people are necessary for producing resources – raw materials, a given volume of output. Efficiency can be calculated as the amount of resources used to produce a money and people – to produce a desired volume product or service. of output. Both efficiency and effectiveness can be high in the one organisation. For example, at the Orica Botany site in Sydney – a large petrochemical complex that makes basic plastics and related chemicals needed for everyday life, such as soap and plastic bags – productivity was low due to the poor management relationship with plant operating staff and maintenance workers. After a long and difficult strike, a new management approach succeeded in bringing the workforce into alignment with management goals and nearly all workers were put into staff and salaried positions. New cooperative working arrangements led to dramatic improvements in efficiency – greater than 100 per cent in many parts of the business. These efficiency improvements went hand in hand with improvements in areas such as quality and service, and delivery reliability. The resulting improved customer satisfaction led to higher Holding degrees in both physics and economics, entrepreneur Elon Musk certainly possesses his share sales volumes and the achievement of of technical skills. He designed and created the first viable electric car – the Tesla roadster – as well as increased business effectiveness as measured the web-based payment service PayPal, and a spacecraft that will enable private citizens to travel to outer space. But it is his stellar conceptual skills that allow him to lead the innovative companies that against the company’s goals of significantly are making these products and services available to people worldwide. 18 improved cash flow and profitability. Source: Brandy Baker/Detroit News/PSG/Newscom 1: THE CHANGING WORLD OF MANAGEMENT 16 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D INNOVATIVE WAY BUDGET BLOCKBUSTERS You can’t quite make a blockbuster movie without a substantial budget, but Christopher Meledandri is out to prove that strict cost controls and hit animated films aren’t mutually exclusive. Most computer-generated animated films cost at least US$100 million, with some budgets pushing US$150 million. In contrast, Illumination Entertainment made the hit film Despicable Me for only US$69 million; the budget for Hop came in at a mere US$63 million; and the company produced its third blockbuster, Dr. Seuss’ The Lorax, for US$70 million – less than the movie brought in at the box office on its opening weekend. Managers at the company use many approaches to increase efficiency. For example, when making Despicable Me, they decided to eliminate details such as animal fur, which the audience couldn’t see on the screen. Other details that were extremely costly to render in computer graphics but that weren’t central to the story were also cut, saving the detail work for sets that were used repeatedly. The company paid a significant amount for the voice of Steve Carell, but hired other vocal talent with less star power, a practice that the company’s managers follow for all their films. They also seek out first-time directors and young, enthusiastic, less-experienced animators, who often cost less than half what a more experienced artist commands. Organisational details also contribute to efficiency – Meledandri keeps layers of the hierarchy to a minimum so that decisions can be made quickly and movies don’t languish for years in development, eating up money. Offices are in a low-rent area behind a cement plant rather than in sumptuous surroundings. Illumination Entertainment is quickly becoming the envy of Hollywood. Movie-going in general is down, but animated family films are popular. And Illumination has had some of the most popular films in recent times. Peter Chernin, former president of News Corporation, said of Meledandri: ‘It is rare to find people whose business sense is as strong as their creative sense.’ Meledandri and his management team are using their business sense to run an efficient operation and manage the company’s direction, and their creative instincts to produce popular, often critically acclaimed animated films. This team has gone on to create a string of new offerings such as Minions, The Secret Life Of Pets, Despicable Me 3, Sing and Dr. Seuss’ How The Grinch Stole Christmas. Sources: Based on Lauren A. E. Schuker. (15 July 2010). Movie Budget Lesson #1: Skip the Fur. The Wall Street Journal, B1; Brooks Barnes. (4 April 2011). Animation Meets Economic Reality. The New York Times, B1; and Allison Corneau. (4 March 2012). The Lorax Tops Weekend Box Office. US Weekly, http:// www.usmagazine.com/entertainment/news/the-lorax-tops-weekend-box-office-201243 (accessed 12 June 2012); Busch, L. (28 April 2016) Chris Meledandri: Hollywood’s New Animation Czar. Deadline.com, http://deadline.com/2016/04/chris-melendandri-illumination-dreamworks-animation-czar-1201745913/ (accessed 21 February 2017). 1.5 MANAGEMENT SKILLS A manager’s job requires a range of skills. Although some management theorists propose a long list of skills, the necessary skills for managing a department or an organisation can be placed in three categories: conceptual; human; and technical.19 As illustrated in EXHIBIT 1.3, the application of these skills changes dramatically when a person is promoted to management. Although the degree of each skill that is required at different levels of an organisation may vary, all managers must possess some skill in each of these important areas to perform effectively. conceptual skill The cognitive ability to see the organisation as a whole and the relationship among its parts. CO N C E P T UA L S K I L L S Conceptual skill is the cognitive ability to see the organisation as a whole and the relationship between its parts. Conceptual skill involves the manager’s thinking, information-processing and planning abilities. It involves knowing where the department fits into the total organisation and how the organisation 1: THE CHANGING WORLD OF MANAGEMENT EXHIBIT 1.3 Relationship of conceptual, human and technical skills to management Middle managers Non-managers (Individual contributors) fits into the industry, the community, Conceptual and the broader business and social skills environment. It means the ability to Human skills think strategically, and understand the broad, long-term view. Technical skills Conceptual skills are important for all managers at all levels of organisations. For example, Datuk Wan Zulkiflee Wan Ariffin President Conceptual skills and Group Chief Executive Officer of Petronas in Malaysia will need to Human skills work his way through the challenges of being an oil and gas company in a Technical skills world that is increasingly challenged by climate change, to which fossil fuels are a major contributor. His company has articulated policies for change and innovation, but the company’s operations are substantially fixed in oil and gas production, such that implementing changes even in the long term, is difficult. At a different level, a team leader in any business who is looking to drive operating improvement would need to use their conceptual skills to make decisions about whether a restructuring of work processes would lead to higher levels of efficiency. 17 HUMAN SKILLS Human skill is the manager’s ability to work with and through other people, and to work effectively as a group member. This skill is demonstrated in the way a manager relates to other people, including the ability to motivate, facilitate, coordinate, lead, communicate and resolve conflicts. A manager with human skills allows subordinates to express themselves without fear of ridicule and encourages participation. The ANZ Bank is a company that relies heavily on the quality of its people for its success. This bank took tremendous strides consistently over 10 years, led by its very personable (now retired) CEO, John McFarlane, who introduced a whole new culture of making the ANZ people friendly for its staff. Staff satisfaction at ANZ rose from 49 per cent to 85 per cent, resulting in increased customer satisfaction and profitability. Interestingly, such initiatives, even when they are strong and successful, rarely last forever, and after the retirement of McFarlane, a new CEO with a different strategic focus (growth in Asia) allowed this staff- and culture-led strategy to dissipate. Google is almost always acknowledged as one of the world’s most innovative companies. Even at a company such as Google that depends on technical expertise, human skills are considered essential for managers. Google analysed performance reviews and feedback surveys to find out what makes a good manager of technical people and found that technical expertise ranked last among a list of eight desired manager qualities, as shown in EXHIBIT 1.4. The exhibit lists eight effective behaviours of good managers. Notice that almost all of them relate to human skills, such as communication, coaching and teamwork. People want managers who listen to them, build positive relationships, and show an interest in their lives and careers.20 A recent survey comparing the importance of managerial skills today with those from the late 1980s found a decided increase in the role of skills for building relationships with others.21 human skill The ability to work with and through other people, and to work effectively as a group member. 18 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D EXHIBIT 1.4 Google’s rules – eight good behaviours for managers To know how to build better managers, Google executives studied performance reviews, feedback surveys, and award nominations to see what qualities made a good manager. Here are the ‘Eight Good Behaviours’ they found, in order of importance: 1 Be a good coach. 2 Empower your team and don’t micromanage. 3 Express interest in team members’ success and personal well-being. 4 Don’t be a sissy: Be productive and results-oriented. 5 Be a good communicator and listen to your team. 6 Help your employees with career development. 7 Have a clear vision and strategy for the team. 8 Have key technical skills so you can help advise the team. Source: ‘Google’s Quest to Build a Better Boss’, by Adam Bryant, published 12 March 2011 in The New York Times. Courtesy of Google, Inc. TECHNICAL SKILL technical skill The understanding of and proficiency in the performance of specific tasks. Technical skill is the understanding of and proficiency in the performance of specific tasks. Technical skill includes mastery of the methods, techniques and equipment involved in specific functions such as engineering, manufacturing or finance. Technical skill also includes specialised knowledge, analytical ability and the competent use of tools and techniques to solve problems in that specific discipline. Technical skills are particularly important at lower organisational levels. Many managers get promoted to their first management jobs by having excellent technical skills. However, technical skills become less important than human and conceptual skills as managers move up the hierarchy. Top managers with strong technical skills sometimes have to learn to step back so others can do their jobs effectively. David Sacks, founder and CEO of enterprise social network Yammer, designed the first version of the product himself, but now the company has 200 employees and a dozen or so product managers and design teams. Sacks used to ‘walk around and look over the designers’ shoulders to see what they were doing’, but says that habit prevented some people from doing their best work.22 W H E N S K I L L S FA I L Everyone has flaws and weaknesses, and these shortcomings become most apparent under conditions of rapid change, uncertainty or crisis.23 Consider how Tony Hayward, a geologist by training, handled the BP Deepwater Horizon crisis in the Gulf of Mexico, which we alluded to earlier, an event that ended his career as the company’s CEO and further damaged BP’s reputation. Until the spring of 2010, Hayward had been praised for leading a successful turnaround at the oil giant. Yet, after an oil rig drilling a well for BP exploded in April, killing 11 workers and sending hundreds of millions of gallons of oil spewing into the Gulf of Mexico, Hayward faltered in his role as a crisis leader. His ill-advised comment that he wanted the crisis over as much as anyone because he ‘wanted his life back’ showed an insensitivity and lack of diplomacy that angered the public. Hayward’s poor handling of the crisis eventually led to calls for his departure, and he resigned in July 2010.24 1: THE CHANGING WORLD OF MANAGEMENT 19 During turbulent times, managers have to stay on their toes and apply all their skills and competencies in a way that benefits the organisation and its stakeholders – employees, customers, investors, the community and so on. In recent years, numerous highly publicised examples have shown what happens when managers fail to apply their skills effectively to meet the demands of an uncertain, rapidly changing world. Ethical and financial scandals have left people cynical about business managers and even less willing to overlook their mistakes. Crises and examples of corporate deceit and greed grab the headlines, but many more companies falter or fail less spectacularly, when managers fail to listen to customers, are unable to motivate employees or can’t build a cohesive team. For example, Australia’s biggest supermarket chain, Woolworths, experienced many problems after entering the home hardware division in 2011 with its 31 new Masters stores. Eager to compete in the AU$40 billion home improvement market, Woolworths invested AU$2 billion into establishing the stores nationally. Together with its American joint partner, Lowes, Woolworths has been forced to acknowledge the errors it made in selecting inappropriate stock for the Australian seasons and customer wants, which gave rise to heavy discounting of unwanted stock. Masters also grappled with premium suppliers who refused to sell to them, preferring the wellestablished, 300-strong Bunnings stores. Analysts were concerned about management’s ability to generate profit with average quarterly sales of AU$22 million, but losses of AU$29 million. At that rate Woolworths would have had to spend AU$5 billion to break even.25 In 2016, Woolworths announced the closure of the Masters group, admitting its failure. The company wrote off large amounts of losses, and many employees lost their jobs. EXHIBIT 1.5 shows the top 10 factors that cause managers to fail to achieve desired results, based on a survey of managers in organisations in the United States of America operating in rapidly changing business environments.26 Notice that many of these factors are due to poor human skills, such as the inability to develop good work relationships, a failure to clarify direction and performance expectations, or an inability to create cooperation and teamwork. 1. Ineffective communication skills and practices 81% 2. Poor work relationships/interpersonal skills 78% 3. Person - job mismatch 69% 4. Failure to clarify direction or performance expectations 64% 5. Failure to adapt and break old habits 57% 6. Breakdown of delegation and empowerment 56% 7. Lack of personal integrity and trustworthiness 8. Inability to develop cooperation and teamwork 9. Inability to lead/motivate others 10. Poor planning practices/reactionary behaviour 0% 52% 50% 47% 45% 50% 90% Source: Adapted from Clinton O. Longenecker, Mitchell J. Neubert and Laurence S. Fink, ‘Causes and Consequences of Managerial Failure in Rapidly Changing Organizations’, Business Horizons 50 (2007): 145–55, Table 1, with permission from Elsevier. EXHIBIT 1.5 Top causes of manager failure 20 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D The number one reason for manager failure is ineffective communication skills and practices, which were cited by 81 per cent of managers surveyed. Especially in times of uncertainty or crisis, if managers do not communicate effectively, including listening to employees and customers and showing genuine care and concern, organisational performance and reputation suffer. R EMEMBE R THIS ◗◗ ◗◗ Managers have complex jobs that require a range of abilities and skills. ◗◗ Human skill refers to a manager’s ability to work with and through other people and to work effectively as part of a group. ◗◗ ◗◗ ◗◗ Technical skill is the understanding of and proficiency in the performance of specific tasks. Conceptual skill is the cognitive ability to see the organisation as a whole and the relationships between its parts. The two major reasons why managers fail are poor communication and poor interpersonal skills. A manager’s weaknesses become more apparent during stressful times of uncertainty, change or crisis. 1.6 MANAGEMENT TYPES Managers use conceptual, human and technical skills to perform the four management functions of planning, organising, leading and controlling in all organisations – large and small, manufacturing and service, profit and not-for-profit. But not all managers’ jobs are the same. Managers are responsible for different departments, work at different levels in the hierarchy and meet different requirements for achieving high performance. For example, Gail Kelly made her name as a CEO in building St George Bank’s reputation for good customer service, profitability and growth, and then took on the major challenge of moving into the same role in the bigger and more complex Westpac. Once she became chief executive of Westpac, she engineered a Westpac takeover of her former company, St George Bank. In a much smaller business (Dryen Australia), Peter Dryen assumed the top job as chairman and owner in the business his father, George, started 40 years ago. Dryen had all the same types of responsibilities as Kelly had at Westpac, ranging from employee safety and motivation, through customer satisfaction to the financial bottom line, as well as many types of legal compliance. The difference, of course, is in the scale and the resources that are involved in these executives’ challenges and opportunities. All managers must contribute to planning, organising, leading and controlling their organisations – but in different amounts and ways. Yet in 2016, both Ms Kelly and Mr Dryen moved on from their leadership roles in these organisations to do new and different innovative things in their respective business worlds. Management always involves a dynamic and changing landscape and set of opportunities. V E RT I C A L D I F F E R E N C E S An important determinant of the manager’s job is the hierarchical level. EXHIBIT 1.6 illustrates the three levels in the hierarchy. A study of more than 1400 managers examined how the manager’s job differs 1: THE CHANGING WORLD OF MANAGEMENT across these three hierarchical levels and found that the primary focus changes at different levels.27 For first-level managers, the main concern is facilitating individual employee performance. Middle managers, though, are concerned less with individual performance and more with linking groups of people, such as by allocating resources, coordinating teams or putting top management plans into action across the organisation. For top-level managers, the primary focus is monitoring the external environment and determining the best strategy to be competitive. Let’s look in more detail at differences across hierarchical levels. Top managers are at the top of the hierarchy and are responsible for the entire organisation. They have titles such as president, chairperson, executive director, CEO and executive vice president. Top managers are responsible for setting organisational goals, defining strategies for achieving them, monitoring and interpreting the external environment, and making decisions that affect the entire organisation. They look to the long-term future and concern themselves with general environmental trends and the organisation’s overall success. Top managers are also responsible for communicating a shared vision for the organisation, shaping corporate culture, and nurturing an entrepreneurial spirit that can help the company innovate and keep pace with rapid change.28 Middle managers work at middle levels of the organisation and are responsible for business units and major departments. Examples of middle managers are department head, division head, manager of quality control and director of the research lab. Middle managers typically have two or more management levels beneath them. They are responsible for implementing the overall strategies and policies defined by top managers. Middle managers are generally concerned with the near future, rather than with longrange planning. The middle manager’s job has changed dramatically over the past two decades. Many Top managers General Manager, Administration Business Unit Head General Manager People at these levels may also have horizontal project manager responsibility Administrator Middle managers Department Manager Information Product Line or Services Manager Service Manager Functional Head Production, Sales, R&D Supervisor First-line managers MIS, HRM, Accounting Supervisor Non-managerial employees Line jobs top manager A manager who is at the top of the organisational hierarchy and is responsible for the entire organisation. middle manager A manager who works at the middle levels of the organisation and is responsible for major departments. EXHIBIT 1.6 Management levels in the organisational hierarchy CEO Corporate or Group Head 21 Staff jobs Source: Adapted from Bonoma, T. V. and Lawler, J. C. (Spring 1989). Chutes and Ladders: Growing the General Manager. Sloan Management Review, 27–37. 22 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D project manager A manager responsible for a temporary work project that involves the participation of other people in the organisation. first-line manager A manager who is at the first or second management level and is directly responsible for the production of goods and services. organisations improved efficiency by laying off middle managers and slashing middle management levels. Traditional pyramidal organisation charts were flattened to allow information to flow quickly from top to bottom and decisions to be made with greater speed. In addition, technology has taken over many tasks once performed by middle managers, such as monitoring performance and creating reports.29 EXHIBIT 1.6 illustrates the shrinking middle management. Yet even as middle management levels have been reduced, the middle manager’s job has taken on a new vitality. Research shows that middle managers play a crucial role in driving innovation and enabling organisations to respond to rapid shifts in the environment.30 As Ralph Stayer, CEO of Johnsonville Sausage, said, ‘Leaders can design wonderful strategies, but the success of the organisation resides in the execution of those strategies. The people in the middle are the ones who make it work.’31 A study by Nicholas Bloom and John Van Reenen seems to support Stayer’s observation. In an experiment with textile factories in India, improved middle management practices were introduced into 20 facilities, and the results were compared to factories that did not improve management procedures. After just four months of training in better management methods, the 20 factories cut defects by 50 per cent, boosted productivity and output, and improved profits by $200 000 per year.32 Middle managers’ status also has escalated because of the growing use of teams and projects. A project manager is responsible for a temporary work project that involves the participation of people from various functions and levels of the organisation, and perhaps from outside the company as well. Many of today’s middle managers work with a variety of projects and teams at the same time, some of which cross geographical and cultural boundaries as well as functional ones. First-line managers are directly responsible for the production of goods and services. They are the first or second level of management and have such titles as supervisor, line manager, section chief and office manager. They are responsible for teams and non-management employees. Their primary concern is the application of rules and procedures to achieve efficient production, provide technical assistance and motivate subordinates. The time horizon at this level is short, with the emphasis on accomplishing day-to-day goals. This type of managerial job might also involve motivating and guiding young, often inexperienced workers, providing assistance as needed and ensuring adherence to company policies. H O R I Z O N TA L D I F F E R E N C E S functional manager A manager who is responsible for a department that performs a single functional task and has employees with similar training and skills. general manager A manager who is responsible for several departments that perform different functions. The other major difference in management jobs occurs horizontally across the organisation. Functional managers are responsible for departments that perform a single functional task and have employees with similar training and skills. Functional departments include advertising, sales, finance, human resources, manufacturing and accounting. Line managers are responsible for the manufacturing and marketing departments that make or sell the product or service. Staff managers are in charge of departments, such as finance and human resources, that support line departments. General managers are responsible for several departments that perform different functions. A general manager is responsible for a self-contained division, such as a David Jones or Myer department store or a Toyota assembly plant, and for all the functional departments within it. Project managers also have general management responsibility because they coordinate people across several departments to accomplish a specific project. 1: THE CHANGING WORLD OF MANAGEMENT R EMEMBE R THIS ◗◗ ◗◗ There are many types of managers, based on their purpose and location in an organisation. ◗◗ Middle managers work at the middle level of the organisation and are responsible for major divisions or departments. ◗◗ A project manager is a manager who is responsible for a temporary work project that involves people from various functions and levels of the organisation. ◗◗ Most new managers are first-line managers – managers who are at the first or second level of the hierarchy and are directly responsible for overseeing groups of production employees. ◗◗ A functional manager is responsible for a department that performs a single functional task, such as finance or marketing. ◗◗ General managers are responsible for several departments that perform different functions, such as the manager of a David Jones department store or a Toyota assembly plant. A top manager is one who is at the apex of the organisational hierarchy and is responsible for the entire organisation. 1.7 WHAT IS IT LIKE TO BE A MANAGER? Unless you have actually performed managerial work, it can be hard to understand exactly what managers do hour by hour, day by day. The manager’s job is so diverse that a number of studies have been undertaken in an attempt to describe exactly what happens. The question of what managers actually do to plan, organise, lead and control was first answered by Henry Mintzberg, who followed managers around and recorded all their activities.33 He developed a description of managerial work that included three general characteristics and 10 roles. Subsequent research supported his categorisation.34 More recently, research looked at what managers like to do. The research found that both male and female managers most enjoy activities such as leading others, networking and leading innovation. Activities managers enjoy least include controlling subordinates, handling paperwork and managing time pressures. Interestingly, managers in five different countries have shown substantial agreement among these preferences.35 Many new managers in particular find the intense time pressures of management, the load of administrative paperwork and the challenge of directing others to be quite stressful as they adjust to their new roles and responsibilities. Indeed, the initial leap into management can be one of the scariest moments in a person’s career.36 M A K I NG T H E L E A P: B E CO M I NG A N E W M A NAG E R Many people who are promoted into a manager position have little idea what the job actually entails and receive little training about how to handle their new role. It’s no wonder that, among managers, firstline supervisors tend to experience the most job burnout and attrition.37 Making the shift from individual contributor to manager is often tricky. Mark Zuckerberg, whose company, Facebook, went public a week before he turned 28, provides an example. In a sense, the public has been able to watch as Zuckerberg ‘grows up’ as a manager. He was a strong individual performer in creating the social media platform and forming the company, but he fumbled with day-to-day management, such as interactions with employees 23 24 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D and communicating with people both inside and outside Facebook. Zuckerberg was smart enough to hire seasoned managers, including former Google executive Sheryl Sandberg, and cultivate advisers and mentors who have coached him in areas where he is weak. He also shadowed David Graham at the offices of the Post Company (publisher of The Washington Post) for four days to try to learn what it is like to manage a large organisation. Now that Facebook is a public company, Zuckerberg is being watched more closely than ever to see if he has what it takes to be a manager of a big public corporation.38 Harvard professor Linda Hill followed a group of 19 managers over the first year of their managerial careers and found that one key to success is to recognise that becoming a manager involves more than learning a new set of skills. She found that becoming a manager means a profound transformation in the way people think of themselves, called personal identity, which includes letting go of deeply held attitudes and habits and learning new ways of thinking.39 EXHIBIT 1.7 outlines the transformation from individual performer to manager. Recall our earlier discussion of the role of manager as the person who builds systems rather than doing specific tasks. The individual performer is a specialist and a ‘doer’. His or her mind is conditioned to think in terms of performing specific tasks and activities as expertly as possible. The manager, on the other hand, has to be a generalist and learn to coordinate a broad range of activities. Whereas the individual performer strongly identifies with his or her specific tasks, the manager has to identify with the broader organisation and industry. In addition, the individual performer gets things done mostly through their own efforts and develops the habit of relying on themselves rather than on others. The manager, though, gets things done through other people. Indeed, one of the most common mistakes that new managers make is wanting to do all the work themselves, rather than delegating to others and developing others’ abilities.40 Hill offers a reminder that, as a manager, you must ‘be an instrument to get things done in the organisation by working with and through others, rather than being the one doing the work’.41 EXHIBIT 1.7 Making the leap from individual performer to manager From individual identity Specialist; performs specific tasks Gets things done through own efforts An individual actor Works relatively independently To manager identity Generalist; coordinates diverse tasks Gets things done through others A network builder Works in highly interdependent manner Source: Based on Exhibit 1.1, ‘Transformation of Identity’, in Linda A. Hill, Becoming a Manager: Mastery of a New Identity, 2nd edn (Boston, MA: Harvard Business School Press, 2003), p. 6. 1: THE CHANGING WORLD OF MANAGEMENT Another problem for many new managers is that they expect to have greater freedom to do what they think is best for the organisation. In reality, though, managers find themselves hemmed in by interdependencies. Being a successful manager means thinking in terms of building teams and networks, and becoming a motivator and organiser within a highly interdependent system of people and work. Although the distinctions may sound simple in the abstract, they are anything but in reality. In essence, becoming a manager means becoming a new person and viewing yourself in a completely new way. Many new managers have to make the transformation in a ‘trial by fire’, learning on the job as they go, but organisations are beginning to be more responsive to the need for new manager training. The cost to organisations of losing good employees who can’t make the transition is greater than the cost of providing training to help new managers cope, learn and grow. In addition, some organisations use great care in selecting people for managerial positions, including ensuring that each candidate understands what management involves. R EMEMBE R THIS ◗◗ ◗◗ Being a manager is quite different to any other job role. ◗◗ Managers coordinate other people’s activities, which requires more skills than just being a highperformer. ◗◗ Many people who get promoted into managerial roles require training to become proficient, due to the transition from being a high-functioning team member to a team leader. To be effective as a manager you must have the skills to plan and organise people, so that they will be motivated to work effectively. 1.8 MANAGERIAL ACTIVITIES Most new managers are unprepared for the variety of activities that they must routinely perform. One of the most interesting findings about managerial activities is how busy managers are and how hectic the average workday can be. A DV E N T U R E S I N M U LT I TA S K I NG Managerial activity is characterised by variety, fragmentation and brevity.42 The widespread and voluminous nature of a manager’s tasks leaves little time for quiet reflection. A recent study by a team from the London School of Economics and Harvard Business School found that the time CEOs spend working alone averages a mere six hours a week, and the rest of their time is spent in meetings, on the phone, travelling, and talking with others inside and outside the organisation.43 Managers shift gears quickly. In his study, Mintzberg found that the average time a top executive spends on any one activity is less than nine minutes, and another survey indicates that some first-line supervisors average one activity every 48 seconds.44 Significant crises are interspersed with trivial events in no predictable sequence. Every 25 26 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D manager’s job is similar in its diversity and fragmentation to what Workforce Management described as a typical day in the life of human resources (HR) manager Kathy Davis:45 ◗◗ 6.55 a.m. – Arrives at work early to begin investigating a complaint of sexual harassment at one of the factories, but as she’s walking to her office, she bumps into someone carrying a picket sign that reads ‘Unfair Hiring! Who Needs HR?’ Spends a few minutes talking with the young man, who is a temp who she had let go due to sloppy work. ◗◗ 7.10 a.m. – Finds the factory shift supervisor and a security staff member already waiting outside her door to discuss the sexual harassment complaint. ◗◗ 7.55 a.m. – Sue, a member of Kathy’s team who has just arrived and is unaware of the meeting, interrupts to let Kathy know there is someone picketing in the hallway outside her office and the CEO wants to know what’s going on. ◗◗ 8.00 a.m. – Alone at last, Kathy calls the CEO and explains the picketing situation, and then begins her morning routine. Checking her voicemail, she finds three messages that she must respond to immediately, and passes four others to members of her team. She begins checking her email but is interrupted again by Sue, who reminds her they have to review the recent HR audit so that the company can respond promptly and avoid penalties. ◗◗ 9.15 a.m. – As she is reviewing the audit, Kathy gets a call from manager Pete Channing, asking if she’s sent the offer letter to a prospective hire. ‘Don’t send it,’ Pete said, ‘I’ve changed my mind.’ Weeks of interviewing and background checks, and now Pete wants to start over! ◗◗ 11.20 a.m. – Kathy is getting to the end of her critical email list when she hears a commotion outside her door and finds Linda and Sue arguing. ‘This report IT did for us is full of errors,’ Linda says, ‘but Sue says we should let it go.’ Kathy agrees to take a look at the IT department’s report and discovers that there are only a few errors, but they have critical implications. ◗◗ 12.25 p.m. – As she’s nearing the end of the IT report, Kathy’s email pings an ‘urgent’ message from a supervisor informing her that one of his employees will be absent from work for a few weeks ‘while a harassment charge is worked out’. This is the first she’s heard about it, so she picks up the phone to call the supervisor. ◗◗ 1.20 p.m. – Time for lunch – finally. She grabs a sandwich at a local cafe and brings one back for the picketer, who thanks her and continues his march. ◗◗ 2.00 p.m. – Meets with CEO Henry Luker to review the audit and IT reports, discuss changes to the company’s superannuation plan and talk about ideas for reducing turnover. ◗◗ 3.00 p.m. – Rushes back to her office to grab her keys so that she can drive to a meeting with the manufacturing facilities manager, who has asked Kathy to ‘shadow’ him and share ideas about training and skills development. ◗◗ 3.15 p.m. – As she gets out of her car at the facility, Kathy runs into a man who had attended a supervision training course a few months earlier. He tells her that the class really helped him – there are fewer misunderstandings, and the staff seems to respect him more. ◗◗ 3.30 p.m. – Arrives right on time and spends the next couple of hours observing and asking questions, talking to employees to learn about the problems and obstacles they face. ◗◗ 5.40 p.m. – All is quiet back in the HR department, but there’s a message from Sue that Kathy has an appointment first thing tomorrow morning with two women who had gotten into a fight in the elevator. Sighing, Kathy returns to her investigation of the sexual harassment complaint that she had begun at 7.00 that morning. 1: THE CHANGING WORLD OF MANAGEMENT LIFE ON SPE ED DI AL The manager performs a great deal of work at an unrelenting pace.46 The managers observed by Mintzberg processed 36 pieces of written correspondence each day, attended eight meetings and took a tour through the building or factory. Most top executives routinely work at least 12 hours a day and spend 50 per cent or more of their time travelling. Calendars are often booked months in advance, but unexpected disturbances erupt every day.47 Mintzberg found that the majority of executives’ meetings and other contacts are ad hoc, and even scheduled meetings are typically surrounded by other events such as quick phone calls, scanning of email or spontaneous encounters. During time away from the office, executives catch up on work-related reading, paperwork, phone calls and email. Technology, such as email, text messaging, smartphones and tablets, only intensifies the pace leading to even further pressure on all managers to be able to be interrupted and instantly available, making it harder for them to find even small blocks of time to think and strategise. Management can be rewarding, but it can also be frustrating and stressful, as discussed in the Management in practice box below. As the job of a manager becomes increasingly tough, a certain degree of resilience is essential for success. MANAGEMENT IN PRACTICE DO YOU REALLY WANT TO BE A MANAGER? Is management for you? Becoming a manager is considered by most people to be a positive, forward-looking career move and, indeed, life as a manager offers appealing aspects. However, it also holds many challenges, and not every person will be happy and fulfilled in a management position. Here are some of the issues potential managers should consider before deciding they want to pursue a management career. ✚✚ The increased workload. It isn’t unusual for managers to work 70–80 hours per week, and some work even longer hours. A manager’s job always starts before a shift and ends hours after the shift is over. When Ray Sarnacki was promoted to manager at an aerospace company, he found himself frustrated by the incessant travel, endless paperwork and crowded meeting schedule. He eventually left the job and found happiness in a position earning about one-fifth of his peak managerial salary. ✚✚ The challenge of supervising former peers. This issue can be one of the toughest for new managers. They frequently struggle to find the right approach, with some trying too hard to remain ‘one of the gang’, and others asserting their authority too harshly. In almost all cases, the transition from a peer-to-peer relationship to a manager-to-subordinate one is challenging and stressful. ✚✚ The headache of responsibility for other people. A lot of people get into management because they like the idea of having power, but the reality is that many managers feel overwhelmed by the responsibility of hiring, supervising and disciplining others. Laura Kelso, who today thrives on the fast pace and responsibility of being a manager, says that the first time she had to fire someone, she agonised for weeks over how to do it. New managers are often astonished at the amount of time it takes to handle employees’ problems. Kelly Cannell, who quit her job as a manager, puts it this way: ‘What’s the big deal [about managing people]? The big deal is that people are human … To be a good manager, you have to mentor them, listen to their problems, counsel them, and at the end of the day you still have your own work on your plate … Don’t take the responsibility lightly, because no matter what you think, managing people is not easy.’ ✚✚ Being caught in the middle. Except for those in the top echelons, managers find themselves acting as a backstop, caught between upper management and the workforce. Even when middle managers disagree with the decisions of top managers, they are responsible for implementing them. For some people, the frustrations of management aren’t worth it. For others, management is a fulfilling and satisfying career 27 28 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D choice and the emotional rewards can be great. One key to being happy as a manager may be carefully evaluating whether you can answer yes to the question, ‘do I really want to be a manager?’ SOURCES: White, E. (21 November 2005). Learning to Be the Boss. The Wall Street Journal, B1; Sandberg, J. (27 July 2005). Down Over Moving Up: Some New Bosses Find They Hate Their Jobs. The Wall Street Journal, B1; Row, H. (February–March 1998). Is Management for Me? That Is the Question. Fast Company, 50–2; Schellhardt, T. D. (4 April 1997). Want to Be a Manager? Many People Say No, Calling Job Miserable. The Wall Street Journal, A1, A4; Murray, M. (25 July 2000). Managing your Career – the Midcareer Crisis: Am I in This Business to Become a Manager? The Wall Street Journal, B1. W H E R E D O E S A M A NAG E R F I N D T H E T I M E ? With so many responsibilities and so many competing demands on their time, how do managers cope? The Wall Street Journal’s Lessons in Leadership video series asked CEOs of big companies how they managed their time, and found that many of them carve out time just to think about how to manage their time.48 Time is a manager’s most valuable resource, and one characteristic of successful managers is that they know how to use time effectively to accomplish the important things first and the less important things later.49 Time management refers to the use of techniques that enable you to get more done in less time and with better results, be more relaxed, and have more time to enjoy your work and your life. The Management in practice box below offers some tips for time management. MANAGEMENT IN PRACTICE TIME MANAGEMENT TIPS FOR NEW MANAGERS One of the main challenges of life as a manager is the increased workload and the difficulty of finding the time to accomplish everything on one’s expanded list of duties and responsibilities. The following classic time management techniques can help you eliminate major time-wasters in your daily routines. ✚✚ Keep a to do list. If you don’t use any other system for keeping track of your responsibilities and commitments, at the very least you should maintain a to do list that identifies all the things you need to do during the day. Although the nature of management means that new responsibilities and shifting priorities occur frequently, it’s a fact that people accomplish more with a list than without one. ✚✚ Remember your ABCs. Using A, B and C to organise your activities is a highly effective system for prioritising tasks or activities on your to do list. ✚✚ A items are highly important and must be done, or you’ll face serious consequences. ✚✚ B items are a should do, but consequences will be minor if you don’t get them done. ✚✚ C’ items are things that would be nice to get done, but there are no consequences at all if you don’t accomplish them. ✚✚ D items are tasks that you can delegate to someone else. ✚✚ Do a daily review and look-ahead. Spend 10–15 minutes each evening reviewing the day and then thinking ahead to the next day. Reviewing what worked well and what didn’t will increase your awareness of your behaviour and reduce your bad habits the next day. Then, look ahead and plan what you want to accomplish the next day. Some experts propose that every minute spent in planning saves 10 minutes in execution. ✚✚ Do one thing at a time. Multitasking has become the motto of the early twenty-first century, but too much multitasking is a time waster. Research has shown that multitasking reduces rather than enhances productivity. The authors of one study suggest that an inability to focus on one thing at a time could reduce efficiency by 20 to 40 per cent. Even for those 1: THE CHANGING WORLD OF MANAGEMENT whose job requires numerous brief activities, the ability to concentrate fully on each one (sometimes called spotlighting) saves time. Give each task your full attention, and you’ll get more done and get it done better, too. SOURCES: Based on information in Pamela Dodd and Doug Sundheim, The 25 Best Time Management Tools & Techniques (Ann Arbor, MI: Peak Performance Press, Inc., 2005); Brian Tracy, Eat That Frog: 21 Great Ways to Stop Procrastinating and Get More Done in Less Time (San Francisco: Berrett-Koehler, 2002); Joshua S. Rubinstein, David E. Meyer and Jeffrey E. Evans. (August 2001). Executive Control of Cognitive Processes in Task Switching. Journal of Experimental Psychology: Human Perception and Performance, 27:4, 763–97; and Sue Shellenbarger. (27 February 2003). Multitasking Makes You Stupid: Studies Show Pitfalls of Doing Too Much at Once. The Wall Street Journal, D1. M A NAG E R RO L E S Mintzberg’s observations and subsequent research indicate that diverse manager activities can be organised into 10 roles.50 A role is a set of expectations for a manager’s behaviour. EXHIBIT 1.8 describes activities associated with each of the roles. These roles are divided into three conceptual categories: informational Role A set of expectations for one’s behaviour. EXHIBIT 1.8 Ten manager roles Informational Monitor: Seek and receive information; scan web, periodicals, reports; maintain personal contacts Disseminator: Forward information to other organisation members; send memos and reports, make phone calls Spokesperson: Transmit information to outsiders through speeches, reports Interpersonal Figurehead: Perform ceremonial and symbolic duties such as greeting visitors, signing legal documents Leader: Direct and motivate subordinates; train, counsel and communicate with subordinates Liaison: Maintain information links inside and outside the organisation; use email, phone, meetings Decisional Entrepreneur: Initiate improvement projects; identify new ideas, delegate idea responsibility to others Disturbance Handler: Take corrective action during conflicts or crises; resolve disputes among subordinates Resource Allocator: Decide who gets resources; schedule, budget, set priorities Negotiator : Represent team or department’s interests; represent department during negotiation of budgets, union contracts, purchases Sources: Adapted from Henry Mintzberg, The Nature of Managerial Work (New York: Harper & Row, 1973), pp. 92–3; and Henry Mintzberg. (1971). Managerial Work: Analysis from Observation. Management Science, 18, B97–B110. 29 30 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D (managing by information); interpersonal (managing through people); and decisional (managing through action). Each role represents activities that managers undertake to ultimately accomplish the functions of planning, organising, leading and controlling. Although it is necessary to separate the components of the manager’s job to understand the different roles and activities of a manager, it is important to remember that the real job of management isn’t practised as a set of independent parts; all the roles interact in the real world of management. INFO RM ATIO NA L ROL E S Informational roles describe the activities used to maintain and develop an information network. General managers spend about 75 per cent of their time communicating with other people. The monitor role involves seeking current information from many sources. The manager acquires information from others and scans written materials to stay well informed. The disseminator and spokesperson roles are just the opposite; the manager transmits current information to others, both inside and outside the organisation, who can use it. Apple CEO Steve Jobs was a master of the spokesperson role when introducing new Apple products to the public, and employees and the media are watching to see if CEO Tim Cook can match his predecessor’s proficiency in this area. Cook has a distinctly different style from Jobs – less passionate and more controlled – but the comments about his first appearances as spokesperson for Apple have been generally positive.51 The pragmatic new CEO, who was hand-picked by Jobs, has encouraged greater collaboration and more team work within Apple and has increased the company’s charitable contributions. Yet he is known to be meticulous on details in meetings and can calmly terrify ill-prepared managers.52 By 2017, Apple has returned to its position as the world’s most highly valued company, respected for its product leadership, innovation and first class supply chain, under Mr Cook’s leadership. Indeed it has recently been revealed that Mr Cook was a key player in the earlier successes of Apple in the first place.53 TAKE A MOMENT Are you ready to step into a job as a new manager? Consider the hectic pace and varied activities managers perform. Are you prepared to make a personal transformation from individual performer to accomplishing work by engaging and coordinating other people? If you haven’t already completed the ‘Are you ready to be a manager?’ self-assessment at the beginning of this chapter, take it now to see whether your priorities align with the demands placed on a new manager’s job. INT ERP ERSONA L RO LES Interpersonal roles pertain to relationships with others and are related to the human skills described earlier. The figurehead role involves handling ceremonial and symbolic activities for the department or organisation. The manager represents the organisation in his or her formal managerial capacity as the head of the unit. The presentation of employee awards by a branch manager for a bank is an example of the figurehead role. The leader role encompasses relationships with subordinates, including motivation, communication and influence. The liaison role pertains to the development of information sources both inside and outside the organisation. Consider the challenge of the leader and liaison roles for managers at National Foods Limited, Pakistan’s largest maker of spices and pickles. Managers in companies 1: THE CHANGING WORLD OF MANAGEMENT throughout Pakistan struggle with political instability, frequent power outages, government corruption and inefficiency, and increasing threats of terrorism, all of which makes the leader role even more challenging. ‘In the morning, I assess my workers’, says Sajjad Farooqi, a supervisor at National Foods. If Farooqi finds people who are too stressed out or haven’t slept the night before, he changes their shift or gives them easier work. Farooqi also pays a lot of attention to incentives because people are under so much pressure. As for the liaison role, managers have to develop information sources not only related to the business, but related to safety and security concerns.54 DECISIONA L RO LES Decisional roles pertain to those events about which the manager must make a choice and take action. These roles often require conceptual as well as human skills. The entrepreneur role involves the initiation of change. Managers are constantly thinking about the future and how to get there.55 The disturbance handler role involves resolving conflicts among subordinates or between the manager’s department and other departments. The resource allocator role pertains to decisions about how to assign people, time, equipment, money and other resources to attain desired outcomes. The manager must decide which projects receive budget allocations, which of several customer complaints receive priority, and even how to spend his or her own time. The founders and co-CEOs of Research in Motion (RIM), Mike Lazaridis and Jim Balsillie, producers of BlackBerry, were not very effective in fulfilling their decisional roles in the several years before the two resigned under pressure from angry shareholders and frustrated board members in early 2012. Rather than pushing for innovative new products and change at RIM, they kept pouring more resources into the BlackBerry, even as the iPhone and Android models devastated that product’s market share.56 The relative emphasis that a manager puts on these 10 roles depends on a number of factors, such as the manager’s position in the hierarchy, his or her natural skills and abilities, the type of organisation or the departmental goals to be achieved. EXHIBIT 1.9 illustrates the varying importance of the leader and liaison roles as reported in a survey of top-, middle- and lower-level managers. Note that the importance of the leader role typically declines, while the importance of the liaison role increases, as a manager moves up the organisational hierarchy. Other factors, such as changing environmental conditions, also may determine which roles are more important for a manager at any given time. Robert Dudley, who took over as CEO of troubled oil giant BP after Tony Hayward was forced out due to mishandling the Deepwater Horizon crisis, has found informational roles and decisional roles at the top of his list as he has personally worked to repair relationships with American government officials, work better with local communities, restore the company’s reputation, and take steps to prevent such a disastrous event from happening again.57 Managers must stay alert to needs both within and outside the organisation to determine which roles are most critical at various times. A top manager may regularly put more emphasis on the roles of spokesperson, figurehead and negotiator, but the emergence of new competitors may require more attention to the monitor role, or a severe decline in employee morale and direction may mean that the CEO has to put more emphasis on the leader role. A marketing manager may focus on interpersonal roles because of the importance of personal contacts in the marketing process, whereas a financial manager may be more likely to emphasise decisional roles such as resource allocator and negotiator. Despite these differences, all managers carry out informational, interpersonal and decisional roles to meet the needs of the organisation. 31 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D EXHIBIT 1.9 Hierarchical levels and importance of leader and liaison roles High Med Importance 32 Leader role Liaison role Low Supervisory managers Middle managers Top managers Source: Based on information from A. I. Kraut, P. R. Pedigo, D. D. McKenna and M. D. Dunnette. (1989). The Role of the Manager: What’s Really Important in Different Management Jobs. Academy of Management Executive, 3, 286–93. R EMEMBE R THIS ◗◗ Becoming a new manager requires a shift in thinking from being an individual performer to playing an interdependent role of coordinating and developing others. ◗◗ Because of the interdependent nature of management, new managers often have less freedom and control than they expect to have. ◗◗ ◗◗ The job of a manager is highly diverse and fast-paced, so managers need good time management skills. Managers at every level perform 10 roles, which are grouped into informational roles, interpersonal roles and decisional roles. MANAGING IN SMALL BUSINESSES AND NOT-FOR-PROFIT ORGANISATIONS 1.9 See Chapter 6 for detailed information about managing small business and entrepreneurial start-ups. Small businesses are growing in importance. Hundreds of small businesses open every month, but the environment for small business today is highly complicated. Chapter 6 provides detailed information about managing small businesses and entrepreneurial start-ups. One interesting finding is that managers in small businesses tend to emphasise roles differently from those of managers in large corporations. Managers in small companies often see their most important role as that of spokesperson because they must promote the small, growing company to the outside world. The entrepreneur role is also critical in small businesses because managers have to be innovative and help their organisations develop new ideas to remain competitive. At LivingSocial, for example, retiring founder and CEO Tim O’Shaughnessy dedicated a lot of his time to promoting the rapidly growing daily-deal site and talking 1: THE CHANGING WORLD OF MANAGEMENT with department heads about potential new products and services.58 Small business managers tend to rate lower on the leader role and on information-processing roles, compared with their counterparts in large corporations. Not-for-profit organisations also represent a major application of management talent.59 Organisations such as the Salvation Army, Nature Conservancy, Girl Guides, the Big Issue and sporting clubs all require excellent management. The functions of planning, organising, leading and controlling apply to not-for-profit organisations just as they do to business organisations, and managers in not-for-profit organisations use similar skills and perform similar activities. The primary difference is that managers in businesses direct their activities towards earning money for the company, whereas managers in not-for-profit organisations direct their efforts towards generating some kind of social impact. The characteristics and needs of not-for-profit organisations created by this distinction present unique challenges for managers.60 Financial resources for not-for-profit organisations typically come from government appropriations, grants and donations rather than from the sale of products or services to customers. In businesses, managers focus on improving the organisation’s products and services to increase sales revenues. In not-for-profit organisations, however, services are often provided to non-paying clients, and a major problem for many organisations is securing a steady stream of funds to continue operating. Not-for-profit managers, committed to serving clients with limited resources, must focus on keeping organisational costs as low as possible.61 Donors generally want their money to go directly to helping clients rather than for overhead costs. If not-for-profit managers can’t demonstrate a highly efficient use of resources, they might have a hard time securing additional donations or government appropriations. In addition, because not-for-profit organisations do not have a conventional profit-based bottom line, managers often struggle with the question of what constitutes results and effectiveness. It is easy to measure dollars and cents, but the metrics of success in not-for-profit organisations are much more ambiguous. Managers have to measure intangibles such as ‘make a positive difference in the lives of the disenfranchised’ or ‘increase appreciation for the arts’. This intangible nature also makes it more difficult to gauge the performance of employees and managers. An added complication is that managers often depend on volunteers and donors who cannot be supervised and controlled in the same way that a business manager deals with employees. Many people who move from the corporate world to a not-for-profit organisation are surprised to find that the work hours are often longer and the stress greater than in their previous management jobs.62 The roles defined by Mintzberg also apply to not-for-profit managers, but these may differ somewhat. We might expect managers in not-for-profit organisations to place more emphasis on the roles of spokesperson (to ‘sell’ the organisation to donors and the public), leader (to build a mission-driven community of employees and volunteers) and resource allocator (to distribute government resources or grant funds that are often assigned top-down). Managers in all organisations – large corporations, small businesses and not-for-profit organisations – carefully integrate and adjust the management functions and roles to meet challenges within their own circumstances and keep their organisations healthy. 33 34 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D R EMEMBE R THIS ◗◗ Good management is just as important for small businesses and not-for-profit organisations as it is for large corporations. ◗◗ Managers in small businesses often see their most important roles as being a spokesperson for the business and acting as an entrepreneur. ◗◗ Managers in not-for-profit organisations direct their efforts towards generating some kind of social impact rather than towards making money for the organisation. ◗◗ Not-for-profit organisations don’t have a conventional bottom line, so managers often struggle with what constitutes effectiveness. STATE-OF-THE-ART MANAGEMENT COMPETENCIES 1.10 In recent years, rapid environmental shifts have caused a fundamental transformation in what is required of effective managers. Technological advances and the rise of virtual work, global market forces, and shifting employee and customer expectations have led to a decline in organisational hierarchies and more empowered workers, which calls for a new approach to management that may be quite different from managing in the past.63 EXHIBIT 1.10 shows the shift from the traditional management approach to the new management competencies that are effective in today’s environment. Instead of being a controller, today’s effective manager is an enabler who helps people do and be their best. Managers help people get what they need, remove obstacles, provide learning opportunities and offer feedback, coaching and career guidance. EXHIBIT 1.10 Stateof-the-art management competencies for today’s world From Traditional Approach To New Competencies Management Principle Overseeing Work From Controller To Enabler Accomplishing Tasks From supervising individuals To leading teams Managing Relationships From conflict and competition To conversation and collaboration Leading From autocratic To dispersed and empowering Designing From maintaining stability To mobilising for change 1: THE CHANGING WORLD OF MANAGEMENT Instead of managing by controlling, today’s managers must display an empowering leadership style. Much work is done in teams rather than by individuals, so team-leadership skills are crucial. People in many organisations work at scattered locations, so managers can’t monitor behaviour continually. In addition, managers sometimes are coordinating the work of people who aren’t under their direct control, such as those in partner organisations, sometimes even working with competitors. Managing relationships based on authentic conversation and collaboration is essential for successful outcomes. In addition, today’s best managers are ‘future-facing’. That is, they design the organisation and culture for creativity, adaptation and innovation rather than maintaining the status quo. Today’s world is constantly changing, and success depends on innovation and continuous improvement. The shift to a new way of managing isn’t easy for traditional managers who are accustomed to making all the decisions, and knowing where their subordinates are and what they’re doing at every moment. Even more changes and challenges are on the horizon for organisations and managers. This is an exciting and challenging time to be entering the field of management. Throughout this book, you will learn much more about the new workplace, about the new and dynamic roles managers are playing in the twenty-first century, and about how you can be an effective manager in a complex, ever-changing world. INNOVATIVE WAY In 2006, Australian Comfort merged with Clickcorp Pty Ltd enabling both companies to modernise and expand the production facilities and establish Chic Empire brand. This joint venture resulted in the exponential growth and popularity of Chic Empire ugg boots and accessories, exposing the brand to the global markets. Clickcorp, founded by entrepreneurs Igor Fenster and Alexander Tsintsiper in 2006, continues to maintain a strong commitment to manufacturing in Australia and employ Australians to produce an iconic Australian product. Today Clickcorp employs over 40 Australians and operates a manufacturing facility in Melbourne with Chic Empire sheep skin boots and products being exported to 27 countries worldwide. This includes human resources, financial controls and other elements of what growing companies require. This company has achieved an amazing statistic for an Australian-based manufacturing company – when it was a purely online retailer, 95 per cent of its sales were exported. To boost domestic sales, retail outlets, in addition to their flagship store in Melbourne’s CBD and Source: Newspix/Aaron Francis CLICKCORP: TAKING UGG TO THE WORLD their factory outlet store in Clayton, Victora, are likely to be a major part of its future growth strategy. This company has shown that while it is not easily possible to be cost competitive from Australia in the world that comprises many low cost countries and companies, there are many profitable niches to be filled by high energy entrepreneurs. These business builders have started other niche online stores, brands and products. Sources: Chic Empire (2016). Ugg boots made in Australia. http://www.chicempire.com.au/ (accessed 21 October 2016); L. D’Angelo Fisher. (4–10 November 2010). If the Ugg Fits. BRW, 15; Clickcorp website, http://www.clickcorp.com.au (accessed 20 March 2014). 35 36 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D R EMEMBE R THIS ◗◗ Turbulent forces acting on the organisation from its external environment have caused a significant shift in the competencies required for effective managers. ◗◗ Traditional management competencies could include a command-and-control leadership style, a focus on individual tasks and standardising procedures to maintain stability. ◗◗ New management competencies include the ability to be an enabler rather than a controller, using an empowering leadership style, encouraging collaboration, leading teams and mobilising for change and innovation. TURBULENT TIMES: MANAGING CRISES AND UNEXPECTED EVENTS 1.11 Many managers may dream of working in an organisation and a world in which life is relatively calm, orderly and predictable, but their reality is one of increasing turbulence and disorder. Today’s managers and organisations face various levels of crisis every day – everything from an organisation’s intranet or Internet servers unexpectedly going offline to claims of harassment or discrimination, to a factory fire or workplace accidents. However, these organisational crises have been compounded by crises on a more global level. These and other events have brought uncertainty and turbulence clearly to the forefront of everyone’s mind, and crisis management has become a critical skill for every manager. Dealing with the unexpected has always been part of the manager’s job, but our world has become so fast, interconnected and complex that unexpected events happen more frequently and often with greater and more painful consequences. All of the new management skills and competencies we have discussed are important to managers in such an environment. In addition, crisis management places further demands on today’s managers. Some of the tried and true thinking on crisis management suggests the importance of five leadership skills.64 1 2 3 4 5 Stay calm. Be visible. Put people before business. Tell the truth. Know when to get back to business. STAY C A L M A leader’s emotions are contagious, so leaders have to stay calm, focused and optimistic about the future. Perhaps the most important part of a manager’s job in a crisis situation is to absorb people’s fears and uncertainties. Leaders have to suppress their own fears, doubts and pain to encourage others. Although they acknowledge the difficulties, they remain rock-steady and hopeful, which gives comfort, inspiration and hope to others. 1: THE CHANGING WORLD OF MANAGEMENT BE VISIBLE When people’s worlds have become ambiguous and uncertain, they need to feel that someone is in control. PUT PEOPLE BE FORE BUSI NE SS The companies that weather a crisis best, whether the crisis is large or small, are those in which managers make people and human feelings their top priority. TELL THE TRUTH Managers should get as much information from as many diverse sources as they can, do their best to determine the facts, and then be open and straightforward about what’s going on. K NOW W H E N T O G E T B A C K T O B U S I N E S S Although managers should first deal with the physical and emotional needs of people, they also need to get back to business as soon as possible. The company has to keep going, and there’s a natural human tendency to want to rebuild and move forward. The rejuvenation of the business is a sign of hope and an inspiration to employees. Moments of crisis also present excellent opportunities for looking forward and using the emotional energy that has emerged to build a better company. R EMEMBE R THIS ◗◗ ◗◗ Modern managers are enablers of others’ actions and capabilities as much as they are controllers. When major uncertainty occurs in an organisation, a structured approach can be brought to bear to deal with it, until normality is resumed. AUSTRALIA’S MANAGERS: IMPROVING FROM A LOW BASE 1.12 Each year, the World Economic Forum and the Institute for Management Development in Europe rank countries in terms of their competitiveness. On the ‘management’ criterion, defined by the World Economic Forum as ‘the extent to which enterprises are managed in an innovative, profitable and responsible manner’, Australia ranked 18th out of 41 countries in 1994. This was behind such nations as Japan, Hong Kong, New Zealand, Malaysia, Chile, Norway, the United Kingdom, Germany, the Netherlands and the United States of America. By 2016, Australia’s position had hardly changed, at 21st, behind the top 10 global competitiveness leaders of Switzerland, Singapore, Finland, Sweden, Netherlands, Germany, the United States of America, United Kingdom, Hong Kong and Japan.65 37 38 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D R EMEMBE R THIS SUSTAINABLE DEVELOPMENT SUSTAINABLE DEVELOPMENT – A CORE ISSUE FOR MANAGERS sustainable development Involves making balanced and equitable decisions so that financial, environmental and social outcomes are achieved in both the short and longer terms. ◗◗ ◗◗ Today’s managers and organisations face various levels of crisis every day. ◗◗ The five leadership skills required for crisis management are stay calm, be visible, put people before business, tell the truth and know when to get back to business. ◗◗ Australian managers are ranked 21st out of 41 countries by the World Economic Forum in an assessment of management competency. ◗◗ Australian manager strengths include their openness and honesty and their egalitarian, hard-working attitudes. ◗◗ Australian manager weaknesses include their lack of long-term vision and strategic perspective, as well as their poor ability to manage teams and empower others. ◗◗ ◗◗ Australian managers tend to be poorly qualified in comparison to managers from other major nations. ◗◗ Leading organisations in all industries have advanced their financial outcomes through incorporating sustainable development principles and practices. ◗◗ The ‘triple bottom line’ required an organisation to balance their financial, environmental and social obligations. Daily uncertainty and turbulence has meant that crisis management has become a critical skill for every manager. Advanced and progressive managers are balancing the short-term need to be profitable with longterm opportunities that drive efficiency, stakeholder relationships and marketplace advantages. For managers today, the world in which they manage is becoming more complex. This will certainly hold true in the future. Although this complexity brings new challenges it also brings new opportunities. It used to be that an acceptable and standard approach to running a business was to simply maximise profitability while not breaking the law, and behaving acceptably in terms of community expectations. There is indeed nothing wrong with this approach; but having said that, it is also true that advanced and progressive managers are doing even more than that. They are balancing the short-term need to be profitable, with the long-term opportunities to invest in initiatives that drive efficiency, stakeholder relationships and marketplace advantages. These sustainable development practices can lead to improvements of all kinds, often expressed in terms of the triple bottom line of organisations, that being the financial bottom line that is traditional for all organisations, plus the environmental bottom line (meaning reducing the impact of the organisation’s activities on the environment) and the social/community bottom line (meaning the contribution and outcomes that the organisation creates in the communities and societies within which it operates). Companies that are progressive in this regard have implemented numerous initiatives aimed at achieving win-win outcomes on these bottom lines. Examples are: 1. using materials that can be effectively recycled, thus saving on the creation of new materials and hence saving resources 2. conducting energy and water audits, then reducing energy use, saving both money and the creation of unnecessary greenhouse gases 3. providing employees with flexible working conditions and health checks, gyms, etc., making their lives better and enhancing motivation and workplace productivity 1: THE CHANGING WORLD OF MANAGEMENT 4. working proactively with suppliers and customers on issues such as reducing the amount of packaging used on products to save costs and improve environmental outcomes 5. providing information about nutrition and food content in the food production industries, so that consumers can make healthier choices 6. working closely with regional small businesses to develop local economies and quality of life factors, for example, in the case of resource companies where their mines and oil wells are close to residents. There is no limit to the opportunities for organisations to work closely and to engage and empower their stakeholders to find win-win outcomes on the triple bottom line. While many of these approaches and examples are not new, it is true that many organisations have not done much about them in the past, having been overly focused on short-term financial outcomes. Leading organisations in all industries, without exception, have seized the opportunities to advance their financial outcomes through incorporating these sustainable development principles and practices in their strategies, operations, measures, reward systems and ultimately into their culture and value systems. This is not a short-term trend that will be gone in just a few years – it is an opportunity that leading companies will use to their advantage, and those that ignore it or lag behind will suffer. Furthermore, working on advancing an organisation’s sustainable development outcomes will drive innovation. In this book we will connect the various traditional themes of management covered in each chapter to the emerging themes of sustainable development. In Chapter 5, which focuses on business ethics and corporate social responsibility, we give a more detailed account of the core elements of this important aspect and how managers will increasingly need to manage sustainably in the future. 39 40 STUDY TOOLS ONLINE STUDY RESOURCES Visit http://login.cengagebrain.com and use the access code that comes with this book for 12 months access to the resources and study tools for this chapter. Express COU RS EMATE EXPR E S S FO R MA NAGEMENT S E A R C H M E ! M A NAG E M E N T The CourseMate Express website contains: Explore Search Me! Management for articles relevant to this chapter. Fast and convenient, Search Me! Mangement is updated daily and provides you with 24-hour access to full text articles from hundreds of scholarly and popular journals, e-books and newspapers, including The Australian and The New York Times. Log in to the Search Me! Management database via http://login.cengagebrain.com and try searching for the following key words: • revision quizzes • video cases • self-assessments • audio summaries • and more. • Planning • Leading • Organising • Controlling Search tip: Search me! Management contains information from both local and international sources. To get the greatest number of search results, try using both Australian and American spellings in your searches, e.g. ‘globalisation’ and ‘globalization’; ‘organisation’ and ‘organization’ RESPONSE TO THE MANAGEMENT CHALLENGE PETRONAS PETRONAS executives have a lot of pressure on them to deliver continually improved results, as the whole country of Malaysia is dependent on government’s revenue from this company to fund national development. Clearly there are some important things that managers in PETRONAS, and indeed every company, cannot exercise control over, such as natural disasters, political instability in foreign countries and, for PETRONAS, the global price of oil. However, these things can be taken into account as risk factors in planning business investments and operations. Further, the company can diversify its operations so that no single crisis, such as the continuing problems in Sudan, will have too big an impact on it. Other effective elements of executive strategies in PETRONAS include: ◗◗ investments in new technologies, aimed at keeping this company up with the leaders in its industry, such as new technologies for deep-sea exploration ◗◗ driving the culture of the company so that staff at all levels will find PETRONAS an interesting, rewarding and motivating place to work ◗◗ leadership development, which it does well, to create longterm capability for new staff to develop to their fullest ability 1: THE CHANGING WORLD OF MANAGEMENT ◗◗ large efforts in managing and controlling quality of processes and products, to drive high service levels and competitiveness in marketplaces ◗◗ planning long-term development strategies for the company, in terms of products, countries of operation and technologies, such as in renewable energy sources ◗◗ being a leader in its industry in Safety, Health and Environment (referred to in PETRONAS by the acronym SHE), in which staff and community wellbeing is seen as paramount in importance ◗◗ sustainable development and corporate responsibility to society, in which PETRONAS has always been a leader, 41 engaging in what Malaysians refer to as nation-building activities. Through a combination of strategies in these areas above, PETRONAS continues to ‘earn its way’ in its local country, and in over 35 other countries where it has oil- and gas-related businesses. This company has taken a very enlightened approach to its relationships in overseas markets, which is often referred to as ‘energy received–energy returned’, referring to the partnership-like approach that leads it to mutual success with its international collaborators. Yet the challenges of a low oil price and the need to eventually diversify out of fossil fuels continues to be a big issue for this organisation and its leaders. DISCUSSION QUESTIONS 1 2 How do you feel about having a manager’s responsibility in today’s world, which is characterised by uncertainty, ambiguity and sudden changes or threats from the environment? Describe some skills and qualities that are important to managers under these conditions. Assume you are a project manager at a biotechnology company, working with managers from research, production and marketing on a major product modification. You notice that every email you receive from the marketing manager has been copied to senior management. At every company function, she spends time talking to the big shots. You are also aware that sometimes when you and the other project members are slaving away over the project, she is playing golf with senior managers. What is your evaluation of her behaviour? As project manager, what do you do? 3 Jeff Immelt of GE has said that the most valuable thing he learned in business school was that ‘there are 24 hours in a day, and you can use all of them’. Do you agree or disagree? What are some of the advantages to this approach to being a manager? What are some of the drawbacks? 4 Why do some organisations seem to have a new CEO every year or two, whereas others have top leaders who stay with the company for many years (for example, Jack Welch’s 20 years as CEO at GE)? What factors about the manager or about the company might account for this difference? 5 Is efficiency or effectiveness more important to organisational performance? Can managers improve both simultaneously? 6 Suppose you are a bright, hard-working entry-level manager who fully intends to rise through the ranks. Your performance evaluation gives you high marks for your technical skills but low marks when it comes to people skills. Do you think people skills can be learned, or do you need to rethink your career path? If people skills can be learned, how would you go about it? 7 If managerial work is characterised by variety, fragmentation and brevity, how do managers perform basic management functions such as planning, which would seem to require reflection and analysis? 8 A university professor once told her students, ‘We can teach you the concepts of management, but you will only know if you are a good manager once you have tried it for a good few years’. Discuss this statement. 9 Discuss some of the ways organisations and jobs have changed over the past 10 years. What changes do you anticipate over the next 10 years? How might these changes affect the manager’s job and 42 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D the skills a manager needs to be successful? Do you think managers should spend more time and effort controlling or enabling? term? What is the fit between the concepts of sustainable development and innovation? 10 How might the teaching of a management course be designed to help people make the transition from individual performer to manager and to prepare them for the challenges they will face? Explain. 12 Which sector and organisation type will you most be suited to work in, and why? Would it be a start up, or a well established organisation, or a not-for-profit? Do you have a preferred industry and functional area or department, and what drives those preferences? 11 How does sustainable development as a concept guide managers to do more than just maximise financial outcomes in the short 13 Do you want to become a manager, or do you prefer to be an individual contributor to your employer? Why? ETHICAL CHALLENGE CAN MANAGEMENT AFFORD TO LOOK THE OTHER WAY? John Graham had been with Shellington Pharmaceuticals for 18 years. After a tour of duty in the various plants, and seven years overseas, John was back at headquarters, looking forward to his new role as director of Asia–Pacific marketing. Two weeks into his new job, John received some unsettling news about one of the managers under his supervision. Over a casual lunch conversation, the director of human resources (HR), Rose Anastasiou, mentioned that John should expect a phone call about Roger Jacobs, manager of new product development. Jacobs had a history of being ‘pretty horrible’ to his employees, she said, and one disgruntled employee had asked to speak to someone in senior management. After lunch, John did some follow-up work. Jacobs’ performance reviews had been stellar, but his personnel file also contained a large number of notes documenting charges of Jacobs’ mistreatment of employees. The complaints ranged from ‘inappropriate and derogatory remarks’ to subsequently dropped charges of sexual harassment. What was more disturbing was that the number as well as the severity of complaints had increased with each of Jacobs’ 10 years with Shellington. When John questioned the company CEO about the issue, he was told: ‘Yeah, he’s had some problems, but you just can’t replace someone like him with such a great eye for new products. You’re a bottom-line man; you understand why we let these things slide.’ Not sure how to handle the situation, John met briefly with Jacobs and reminded him to ‘keep the team’s morale up’. Just after the meeting, Rose called to let John know the problem she’d mentioned over lunch had been sorted out. However, she warned that another employee had now come forward demanding that her complaints be addressed by senior management. W H AT D O YO U D O ? 1 Ignore the problem. Jacobs’ contributions to new product development are too valuable to risk losing him, and the problems over the past 10 years have always worked themselves out anyway. There’s no sense starting something that could make you look bad. 2 Launch a full-scale investigation of employee complaints about Jacobs, and make Jacobs aware that the documented history over the past 10 years has put him in a precarious position. 3 Meet with Jacobs and the employee to try to resolve the current issue, then start working with Rose Anastasiou from HR and other senior managers to develop stronger policies regarding sexual harassment and treatment of employees, including clear-cut procedures for handling complaints. SOURCE: Based on Wallace, D. (November–December 1992). A Talent for Mismanagement: What Would You Do? Business Ethics, 2, 3–4. 1: THE CHANGING WORLD OF MANAGEMENT GROUP CHALLENGE 43 YOUR BEST AND WORST MANAGERS Step 1. On your own, think of two managers that you have had – the best and the worst. The managers could be anyone who served as an authority figure over you, including an instructor, a boss at work, a manager of a student organisation, a leader of a student group, a coach, a volunteer in a not-for-profit organisation, and so on. Think carefully about the specific behaviours that made each manager the best or the worst and write down what that manager did. The best manager I ever had did the following: _____________________________________________________________ _____________________________________________________________ _____________________________________________________________ The worst manager I ever had did the following: _____________________________________________________________ CASE FOR CRITICAL ANALYSIS _____________________________________________________________ _____________________________________________________________ Step 2. Divide into groups of four to six members. Each person should share his or her experiences, one at a time. Write on a sheet or a whiteboard separate lists of best-manager and worst-manager behaviours. Step 3. Analyse the two lists. What themes or patterns characterise ‘best’ and ‘worst’ manager behaviours? What are the key differences between the two sets of behaviours? Step 4. What lessons does your group learn from its analysis? What advice would you give to managers to help them be more effective? SHARPSTYLE SALONS Jamie Westbrook takes pride in her position as salon manager for SharpStyle Salon, one of a chain of hairdressing salons under the Gold Group umbrella. She oversees a staff of 15 including hairdressers, a nail technician, receptionists and hairdressing apprentices. Jamie enjoys a reputation as a manager who works very hard and takes care of her people. Hairdressers want to work for her. Following the salon’s new-hire policy, Jamie began as a hairdressing apprentice and quickly became a top hairdresser in the company through a combination of skill, a large and loyal client base and long hours at work. In 2016, retiring manager Carla Weems hand-picked Jamie as her successor, and the board quickly approved. Initially, the salon, located in a suburban shopping centre, managed a strong, steady increase, holding its position as one of the company’s top performers. But an economic crisis hit the area hard, with increases in unemployment and mortgage woes among current and potential customers. As families sought ways to save, the luxury of regular visits to the hair salon was among the first logical budget cuts. The past year has reflected this economic reality, and Jamie’s salon saw a sharp decrease in profits. Jamie’s stomach is in knots as she arrives at the salon on Monday. Scheduled to fly interstate the next morning for a meeting at head office, she fears potential staffing cuts, but more important, she fears the loss of opportunity to secure her dream job, replacing the retiring manager at Riverwood Shopping Centre, the top-performing salon located in an upscale area of the city. Distracted, Jamie walks past the receptionist, Marianne, who is busily answering the phones. Hanging up the phone, Marianne tells Jamie that Holly and Carol Jean, two popular hairdressers, called in sick, and Jamie now has to reschedule their clients. Jamie had denied their earlier request to travel out of town to attend a concert, and her irritation is obvious. She orders Marianne to call both women and instruct them that, when they return to work, they are each to bring a medical certificate. ‘They had better be sick!’ Jamie shouts as she enters her office, slamming the door more forcefully than she intended. Startled employees and early-morning customers heard the outburst, and, after a momentary pause, they resumed their activities and quiet conversation, surprised by the show of managerial anger. Jamie knows she has let Holly and Carol Jean get away with unwarranted absences before and worries that she will do it again. She needs every head of hair they can style to help the salon’s profit. Jamie takes a deep breath and sits at her desk, turning on the computer and checking emails, including one from the group manager reminding her to send the salon’s status report in advance of tomorrow’s meeting. She asks Marianne to have final figures for the report on her desk by 1.00 p.m. 44 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D Picking up the phone, she calls Sharon, a manager at another SharpStyle salon. ‘I really lost my cool in front of everyone, but I’m not apologising,’ Jamie admits, adding that she wished she had the guts to fire both stylists. ‘But this is not the day for that drama. I’ve got that report hanging over my head. I have no idea how to make things look better than they are, but I have to come up with something. Things look pretty dismal.’ Sharon assures her that she did the best she could dealing with two ‘irresponsible’ employees. ‘What will you do if they show up tomorrow with no medical certificates?’ ‘I don’t know. I hope I scared them enough so that they’ll come in with something.’ ‘I know you’re worried about the report and the effect it might have on the Riverwood job,’ Sharon says. ‘But everyone knows you can’t control the economy and its effect on the business. Just focus on the positive. You’ll be fine.’ At 10.30 a.m., as Jamie struggles to put the best possible spin on the report, she is called to the receptionist desk to speak to an angry customer. ‘Another interruption,’ Jamie fumes to herself. Just then, the door opens and top stylist/assistant manager Victoria Boone sticks her head into the office. ‘I know you’re busy with the report. I’ll handle this,’ she says enthusiastically. ‘Thanks,’ Jamie replies. No sooner had she handed off the irate client to Victoria than she second-guessed the decision. In addition to her talents as a hairdresser, ON THE JOB VIDEO CASE QU E S T I O N S 1 What positive and negative managerial characteristics does Jamie possess? 2 How do these traits help or hinder her potential to get the top position at the Riverwood Shopping Centre salon? 3 How do you think Jamie should have handled each of the incidents with Marianne? Holly and Carol Jean? Victoria? 4 Is this an organisation that you would like to be a manager within? Why or why not? CAMP BOW WOW: INNOVATIVE MANAGEMENT FOR A CHANGING WORLD For a real-world application of the management theories described in this chapter, log on to CourseMate Express to watch the On the Job video and answer the following questions. QU E S T IO NS 1 Victoria had experience as the manager of a successful salon in another city before moving to the area. Recognising her organisational and people skills, Jamie promoted Victoria to assistant manager soon after her arrival. Now each ‘I’ll handle this’ remark by Victoria convinces Jamie that her assistant manager is positioning herself as a potential rival for the Riverwood job. Jamie appreciates her enthusiastic attitude, but she’s also trying to limit her opportunities to lead or appear too competent before staff, customers and company officials. Jamie finds herself wanting to hide Victoria’s competence, and she has condescendingly reminded management that Victoria is a ‘great help to me’. Now, thinking of Victoria’s cheerful ‘I’ll handle this,’ Jamie rises from her desk and marches to the door. ‘No,’ Jamie thinks, ‘I’ll take care of this personally’. List the three broad management skill categories and explain which skills are needed most for each of the Camp Bow Wow leaders highlighted in the video. 2 Which activities at Camp Bow Wow require high efficiency? 3 Which activities require high effectiveness? 4 List two activities that leaders at Camp Bow Wow perform daily, and identify which of the 10 managerial roles discussed in the chapter figure prominently for each. 1: THE CHANGING WORLD OF MANAGEMENT 45 ENDNOTES 1 Macqueen, R. (2001). One Step Ahead On the field and in the boardroom, Random House: Sydney. 2 Hyden, S. Grantland (21 January 2013). The Winners’ History of Rock and Roll, Part 3: Bon Jovi. http://www.grantland.com/story/_/id/8860424 /the-winners-history-rock-rollpart-3-bon-jovi (accessed 15 August 2013); O’Malley Greenburg, Z. (15 June 2011). The World’s Highest-Paid Musicians 2011. Forbes, http://www.forbes.com/sites/zackomalley greenburg/2011/06/15/the-worlds-highest-paid-musicians/ (accessed 14 August 2013). 3 JBJ Soul Foundation (2016). ‘Our Mission.’ Available: http://www.jonbonjovisoulfoundation. org/our-mission/ (accessed 21 October 2016). 4 Quoted in Zach O’Malley Greenburg, Jon Bon Jovi: Still Rockin, and Making a Killing. 5 This example is based on John Jurgensen, ‘A Rocker Tunes Up,’ Wall Street Journal Online (7 February 2013), http://online.wsj.com/article/SB1000142412788732395190457828821383 4313862.html (accessed 14 August 2013); Greenburg, ‘Jon Bon Jovi: Still Rockin,and Making a Killing’ and Hyden, ‘The Winners’ History of Rock and Roll, Part 3: Bon Jovi.’ (The quote from Bon Jovi is from the Greenburg article.) 6 Rigby, D. and Bilodeau, B. (2005). The Bain 2005 Management Tool Survey. Strategy & Leadership, 33:4, 4–12; D. Rigby and B. Bilodeau. Management Tools and Trends 2011. Bain and Company, Inc., http://www.bain.com/publications/articles/Managementtoolstrends-2011.aspx (accessed 22 June 2012). 7 See Joshua Cooper Ramo. (2009). The Age of the Unthinkable: Why the New World Disorder Constantly Surprises Us and What We Can Do About It (New York: Little Brown); and Richard Florida. (2010). The Great Reset: How New Ways of Living and Working Drive Post-Crash Prosperity (New York: Harper Collins). 8 Finer, J. (25 October 2001). To Cleanse a Poisoned Land. Far Eastern Economic Review, 42. 9 Wu, Tommy (2016, May). ‘Finance in Australia,’ IBISWorld Industry Report K6200. Available: http:/www.ibisworld.com.au/industry/default.asp?indid=1740 (accessed: 21 October 2016) 10 Kraar, L. (7 October 1991). Iron Butterflies. Fortune, 143–54. 11 What Do Managers Do? The Wall Street Journal Online, http://guides.wsj.com/management/ developing-a-leadership-style/what-do-managers-do/ (accessed 11 August 2010); article adapted from Alan Murray. (2010). The Wall Street Journal Essential Guide to Management (New York: Harper Business). 12 Linebaugh, K. (7 March 2012). The New GE Way: Go Deep, Not Wide. The Wall Street Journal, B1. 13 Semler, R. (1993). Maverick: The Success Story Behind the World’s Most Unusual Workplace (New York: Warner Books). 14 Stewart, C. S. (7 May 2012). Oprah Struggles to Build Her Network. The Wall Street Journal, A1. 15 Rose, L. (3 March 2015) Oprah Winfrey on Closing Harpo Studios, OWN Expansion, Broadway Plans, The Hollywood Reporter, http:/www.hollywoodreporter.com/news/oprahwinfrey-closing-harpo-studios-778784 (accessed 21 February 2017). 16 Bartlett, C. A. and Ghoshal, S. (January–February 1995). Changing the Role of Top Management: Beyond Structure to Processes. Harvard Business Review, 86–96. 17 Newton, A. and Castledine, G. (22 January 1999). Personal communication with executives Alan Newton and Geoff Castledine of Mars Corporation. 18 Howie, R. and Moore, J. (12 April 1995). Personal communication with Orica executives Ross Howie and Jess Moore. 19 Katz, R. L. (September–October 1974). Skills of an Effective Administrator. Harvard Business Review 52, 90–102. 20 Bryant, A. (13 March 2011). The Quest to Build a Better Boss. The New York Times, BU1. 21 Gentry, W. A., Harris, L. S., Baker, B. A. and Leslie, J. B. (2008). Managerial Skills: What Has Changed Since the Late 1980s? Leadership and Organization Development Journal, 29:2, 167–81. 22 Sacks, D. (November 2011). The Way I Work: Yammer. Inc.,122–4. 23 Longenecker, C. O., Neubert, M. J. and Fink, L. S. (2007). Causes and Consequences of Managerial Failure in Rapidly Changing Organizations. Business Horizons, 50, 145–55. 24 Sonne, P. (26 July 2010). The Gulf Oil Spill: Hayward Fell Short of Modern CEO Demands. The Wall Street Journal. 25 Christian, K. (7 March 2012). Woolworths is Trialling a Joint Venture to Open McCafe Outlets in Its New Masters Hardware Stores. www.news.com.au, http://www.news. com.au/business/breaking-news/woolworths-trials-mccafe-at-masters-stores/storye6frfkur-1226292493785; Speedy, B. (20 July 2013). Analysts Hammer Woolies’ Hardware Joint Venture. The Australian, http://www.theaustralian.com.au/business/companies/ analysts-hammer-woolies-hardware-joint-venture/story-fn91v9q3-1226682228553; 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 Speedy, B. (24 May 2013). Dulux Strips Masters of paints Due to its Cosy Link With Wattyl. The Australian, http://www.theaustralian.com.au/business/companies/dulux-stripsmasters-of-paints-due-to-its-cosy-link-with-wattyl/story-fn91v9q3-1226649522808 (accessed 22 July 2013). Adapted from Longenecker, Neubert and Fink. Causes and Consequences of Managerial Failure in Rapidly Changing Organizations, Table 1, with permission from Elsevier. A. I. Kraut, Pedigo, P. R., McKenna D. D. and Dunnette, M. D. (2005). The Role of the Manager: What’s Really Important in Different Management Jobs. Academy of Management Executive, 19:4, 122–9. Bartlett, C. A. and Ghoshal, S. (May–June 1995). Changing the Role of Top Management: Beyond Systems to People. Harvard Business Review, 132–42; and S. Ghoshal and C. A. Bartlett. (January–February 1995). Changing the Role of Top Management: Beyond Structure to Processes. Harvard Business Review, 86–96. Gratton, L. (January–February 2011). The End of the Middle Manager. Harvard Business Review, 36. Osterman, P. (November–December 2009). Recognizing the Value of Middle Management. Ivey Business Journal, http://www.iveybusinessjournal.com/article.asp?intArticle_id=866; Quy Nguyen Huy. (September 2003). In Praise of Middle Managers. Harvard Business Review, 72–9; R. M. Kanter. (2003). On the Frontiers of Management (Boston: Harvard Business School Press). Quoted in L. Haneberg. (Fall 2005). Reinventing Middle Management. Leader to Leader, 13–18. Reported in R. Fisman. (16 October 2010). In Defence of Middle Management. The Washington Post, http://www.washingtonpost.com/wp-dyn/content/article/2010/10/16/ AR2010101604266_pf.html (accessed 13 June 2012). Mintzberg, H. (1994). Rounding out the Manager’s Job. Sloan Management Review, 11–26; Mintzberg, H. (1973). The Nature of Managerial Work (New York: Harper & Row). Kaplan, R. E. (Spring 1984). Trade Routes: The Manager’s Network of Relationships. Organizational Dynamics, 37–52; Stewart, R. (1984). The Nature of Management: A Problem for Management Education. Journal of Management Studies, 21, 323–30; Kotter, J. P. (November– December 1982). What Effective General Managers Really Do. Harvard Business Review, 156– 67; McCall, M. W. Jr, Morrison, A. M. and Hannan, R. L. (1978). Studies of Managerial Work: Results and Methods. Technical Report No. 9, Centre for Creative Leadership, Greensboro. Konrad, A. M., Kashlak, R.,Yoshioka, I., Waryszak, R. and Toren, N. (December 2001). What Do Managers Like to Do? A Five-Country Study. Group and Organizational Management, 26:4, 401–33. Slayter, M. E. (17 August 2005). New Managers Should Go Slow. The Ottawa Citizen, F2.40 For a review of the problems faced by first-time managers, see Linda A. Hill. (January 2007). Becoming the Boss. Harvard Business Review, 49–56; Loren B. Belker and Gary S. Topchik. (2005). The First-Time Manager: A Practical Guide to the Management of People, 5th ed. (New York: AMACOM); J. W. Lorsch and P. F. Mathias. (July–August 1987). When Professionals Have to Manage. Harvard Business Review, 78–83; R. A. Webber. (1991). Becoming a Courageous Manager: Overcoming Career Problems of New Managers (Englewood Cliffs, NJ: Prentice Hall); D. E. Dougherty. (1984). From Technical Professional to Corporate Manager: A Guide to Career Transition (New York: Wiley); J. Falvey. (March 1989). The Making of a Manager. Sales and Marketing Management, 42–83; M. K. Badawy. (1982). Developing Managerial Skills in Engineers and Scientists: Succeeding as a Technical Manager (New York: Van Nostrand Reinhold); and M. London. (1985). Developing Managers: A Guide to Motivating and Preparing People for Successful Managerial Careers (San Francisco, CA: Jossey-Bass). Based on E. Rusli, N. Perlroth and N. Bilton. (14 May 2012). The Hoodie amid the Pinstripes: As Facebook IPO Nears, Is Its Chief up to Running a Public Company? International Herald Tribune, 17. This discussion is based on Linda A. Hill. (2003). Becoming a Manager: How New Managers Master the Challenges of Leadership, 2nd ed. (Boston, MA: Harvard Business School Press), pp. 6–8; and Hill. Becoming the Boss. See also the ‘Boss’s First Steps’ sidebar in White. Learning to Be the Boss; and Belker and Topchik. The First-Time Manager. Quoted in E. Zimmerman. (15 January 2011). Are You Cut Out for Management? (Career Couch column), The New York Times, http://www.nytimes.com/2011/01/16/jobs/16career. html (accessed 14 June 2012). Mintzberg, H. (2009). Managing (San Francisco: Berrett-Kohler Publishers), 17–41. 46 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D 43 Study reported in R. E. Silverman. (14 February 2012). Where’s The Boss? Trapped in a Meeting. The Wall Street Journal, http://online.wsj.com/article/SB10001424052970204642604 577215013504567548.html (accessed 14 June 2012). 44 Ibid. 45 Based on A. Halcrow. (June 1998). A Day in the Life of Kathy Davis: Just Another Day in HR. Workforce Management, 77:6, 56–62. 46 Mintzberg, H. (1973). The Nature of Managerial Work (New York: Harper & Row). 47 Hymowitz, C. (16 June 2009). Packed Calendars Rule. The Asian Wall Street Journal; and (March–April 2008). The 18-Hour Day. The Conference Board Review, 20. 48 (14 February 2012). Four CEOs’Tips on Managing Your Time. The Wall Street Journal, http:// online.wsj.com/ article/SB10001424052970204883304577221551714492724.html (accessed 14 June 2012). 49 A. Garrett. (July 2000). Buying Time to Do the Things That Really Matter. Management Today, 75; and R. S. Kaplan. (January 2007). What to Ask the Person in the Mirror. Harvard Business Review, 86–95. 50 Mintzberg, Managing; L. B. Kurke and H. E. Aldrich. (1983). Mintzberg Was Right! A Replication and Extension of The Nature of Managerial Work. Management Science, 29: 975–984; C. M. Pavett and A. W. Lau. (1983). Managerial Work: The Influence of Hierarchical Level and Functional Specialty. Academy of Management Journal, 26, 170–7; and C. P. Hales. (1986). What Do Managers Do? A Critical Review of the Evidence. Journal of Management Studies 23, 88–115. 51 Vascellaro, J. E. (29 May 2012). Apple Chief Executive Cook to Climb on a New Stage. The Wall Street Journal, B2; W. Mossberg and K. Swisher. (4 June 2012). All Things Digital (A Special Report) – Apple After Jobs. The Wall Street Journal, R3; and T. Wolverton. (29 May 2012). Apple CEO Tim Cook Isn’t Trying to Be the Next Steve Jobs. Oakland Tribune. 52 Yukari Iwantani Kane. (3 March 2014). The Job After Steve Jobs: Tim Cook and Apple. The Wall Street Journal, http://www.theaustralian.com.au/business/wall-street-journal/ the-job-after-steve-jobs-tim-cook-and-apple/story-fnay3ubk-1226843287325# (accessed 6 March 2014). 53 Weinberrger, M. (25 August 2016) The rise of Apple CEO Tim Cook, the most powerful business leader in the world. Business Insider Australia, http://www.businessinsider.com. au/the-rise-of-apple-ceo-tim-cook-2016-8#/#timothy-donald-cook-was-born-in-mobilealabama-on-november-1-1960-he-grew-up-in-nearby-robertsdale-where-he-went-to-highschool-1 (accessed 20 February 2017). 54 Mangi, N. (25 July–31 July 2011). Convoys and Patdowns: A Day at the Office in Pakistan. Bloomberg Businessweek, 11–13. 55 Jonas, H. S. III, Fry, R. E. and Srivastava, S. (August 1990). The Office of the CEO: Understanding the Executive Experience. Academy of Management Executive, 4, 36–48. 56 Connors, W. and Cummins, C. (23 January 2012). RIM CEOs Give up Top Posts in Shuffle. The Wall Street Journal Online, http://online.wsj.com/article/SB1000142405297020462420457 7177184275959856.html (accessed 9 July 2012); and S. Finkelstein. (27 December 2011). The Worst C.E.O.s of 2011. The New York Times. 57 Chazan, G. and Langley, M. (27 July 2010). Dudley Faces Daunting To-Do List. The Wall Street Journal Europe. 58 O’Shaughnessy, T. (March 2012). The Way I Work: LivingSocial. Inc., 104–8; Thomas Heath and Mohana Ravindranath. LivingSocial CEO Tim O’Shaughnessy Stepping Down. http:// www.washingtonpost.com/business/capitalbusiness/livingsocial-ceo-tim-oshaughnessystepping-down/2014/01/10/9f593fb0-7a12-11e3-b1c5-739e63e9c9a7_story.html. 59 Crawford, J. (May–June 2010). Profiling the Non-Profit Leader of Tomorrow. Ivey Business Journal, http://www.iveybusinessjournal.com/topics/leadership/profiling-the-non-profitleader-of-tomorrow (accessed 14 June 2012). 60 The following discussion is based on P. F. Drucker. (1992). Managing the Non-Profit Organization: Principles and Practices (New York: Harper Business); and Thomas Wolf. (1990). Managing a Nonprofit Organization (New York: Fireside/Simon & Schuster). 61 Letts, C. W., Ryan, W. P. and Grossman, A. (1999). High Performance Nonprofit Organizations (New York: Wiley & Sons), pp. 30–5. 62 Zimmerman, E. (6 April 2008). Your True Calling Could Suit a Nonprofit (interview, Career Couch column), The New York Times. 63 This discussion is based on ideas in S. Denning. (2011). Masterclass: The Reinvention of Management. Strategy & Leadership, 39:2, 9–17; J. Birkinshaw and J. Goddard. (Winter 2009). What Is Your Management Model? MIT Sloan Management Review, 81–90; P. McDonald. (October 2011). It’s Time for Management Version 2.0: Six Forces Redefining the Future of Modern Management. Futures, 797ff; J. C. Meister and K. Willyerrd. (July 2010). Leadership 2020: Start Preparing People Now. Leadership Excellence, 5. 64 Bartlett, C. A. and Ghoshal, S. (Fall 1997). The Myth of the Generic Manager: New Personal Competencies for New Management Roles. California Management Review, 40:1, 92–116. 65 World Economic Forum. (2012). The Global Competitiveness Report 2012–2013: Full Data Edition, http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2012-13.pdf (accessed 20 February 2012). CHAPTER 2 T HE E VOL U T ION O F M A N AGE M E N T T HIN K ING L E A R N I NG OBJ E C T I V E S AFTER STU DYI N G T H I S C H A P T E R , YO U S H O U L D B E A B L E TO : 1 understand how historical forces influence the practice of management 2 identify and explain major developments in the history of management thought 3 describe the major components of the classical and humanistic management perspectives 4 discuss the management science approach and its current use in organisations 5 explain the major concepts of systems thinking, the contingency view and total quality management 6 name contemporary management tools and some reasons that management trends change over time 7 describe the management changes brought about by the technologydriven workplace, including the role of social media programs and customer relationship management (CRM). Express Throughout this chapter, the CourseMate Express icons indicate an opportunity for online selfstudy, linking you to activities and other online resources. 48 MANAGEMENT CHALLENGE CEMEX: MANAGING IN CHAOTIC CIRCUMSTANCES Cementos Mexicanos (Cemex), based in Monterrey, Mexico, has been making and delivering concrete for over a century. The company specialises in delivering concrete in developing areas of the world, places where anything can, and usually does, go wrong. Even in Monterrey, for example, Cemex copes with unpredictable weather and traffic conditions, spontaneous labour disruptions, building permit chaos, and arbitrary government inspections of construction sites. In addition, more than half of all orders are changed or cancelled by customers, usually at the last minute. Considering that a load of concrete is never more than 90 minutes from spoiling, these chaotic conditions mean high costs, complex scheduling, and frustration for employees, managers, and customers. As competition in the industry increased, Cemex managers began looking for ways to stand out from the crowd. One idea was a guaranteed delivery time, but despite the efforts of employees, the best Cemex could do was promise delivery within a three-hour window. To make matters worse, the construction business itself was becoming increasingly complex and competitive, leading to even more disruptions and cancellations. Builders were sometimes lucky to get their orders delivered on the right day, let alone at the right hour. Cemex managers began to consider that the company needed a whole new approach to doing business – one that accepted rather than resisted the natural chaos of the marketplace. It would mean massive changes in operations, as well as finding ways to get dispatchers and drivers (who had an average of six years of formal education) to think like entrepreneurs. Sources: Petzinger, T. Jr. (1999). The New Pioneers: The Men and Women Who Are Transforming the Workplace and Marketplace. New York: Simon & Schuster, 91–3; (April 1999). In Search of the New World of Work. Fast Company, 214–20; Katel, P. (July 1997). Bordering on Chaos. Wired, 98–107. QU E S T I O N If you were a manager at Cemex, what changes would you implement to help the organisation thrive in the face of constant chaos? What advice would you give managers about their management approach and the kind of company they might create? 49 50 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D NEW MANAGER SELF-ASSESSMENT ARE YOU A NEW-STYLE OR AN OLD-STYLE MANAGER? The following table provides examples of different types of behaviours that managers may display when relating to their staff. Read each statement carefully and rate each one as mostly true or mostly false to reflect the extent to which you would use that behaviour. MOSTLY TRUE MOSTLY FALSE 1 Supervise my subordinates closely in order to get better work from them. 2 Set the goals and objectives for my subordinates and sell them on the merits of my plans. 3 Set up controls to ensure that my subordinates are getting the job done. 4 Make sure that my subordinates’ work is planned out for them. 5 Check with my subordinates daily to see if they need any help. 6 Step in as soon as reports indicate that progress on a job is slipping. 7 Push my people if necessary in order to meet schedules. 8 Have frequent meetings to learn from others what is going on. Scoring and Interpretation: Add the total number of mostly true answers and mark your score on the scale below. Theory X tends to be ‘old-style’ management, and Theory Y ‘new-style’, because the styles are based on different assumptions about people. To learn more about these, you can refer to EXHIBIT 2.4 and review the assumptions related to Theory X and Theory Y. Strong Theory X assumptions are typically considered inappropriate for today’s workplace. Where do you fit on the X-Y scale? Does your score reflect your perception of yourself as a current or future manager? Theory X X-Y Scale 10____ 5 ____0 Theory Y Cemex is faced with a situation similar to many companies. The methods and patterns that kept the organisation successful in the past no longer seem enough to keep it thriving in today’s turbulent environment. Unexpected market forces or other changes in the environment can devastate a company. Australian companies such as Aurora Energy, United Energy, Energex and Origin Energy face a crisis because of increasing deregulation and the growth of small, independent power producers. These include renewable energy suppliers such as Pacific Hydro, which uses wind and hydro-power sources.1 The airline industry is another sector that has had to cope with a lot of change. Consider the changes that have occurred in the business environment surrounding Qantas over the past two decades, which have caused its executives and board of directors to make some big changes in the company’s strategy and operations. First, after around 90 years of essentially stable and profitable growth, its long-time competitor, Ansett, went bankrupt in 2001. Up until this time, Ansett and Qantas had enjoyed a cosy, two-airline duopoly, dominating Australian skies. The demise of Ansett, followed by the growth of low-cost carriers such as Virgin Airlines, discussed below, led to a substantial drop in the price of airfares. In addition, around this time, worldwide crises in the travel industry were caused by a rise in terrorist acts and, in around 2003, the outbreak of severe acute respiratory syndrome (SARS). As a result, many of the world’s longstanding airlines went bankrupt. 2: THE EVOLUTION OF MANAGEMENT THINKING In 2000, Richard Branson made a serious and well-funded entry into the domestic Australian market with Virgin Airlines, causing Qantas to lower its prices dramatically. Deeply discounted domestic airfares were previously unheard of on such a sustained basis, as Virgin Airlines fought to consolidate its market share. On top of this, the world’s oil prices skyrocketed to over US$80 per barrel in 2010, driving up Qantas’ fuel costs. Airlines such as Singapore Airlines and Tiger are increasingly pressuring the local companies in local markets. Even Qantas’ reputation for safety was challenged in 2010 after a number of mechanical problems led to emergency landings and very worried passengers, followed by talk of whether it had cut its maintenance standards. A 2010 explosion in an engine of a brand new A380 Qantas plane received worldwide negative publicity. Further constraining Qantas’ capacity to change and respond to crises, from a management perspective, Qantas staff have always been highly unionised, and cooperation between management and unions has not always been as smooth as shareholders would like. When everything changes suddenly, managers face a seemingly impossible situation and may have to create a new kind of company, which can operate in the new environment – possibly one with which they have little experience or skill. Qantas had to substantially cut its costs, and create a new set of business units, such as Jetstar, to match the low-cost position of Virgin Australia. Qantas CEO, Alan Joyce, had to make many public statements to reduce customers’ fears related to its ‘close calls’ in 2010. In October 2011, Qantas had so much industrial turmoil that the CEO grounded the whole airline, and gave all Qantas stakeholders, including its many thousands of inconvenienced and sometimes outraged passengers, a sense of how much change was needed in the organisation. In 2014, unions, politicians, and the media all called for Joyce to step down when the airline posted a AU$2.8 billion loss. The company sacked 5000 employees, and its share price plummeted below $1. However, in 2016, Joyce emerged more hero than villain, with Qantas becoming one of the most profitable airlines in the world. Qantas’ share price topped more than AU$4 and in 2016 it posted a record profit of AU$1.53 billion. Qantas has faced more crises and changed more in its last 10 years than in its first 70 years of existence combined!2 Other airlines have faced similar threats to Qantas. Malaysian Airlines, for example, faces huge challenges as it tries to cope with the tragedies of losing two planes, passengers and crew in recent years. Among many challenges, this airline has to manage public perception of its safety, which is an important factor in how consumers choose an airline. CASE STUDY SWITCHING TO GREENPOWER Australia’s electricity industry is currently dominated by three major suppliers (Origin Energy Limited, AGL Energy Limited, Energy Australia Holdings Limited) which, together, make up 34.6 per cent of the market. Despite their dominance, the industry is still very competitive. Deregulation has opened up consumer choice and the top three companies now compete among themselves and many smaller electricity suppliers for customers. This competition has been made particularly dynamic because of the introduction of Internet comparison websites that enable consumers to select a provider based on criteria such as price and service levels. With just a few clicks of a mouse button, websites such as http://www. greenpower.gov.au enable a customer to view suppliers in their area, compare contract and payment alternatives and review company environmental performance. It is also a simple process for consumers to switch their energy supplier if a better or more sustainable option is presented. With 13 energy companies in Australia now providing GreenPower, 51 52 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D and the cost of switching to renewable energy becoming more and more competitive – for instance, a household could move to 10 per cent GreenPower for only AU$1 per week (AGL Green Spirit) or embark on 100 per cent renewable energy for around AU$5.50 c/kWh (AGL Green Energy) – the electricity industry must continually battle to provide reliable, renewable and price-competitive energy products. Source: http://www.greenpower.gov.au Sometimes an entire industry can face a crisis. In 1984, the Australian government, through Industry Minister John Button, implemented a restructuring plan for the automotive industry. Its aim was to make the industry more efficient. The industry had been declining in relative competitiveness, while being highly protected by substantial import tariffs. The industry was also facing significant reductions in tariffs, from a high of more than 50 per cent in the mid 1980s. At the time, Australian cars were clearly inferior to both Japanese and European imports, and Australian factories had much lower productivity than the large-scale operations in the northern hemisphere. This was a significant challenge for the managers of the Australian Ford, Holden, Mitsubishi, Nissan and Toyota businesses. Nissan and then Mitsubishi closed their Australian assembly plants. Ford did so in 2016, and Toyota and General Motors Holden in late 2017. (See the Continuing case at the end of each Part for details on Toyota’s challenges in Australia.) The competitiveness of Australian-based component suppliers was also an issue. The survival and prosperity of those businesses were severely threatened when the government announced that tariffs would be reduced to approximately 15 per cent. The Australian automotive industry has been threatened by quality vehicles and low costs from other countries. The number of cars assembled in Australia was cut in half. Imports slowly but surely took over much of the market. Initial studies of Japanese car manufacturers showed that their focus on meeting customer needs, achieving quality and waste-free operations, and just-in-time manufacturing was leading them to continually improve the competitiveness of their offerings, which were already superior to Australian-built products. It was apparent that the Australian industry’s focus – creating a car industry to provide local strategic independence as well as job creation – came with a big price tag. Australian cars were low in quality, among the most expensive in the world, and the industry was generally in poor shape. The Australian companies’ first move was to study the way the Japanese companies had achieved so much progress while their own businesses fell behind. The same approach was taken in the Australian steel, paper, machinery, film and plastics industries, and many others. In the automotive industry, Australian companies improved their competitiveness substantially, but competitiveness is a relative thing and despite the local improvements the Australian car assembly industry has now ceased to exist. Through massive modernisation programs, adoption of management procedures known as ‘lean manufacturing’ and with investments in new technology, the component producers are now more competitive. Why should history matter to corporate managers in the Australian car industry? Some economic analysts were issuing warnings as early as the 1950s about the rapid rate at which the industry was declining in relative terms. Perhaps they could not have predicted all the things that were reshaping the world’s industry, such as the energy crisis, but studying historical trends could have helped Ford and Holden see the need to begin developing fuel-efficient, quality models and adopt new manufacturing methods much earlier. 2: THE EVOLUTION OF MANAGEMENT THINKING Although Australia’s domestic car market passed the one million car level for the first time in 2007 and reached and remained over 1.1 million units sold in 2012–14, domestic producers of cars and components are under ever-increasing pressure from global competitors who offer lower-cost products. Cars from India’s and China’s awakening automotive industries are arriving in Australia. What do managers at India’s Tata Group, US-based General Electric (GE) and Africa’s M-Pesa mobile money transfer service have in common? The authors of a recent book on innovation say they have all applied a concept called jugaad (pronounced joo-gaardh). Jugaad is a Hindi word that refers to creating something of benefit from limited resources. Benjamin Franklin, the authors say, is a great historical example because he faced scarcity firsthand, but improvised to create inventions that were for the benefit of the masses.3 Management – like most disciplines – loves buzzwords, and jugaad is one of the most recent to appear on the radar. Jugaad basically refers to an innovation mindset, used widely by Indian companies, that strives to meet customers’ immediate needs quickly and inexpensively. With research and development budgets strained in today’s economy, Western managers have quickly picked up on the approach, sometimes calling it frugal engineering.4 Will this be a buzzword that quickly fades from managers’ vocabularies, or will it become as ubiquitous in management circles as terms such as total quality or kaizen? Managers are always on the lookout for fresh ideas, innovative management approaches, and new tools and techniques. Management philosophies and organisational forms change over time to meet new needs. The Self-assessment at the beginning of this chapter describes two differing philosophies about how people should be managed, and you will learn more about these ideas in this chapter. If management is always changing, why does history matter to managers? The workplace of today is different from 50 years ago – indeed, from even 10 years ago – yet historical concepts form the backbone of management education.5 One reason is that a historical perspective provides managers with a broader way of thinking, a way of searching for patterns and determining whether they recur across time periods. It is a way of learning from others’ mistakes so as not to repeat them; learning from others’ successes so as to repeat them in the appropriate situation; and most of all, learning to understand why things happen to improve organisations in the future. Certain management practices that seem modern, such as open-book management or employee stock ownership, have actually been around for a long time. These techniques have repeatedly gained and lost popularity since the early twentieth century because of shifting historical forces.6 This chapter provides a historical overview of the ideas, theories and management philosophies that have contributed to making the workplace what it is today. The final section of the chapter looks at some recent trends and current approaches that build on this foundation of management understanding. This foundation illustrates that the value of studying management lies not in learning current facts and research, but in developing a perspective that will facilitate the broad, long-term view needed for management success. R EMEMBE R THIS ◗◗ Management is a dynamic field, always changing in some ways, yet there are some concepts and techniques that have stood the test of time. ◗◗ There is a lot that can be learned from what has and has not worked in managing organisations in the past, to inform managerial strategies going forward. 53 54 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D 2.1 social forces The aspects of a culture that guide and influence relationships among people – their values, needs and standards of behaviour. political forces The influence of political and legal institutions on people and organisations. economic forces Forces that affect the availability, production and distribution of a society’s resources among competing users. MANAGEMENT AND ORGANISATION A historical perspective does not mean merely arranging events in chronological order; it means developing an understanding of the impact of societal forces on organisations. Studying history is a way to achieve strategic thinking, see the big picture and improve conceptual skills. We will start by examining the way social, political and economic forces have influenced organisations and the practice of management.7 Social forces refer to those aspects of a culture that guide and influence relationships among people. What do people value? What do people need? What are the standards of behaviour among people? These forces shape what is known as the social contract, which refers to the unwritten, common rules and perceptions about relationships among people, and between employees and management. Expressions such as ‘a man is as good as his word’ and ‘a day’s work for a day’s pay’ convey such perceptions. An example of a social force is the changing attitudes, ideas and values of Generation Y employees (sometimes called Millennials).8 Political forces refer to the influence of political and legal institutions on people and organisations. One significant political force is the increased role of government in business after the collapse of companies in the financial services sector and major problems in the auto industry. Some managers expect increasing government regulation in the coming years.9 Political forces also include basic assumptions underlying the political system, such as the desirability of self-government, property rights, contract rights, the definition of justice, and the determination of innocence or guilt of a crime. Economic forces pertain to the availability, production and distribution of resources in a society. Governments, military agencies, churches, schools and business organisations in every society need resources to achieve their goals, and economic forces influence the allocation of scarce resources. The progress of globalisation, and major changes in European economic forces, brought on by large numbers of arriving refugees and Britain choosing to leave the European governing organisation, are examples of major structural changes that bring social and economic consequences. Both ‘Brexit’ and the 2017 presidency of Donald Trump in the United States are being interpreted by many observers as a turning point in the development of an increasingly borderless world of commerce, with expectations of a different balance between the move to open trade and that of national interests developing in the future. Management practices and perspectives vary in response to these social, political and economic forces in society. EXHIBIT 2.1 illustrates the evolution of significant management perspectives over time. The timeline reflects the dominant time period for each approach, but elements of each are still used in today’s organisations.10 T H E T H I NG S O F P ROD U CT I O N V E R S U S T H E H U M A N I T Y O F P ROD U CT I O N One observation from looking at the timeline in EXHIBIT 2.1 is that there has long been a struggle within management to balance ‘the things of production’ and ‘the humanity of production’.11 When forces either outside or within the organisation suggest a need for change to improve efficiency or effectiveness, managers have often responded with a technology or numbers-oriented solution that would make people little more than a cog in a big machine. For instance, as the United States shifted from a world of small towns and small businesses to an industrialised network of cities and factories in the late nineteenth century, people began looking at management as a set of scientific practices that could be measured, studied and improved with machine-like precision (the classical perspective). 2: THE EVOLUTION OF MANAGEMENT THINKING EXHIBIT 2.1 Management perspectives over time Open (collaborative) Innovation The technology - driven workplace Total quality management Contingency view Systems thinking Management science perspective Humanistic perspective Classical perspective 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 55 2010 2020 Frederick Taylor wrote that ‘the best management is a true science, resting upon clearly defined laws, rules, and principles.’ By the 1920s, there was a minor rebellion against this emphasis on the quantifiable, with a call for more attention to human and social needs (the humanistic perspective). In the first issue of the Harvard Business Review (1922), Dean Wallace B. Donham wrote that the ‘development, strengthening, and multiplication of socially-minded business men is the central problem of business.’12 This dilemma – the scientific numbers-driven push for greater productivity and profitability, and the call for more humanistic, people-oriented management – has continued to the present day. I S S O C I A L B U S I N E S S T H E A N S W E R? Social business, which refers to using social media technologies for interacting with and facilitating communication and collaboration among employees, customers, and other stakeholders, is one current answer to the historical struggle. Social media programs include company online community pages, wikis for virtual collaboration, social media websites such as Facebook or LinkedIn, video channels such as YouTube, microblogging platforms such as Twitter, and company online forums. For the first time, a new technology (thing of production) adds directly to the humanity of production. Social media technology can improve efficiency, increase productivity, and facilitate faster and smoother operations by improving communication and collaboration within and across organisations.13 Social media can also improve the human aspect of organisations by facilitating communication, collaboration, and knowledge-sharing to tap into employee capabilities and create a competitive advantage. In addition, social media technology is being used by companies to build trusting relationships with customers.14 An early leader in this realm was Morgan Stanley Wealth Management. As director of digital strategy, Lauren Boyman worked closely with the company’s sales manager and investment advisers to use Twitter and other social media for communicating with clients.15 Dell launched a social media command room to monitor what is being said about the company on social media platforms.16 Managers in other companies set up alerts on Google or Bing that let them know when something has been said on social media about them, their company, their products, and so forth.17 Just as important, social media can build 56 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D stronger, more authentic relationships between managers and employees. Mark Reuss left General Motors (GM) in Australia to run GM’s operations in North America just after the company filed for bankruptcy in 2009 and was implementing plans to eliminate more than 2000 dealerships in the United States. Reuss chose to communicate with the dealer network through a ‘get to know you’ messaging part of Facebook rather than through emails or other corporate communications. The strategy helped build trust and credibility because Reuss made himself accessible and was willing to engage others authentically. ‘No matter what happened,’ Reuss said, ‘they knew that I was listening and that they had ... someone to talk to in the company and they could do it instantly.And if you look at how we got through that period and the dealers that we have and the trust that I have built ... it’s because of that conversation on Facebook.’18 R EMEMBE R THIS ◗◗ Managers are always on the lookout for new techniques and approaches to meet shifting organisational needs. ◗◗ Looking at history gives managers a broader perspective for interpreting and responding to current opportunities and problems. ◗◗ ◗◗ Management and organisations are shaped by forces in the larger society. ◗◗ ◗◗ ◗◗ Political forces relate to the influence of political and legal institutions on people and organisations. ◗◗ Social business, which refers to using social media technologies for interacting with and facilitating communication and collaboration among employees, customers,and other stakeholders, is one current answer to the historical struggle. ◗◗ Social media programs include company online community pages, wikis for virtual collaboration, social media websites such as Facebook or LinkedIn, video channels such as YouTube, microblogging platforms such as Twitter, and company online forums. Social forces are aspects of a society that guide and influence relationships among people, such as their values, needs and standards of behaviour. Economic forces affect the availability, production and distribution of a society’s resources. The struggle to balance the things of production with the humanity of production has continued from the nineteenth century to today. 2.2 classical perspective A management perspective that emerged during the nineteenth and early twentieth centuries, which emphasised a rational, scientific approach to the study of management and sought to make organisations efficient operating machines. CLASSICAL PERSPECTIVE The practice of management can be traced to 3000 BCE, to the first government organisations developed by the Sumerians and Egyptians, but the formal study of management is relatively recent.19 The early study of management as we know it today began with what is now called the classical perspective, which emerged during the nineteenth and early twentieth centuries. The factory system that began to appear in the 1800s posed challenges that earlier organisations had not encountered. Problems arose in tooling the plants, organising managerial structure, training employees (many of them non-Englishspeaking immigrants), scheduling complex manufacturing operations, and dealing with increased labour dissatisfaction and resulting strikes. These myriad new problems and the development of large, complex organisations demanded a new approach to coordination and control, and a ‘new sub-species of economic man – the salaried manager’20 – was born. 2: THE EVOLUTION OF MANAGEMENT THINKING Between 1880 and 1920, the number of professional managers in the United States grew from 161 000 to more than 1 million, and similar growth occurred in other Western nations, such as Australia, the United Kingdom and New Zealand.21 These professional managers began developing and testing solutions to the mounting challenges of organising, coordinating and controlling large numbers of people and increasing worker productivity. Thus began the evolution of modern management with the classical perspective. This perspective contains three subfields, each with a slightly different emphasis: scientific management, bureaucratic organisations and administrative principles.22 INNOVATIVE WAY Even massively successful companies occasionally trip over. The very nature of business involves taking risks in order to get returns. In this world of uncertainty and turbulence only one thing is certain: that not everything your company tries will work to plan. Even generally successful companies such as Samsung have had significant problems, including episodes of exploding batteries in their Galaxy Note7 mobile phones, as well as fatal errors with a waterproofing fault in some Samsung top loader washing machines that has caused the machines to catch alight and burn down homes. The subsequent massive recall was very expensive for Samsung, with the direct cost of abandoning the Galaxy Note7 phone reaching AU$3.9 billion and damaging the company’s reputation. Both the original and replacement Galaxy Note7 mobile phones were recalled and any further production of the Note7 was halted. Samsung wisely realised that consumers would most likely not trust a third incarnation of the Note7. With lowered consumer confidence in Samsung products, other Android competitors, such as Sony (e.g. Xperia XZ), Huawei (e.g. Mate 8), and Google (Pixel XL), are likely to see a small sales boost on the back of the Note7 recall. Despite the worldwide recall, Samsung is still the biggest player by a huge margin in the Android world, with its other phones, the Galaxy S7 and S7 Edge, unaffected by the issues associated with the Note7. Other examples of high-risk ventures include Microsoft’s Vista and Apple’s iPhone, which were clearly risky at the time they were developed and may have ended up being Source: Alamy Stock Photo/dpa picture alliance SAMSUNG – EXPERIENCING THE THRILLS AND UNCERTAINTIES OF INNOVATION costly mistakes, although this proved not to be so with the benefit of hindsight. Even if these products are successful, they provided ample illustration of the potential downsides of making massive investments in innovative new products that have no guarantee of success. Sony has a great track record with Walkman, Discman and the first three models of Playstation. Companies like Sony need to keep on delivering a stream of breakthrough products to fuel continued growth and this presents great challenges and opportunities for up-and-coming managers. It requires effective investment in research and technology, and the ability to commercialise inventions (such as the recently launched Playstation 4). Sony’s reputation as market leader in its industries has been strongly challenged by newer players such as Samsung of Korea, which has aggressively attacked its ‘leadership’ market position, with considerable success. Sources: Adapted from Kidman, A. (12 October 2016). The Note7 is dead, but what does Samsung do now? Sydney Morning Herald, http://www.smh. com.au/technology/mobiles/the-note7-is-dead-but-what-does-samsung-do-now-20161012-gs0c92.html (accessed 24 October 2016); Han, E. (27 July 2016). Samsung admits to washing machine recall error that led to fire. Sydney Morning Herald, http://www.smh.com.au/business/consumer-affairs/samsungadmits-to-washing-machine-recall-error-that-led-to-fire-20160726-gqe7sb.html (accessed 24 October 2016); Schlender, B. (5 March 2007). Fortune, 26. 57 58 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D S C I E N T I F I C M A NAG E M E N T Scientific management emphasises scientifically determined jobs and management practices as the way to improve efficiency and labour productivity. In the late 1800s, a young engineer, Frederick Winslow Taylor (1856–1915), proposed that workers ‘could be retooled like machines, their physical and mental gears recalibrated for better productivity’.23 Taylor insisted that improving productivity meant that management itself would have to change and, further, that the manner of change could be determined only by scientific study; hence, the label scientific management emerged. Taylor suggested that decisions based on rules of thumb and tradition be replaced with precise procedures developed after careful study of individual situations.24 Taylor’s approach is illustrated by the unloading of iron from rail cars and reloading finished steel for the Bethlehem Steel plant in 1898. Taylor calculated that, with correct movements, tools and sequencing, each man was capable of loading 47.5 tonnes per day instead of the typical 12.5 tonnes. He also worked out an incentive system that paid each man US$1.85 a day for meeting the new standard – an increase from the previous rate of US$1.15. Productivity at Bethlehem Steel shot up overnight. Although known as the ‘father of scientific management’, Taylor was not alone in this area. Henry Gantt, an associate of Taylor’s, developed the Gantt Chart – a bar graph that measures planned and completed work along each stage of production by time elapsed. Two other important pioneers in this area were the husband-and-wife team of Frank B. and Lillian M. Gilbreth. Frank B. Gilbreth (1868–1924) pioneered the time Frederick Winslow Taylor (1856–1915): Taylor’s theory that labour productivity could and motion study and arrived at many of his management techniques independently be improved by scientifically determined management practices earned him the status of Taylor. He stressed efficiency and was known for his quest for the ‘one best way’ to of ‘father of scientific management’. do work. Although Gilbreth is known for his early work with bricklayers, his work had a great impact on medical surgery by drastically reducing the time patients spent on the operating table. Surgeons were able to save countless lives through the application of time and motion studies. Lillian M. Gilbreth (1878–1972) was more interested in the human aspect of work. When her husband died at the age of 56, she had 12 children, aged between two and 19. The undaunted ‘first lady of management’ went right on with her work. She presented a paper in place of her late husband, continued their seminars and consulting, lectured, and eventually became a professor at Purdue University.25 She pioneered in the field of industrial psychology and made substantial contributions to human resource management. The basic ideas of scientific management are shown in EXHIBIT 2.2. To use this approach, managers should develop standard methods for doing each job, select workers with the appropriate abilities, train workers in the standard methods, support workers and eliminate interruptions, and provide wage incentives. The ideas of scientific management that began with Taylor dramatically increased Lillian M. Gilbreth (1878−1972) and Frank B. Gilbreth (1868−1924), shown productivity across all industries, and they are still important today. Indeed, the idea here using a ‘motion study’ device. The Gilbreths contributed to the principles of of engineering work for greater productivity has enjoyed a renaissance in the retail scientific management. His development of time and motion studies, and her work in industry. Supermarket chains use computerised labour waste elimination systems industrial psychology, pioneered many of based on scientific management principles. The system breaks down tasks such as today’s management and human resources techniques. greeting a customer, working the cash register, scanning items and so forth into scientific management A subfield of the classical management perspective that emphasised scientifically determined changes in management practices as the solution to improving labour productivity. 2: THE EVOLUTION OF MANAGEMENT THINKING GENERAL APPROACH CONTRIBUTIONS CRITICISMS Developed standard method for performing each job. Demonstrated the importance of compensation for performance. Selected workers with appropriate abilities for each job. Initiated the careful study of tasks and jobs. Did not appreciate the social context of work and higher needs of workers. Trained workers in standard methods. Demonstrated the importance of personnel selection and training. Supported workers by planning their work and eliminating interruptions. 59 EXHIBIT 2.2 Characteristics of scientific management Did not acknowledge variance among individuals. Tended to regard workers as uninformed and ignored their ideas and suggestions. Provided wage incentives to workers for increased output. quantifiable units, and devises standard times to complete each task. Executives say the computerised system has allowed them to staff stores more efficiently because people are routinely monitored by computer and are expected to meet strict standards.26 A Harvard Business Review article discussing innovations that shaped modern management puts scientific management at the top of its list of 12 influential innovations. Indeed, the ideas of creating a system for maximum efficiency and organising work for maximum productivity are deeply embedded in our organisations.27 However, because scientific management ignores the social context and workers’ needs, it can lead to increased conflict and clashes between managers and employees. Under such performance management systems, workers often feel exploited – a sharp contrast from the harmony and cooperation that Taylor and his followers had envisioned. B U R E AU C R AT I C O RGA N I S AT I O N S A systematic approach developed in Europe that looked at the organisation as a whole is the bureaucratic organisation approach, a subfield within the classical perspective. Max Weber (1864–1920), a German theorist, introduced most of the concepts on bureaucratic organisations.28 During the late 1800s, many European organisations were managed on a ‘personal’, family-like basis. Employees were loyal to a single individual rather than to the organisation or its mission. The dysfunctional consequence of this management practice was that resources were used to realise individual desires rather than organisational goals. Employees in effect owned the organisation and used resources for their own gain rather than to serve customers. Weber envisioned organisations that would be managed on an impersonal, rational basis. This form of organisation was called a bureaucracy. EXHIBIT 2.3 summarises the six characteristics of bureaucracy as specified by Weber. Weber believed that an organisation based on rational authority would be more efficient and adaptable to change because continuity is related to formal structure and positions rather than to a particular person, who may leave or die. To Weber, rationality in organisations meant employee selection and advancement based on competence rather than on ‘who you know’. The organisation relies on rules and written records for continuity. The manager depends not on his or her personality for successfully giving orders but on the legal power invested in the managerial position. bureaucratic organisation A subfield of the classical management perspective that emphasised management on an impersonal, rational basis through such elements as clearly defined authority and responsibility, formal record keeping, and separation of management and ownership. 60 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D Division of labour, with clear definitions of authority and responsibility Personnel selected and promoted based on technical qualifications THE IDEAL BUREAUCRACY Positions organised in a hierarchy of authority Managers subject to rules and procedures that will ensure reliable, predictable behaviour Administrative acts and decisions recorded in writing Management separate from the ownership of the organisation EXHIBIT 2.3 Characteristics of Weberian bureaucracy Source: Adapted from Max Weber, The Theory of Social and Economic Organizations, ed. and trans. A. M. Henderson and Talcott Parsons (New York: Free Press, 1947), pp. 328–37. The term bureaucracy has taken on a negative meaning in today’s organisations and is associated with endless rules and red tape. We have all been frustrated by waiting in long lines or following seemingly silly procedures. On the other hand, rules and other bureaucratic procedures provide a standard way of dealing with employees. Everyone gets equal treatment, and everyone knows what the rules are. This has enabled many organisations to become extremely efficient. Perhaps no large company has implemented this powerful idea as well as Toyota. In that business, all over the globe, standardised ways of working are invoked for all significant processes, and it has led to Toyota being the world’s most highly valued company in its industry, by far. People all over that company essentially have two jobs, namely doing their primary work in a standardised way, but also engaging intensively in continuous improvement and problem solving-based innovation. As the example in the Innovative way box regarding UPS shows, there are positive as well as negative aspects associated with bureaucratic principles. Weber also struggled with the good and bad sides of bureaucracy.29 Although he perceived bureaucracy as a threat to basic personal liberties, he recognised it 2: THE EVOLUTION OF MANAGEMENT THINKING INNOVATIVE WAY UPS: LEADING THE WORLD IN PARCEL DELIVERY UPS is the largest package delivery company in the world and a leading global provider of specialised transportation and logistics services. The company operates in more than 200 countries and territories worldwide. Why has UPS been so successful? One important factor is the concept of bureaucracy. UPS operates according to strict rules and regulations. It teaches drivers an astounding 340 steps for how to deliver a package correctly, such as how to load the truck, how to fasten their seat belts, how to walk and how to carry their keys. Specific safety rules apply to drivers, loaders, clerks, and managers. Strict dress codes are enforced – clean uniforms (called browns) every day, black or brown polished shoes with nonslip soles, no beards, no hair below the collar, no tattoos visible during deliveries and so on. Before each shift, drivers conduct a ‘Z-scan’, a Z-shaped inspection of the sides and front of their vehicles. Employees are asked to clean off their desks at the end of each day so they can start fresh the next morning. Managers are given copies of policy books with the expectation that they will use them regularly, and memos on various policies and rules circulate by the hundreds every day. UPS has a well-defined division of labour. Each plant consists of specialised drivers, loaders, clerks, washers, sorters and maintenance personnel. The company thrives on written records, and it has been a leader in using new technology to enhance reliability and efficiency. All drivers have daily worksheets that specify performance goals and work output. Technical qualification is the criterion for hiring and promotion. The UPS policy book says the leader is expected to have the knowledge and capacity to justify the position of leadership. Favouritism is forbidden. The bureaucratic model works well at UPS, ‘the tightest ship in the shipping business’. The company is getting a lot of things right for its customers, resulting in its growth to employ some 440,000 people, generating over AU$70 billion of revenue in 2016. Sources: Hira, N. A. (12 November 2007). The Making of a UPS Driver. Fortune, 118–29; D. J. Lynch. (24 July 2006). Thanks to Its CEO, UPS Doesn’t Just Deliver. USA Today, http://www.usatoday.com/money/companies/management/2006-07-23-ups_x.htm? tab1=t2 (accessed 24 July 2006); K. Barron. (10 January 2000). Logistics in Brown. Forbes, 78–83; S. Kirsner. (September 1999). Venture Vérité: United Parcel Service. Wired, 83–96; (26 April 1992). UPS. The Atlanta Journal and Constitution; K. Goode, B. Hahn and C. Seibert. (1981). United Parcel Service: The Brown Giant (unpublished manuscript, Texas A&M University); About UPS. UPS Corporate website, http://www.ups.com/content/us/en/about/index.html (accessed 19 June 2012). as the most efficient and rational form of organising. Rules and other bureaucratic procedures provide a standard way of dealing with employees. Everyone gets equal treatment, and everyone knows what the rules are. Almost every organisation needs to have some rules, and rules multiply as organisations grow larger and more complex. Some examples of rules governing employee behaviour in a furniture manufacturing company, for example, might include:30 ◗◗ Employees must wear protective eye and ear equipment when using machines. ◗◗ Employees must carry out any reasonable duty assigned to them, including workshop maintenance. ◗◗ Employees must maintain an accurate time sheet, showing job and activity. ◗◗ The following will be considered causes for dismissal: excessive tardiness or absenteeism; wilful damage to equipment; continual careless or unsafe behaviour; theft; being under the influence of alcohol or illegal drugs while at work. Max Weber (1864−1920): This German theorist’s concepts of bureaucratic organisation have contributed to the efficiency of many of today’s corporations. TAKE A MOMENT Read the Ethical challenge at the end of this chapter, which relates to problems of bureaucracy. What would it be like for you to be a manager in a bureaucratic organisation? Would you thrive in that environment? 61 62 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D A D M I N I ST R AT I V E P R I N C I P L E S administrative principles A subfield of the classical management perspective that focused on the total organisation rather than the individual worker, delineating the management functions of planning, organising, commanding, coordinating and controlling. Another major subfield within the classical perspective is known as the administrative principles approach. Whereas scientific management focused on the productivity of the individual worker, the administrative principles approach focused on the total organisation. The major contributor to this approach was Henri Fayol (1841–1925), a French mining engineer who worked his way up to become head of a large mining group known as Comambault. Pieces of Comambault survive today as part of ArcelorMittal, the world’s largest steel and mining company. In his later years, Fayol wrote down his concepts on administration, based largely on his own management experiences.31 In his most significant work, General and Industrial Management, Fayol discussed 14 general principles of management, several of which remain part of management philosophy today. For example: nity of command. Each subordinate receives orders from one – and only one – superior. ◗◗ U ◗◗ Division of work. Managerial work and technical work are amenable to specialisation to produce more and better work with the same amount of effort. nity of direction. Similar activities in an organisation should be grouped together under one manager. ◗◗ U ◗◗ Scalar chain. A chain of authority extends from the top to the bottom of the organisation and should include every employee. Fayol felt that these principles could be applied in any organisational setting. He also identified five basic functions or elements of management: planning, organising, commanding, coordinating and controlling. These functions underlie much of the general approach to today’s management theory. The overall classical perspective as an approach to management was very powerful and gave organisations fundamental new skills for establishing high productivity and effective treatment of employees. Indeed, Western countries such as Australia and the United States surged ahead of the world in management techniques, and other countries, especially Japan, borrowed heavily from their ideas. R EMEMBE R THIS ◗◗ The study of modern management began in the late nineteenth century with the classical perspective, which took a rational, scientific approach to management and sought to turn organisations into efficient operating machines. ◗◗ Scientific management is a subfield of the classical perspective that emphasises scientifically determined changes in management practices as the solution to improving labour productivity. ◗◗ Scientific management is considered one of the most significant innovations influencing modern management. ◗◗ Another subfield of the classical perspective is the bureaucratic organisations approach, which emphasises management on an impersonal, rational basis through elements such as clearly defined authority and responsibility, formal record keeping, and separation of management and ownership. ◗◗ The administrative principles approach is a subfield of the classical perspective that focuses on the total organisation rather than the individual worker and delineates the management functions of planning, organising, commanding, coordinating and controlling. ◗◗ Henri Fayol, a major contributor to the administrative principles approach, outlined 14 general principles of management, several of which are a part of management philosophy today. 2: THE EVOLUTION OF MANAGEMENT THINKING 2.3 63 HUMANISTIC PERSPECTIVE The humanistic perspective on management emphasised the importance of understanding human behaviours, needs and attitudes in the workplace, as well as social interactions and group processes.32 There are three primary subfields based on the humanistic perspective: the human relations movement, the human resources perspective and the behavioural sciences approach. E A R LY A DVO C AT E S humanistic perspective A management perspective that emerged around the late nineteenth century that emphasised understanding human behaviour, needs and attitudes in the workplace. Two early advocates of a more humanistic approach were Mary Parker Follett and Chester Barnard. Mary Parker Follett (1868–1933) was trained in philosophy and political science but she applied herself in many fields, including social psychology and management. She wrote of the importance of common superordinate goals for reducing conflict in organisations.33 Her work was popular with business-people of her day but was often overlooked by management scholars.34 Follett’s ideas served as a contrast to scientific management and are re-emerging as applicable for modern managers dealing with rapid changes in today’s global environment. Her approach to leadership stressed the importance of people rather than engineering techniques. She offered the pithy admonition, ‘Don’t hug your blueprints’, and analysed the dynamics of management– organisation interactions. Follett addressed issues that are still timely today, such as ethics, power and leading in a way that encourages employees to give their best. The concepts of empowerment, facilitating rather than controlling employees, and allowing employees to act depending on the authority of the situation opened new areas for theoretical study by Chester Barnard and others.35 Chester I. Barnard (1886–1961) studied economics at Harvard but failed to receive a degree because he did not take a course in laboratory science. He went to work in the statistical department of AT&T, and in 1927 he became president of New Jersey Bell. One of Barnard’s significant contributions was the concept of the informal organisation. Informal organisation occurs in all formal organisations and includes cliques, informal networks and naturally occurring social groupings. Barnard argued that organisations are Mary Parker Follett (1868−1933): Follett not machines and stressed that informal relationships are powerful forces that can help was a major contributor to the humanistic the organisation if properly managed. Another significant contribution was the acceptance principles approach to management. Her emphasis on worker participation and shared theory of authority, which states that people have free will and can choose whether to goals among managers was embraced by many businesspeople of the day, and has follow management orders. People typically follow orders because they perceive positive recently been rediscovered by corporate benefit to themselves, but they do have a choice. Managers should treat employees America. properly because their acceptance of authority may be critical to organisation success in important situations.36 T H E H U M A N R E L AT I O N S M OV E M E N T Australia and New Zealand have always espoused the spirit of human equality, at least as much as any other nation, and possibly more. However, this spirit has not always been translated into practice when it comes to power sharing between managers and workers. The human relations movement was based on the idea that truly effective control comes from within the individual worker rather human relations movement A movement in management thinking and practice that emphasised satisfaction of employees’ basic needs as the key to increased worker productivity. 64 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D than from strict, authoritarian control.37 This school of thought recognised and directly responded to social pressures for enlightened treatment of employees. The early work on industrial psychology and personnel selection received little attention because of the prominence of scientific management. Then a series of studies at a Chicago electric company, which came to be known as the Hawthorne Hawthorne Studies Studies, changed all that. A series of experiments on Beginning in about 1895, a struggle developed between manufacturers of gas and electric lighting worker productivity, begun fixtures for control of the residential and industrial market.38 By 1909, electric lighting had begun in 1924 at the Hawthorne plant of Western Electric to win, but the increasingly efficient electric fixtures used less total power. The electric companies Company in Illinois, began a campaign to convince industrial users that they needed more light to get more productivity. attributed employees’ increased output to When advertising did not work, the industry began experimental tests to demonstrate their argument. managers’ better treatment Managers were sceptical about the results, so the Committee on Industrial Lighting (CIL) was set up of them during the study. to run the tests. To add to the tests’ credibility, Thomas Edison was made honorary chairman of the CIL. At one test location – the Hawthorne plant of the Western Electric Company – some interesting events occurred. The major part of this work involved four experimental and three control groups. In all, five different ‘tests’ were conducted. These pointed to the importance of factors other than illumination in affecting productivity. To more carefully examine these factors, numerous other experiments were conducted.39 The results of the most famous study, the first Relay Assembly Test Room (RATR) experiment, were extremely controversial. Under the guidance of two Harvard professors, Elton Mayo and Fritz Roethlisberger, the RATR studies lasted for six years (10 May 1927 to 4 May 1933) and involved 24 separate experimental periods. So many factors were changed and so many unforeseen factors were uncontrolled that scholars disagree on the factors that truly contributed to the general increase in performance over that period. Most early interpretations, however, agreed on one thing: money was not the cause of the increased output.40 However, recent re-analyses of the experiments have revealed that a number of factors were different for the workers involved, and some suggest that money may well have been the single most important factor.41 An interview with one of the original participants revealed that just getting into the experimental group had meant a huge increase in income.42 The new data clearly shows that money mattered a great deal at Hawthorne. In addition, worker productivity increased partly as a result of the increased feelings of importance and group pride that employees felt by virtue of being selected for this This 1914 photograph shows the initiation of a new arrival at a Nebraska planting camp. important project.43 One unintended contribution of the experiments was a rethinking of This initiation was not part of the formal rules; it illustrates the significance of the informal field research practices. Researchers and scholars realised that the researcher can influence organisation described by Barnard – social the outcome of an experiment by being too closely involved with research subjects. This values and behaviour were powerful forces that could help or hurt the organisation, phenomenon has come to be known as the Hawthorne effect in research methodology. depending on how they were managed. Subjects behaved differently because of the active participation of researchers in the Hawthorne experiments.44 From a historical perspective, whether the studies were academically sound is less important than the fact that they stimulated an increased interest in looking at employees as more than extensions of production machinery. The interpretation that employees’ output increased when managers treated them in a positive manner started a revolution in worker treatment for improving organisational 2: THE EVOLUTION OF MANAGEMENT THINKING 65 productivity. Despite flawed methodology or inaccurate conclusions, the findings provided the impetus for the human relations movement. This approach shaped management theory and practice for well over a quarter of a century, and the belief that human relations is the best area of focus for increasing productivity persists today. T H E H U M A N R E S OU R C E S P E R S P E CT I V E The human relations movement initially espoused a ‘dairy farm’ view of management – contented cows give more milk, and so satisfied workers will give more work. Gradually, views with deeper content began to emerge. The human resources perspective maintained an interest in worker participation and considerate leadership but shifted the emphasis to consider the daily tasks that people perform. The human resources perspective combines prescriptions for design of job tasks with theories of motivation.45 In the human resources view, jobs should be designed so that tasks are not perceived as dehumanising or demeaning but instead allow workers to use their full potential. Two of the best-known contributors to the human resources perspective were Abraham Maslow and Douglas McGregor. Abraham Maslow (1908–1970), a practising psychologist, observed that his patients’ problems usually stemmed from an inability to satisfy their needs. From this, he generalised his work and suggested a hierarchy of needs. Maslow’s hierarchy started with physiological needs and progressed to safety, belongingness, esteem and, finally, self-actualisation needs. Douglas McGregor (1906–1964) had become frustrated with the early simplistic human relations notions while president of Antioch College in Ohio. He challenged both the classical perspective and the early human relations assumptions about human behaviour. Based on his experiences as a manager and consultant, his training as a psychologist and the work of Maslow, McGregor formulated his Theory X and Theory Y, which are explained in EXHIBIT 2.4.46 McGregor believed that the classical perspective was based on Theory X assumptions about workers. He also felt that a slightly modified version of Theory X would fit early human relations ideas. In other words, human relations ideas did not go far enough. McGregor proposed Theory Y as a more realistic view of workers for guiding management thinking. TAKE A MOMENT If you haven’t already completed the self-assessment at the start of this chapter that pertains to old- and new-style management, take it now. How will your management assumptions about people fit into an organisation today? The point of Theory Y is that organisations can take advantage of the imagination and intellect of all their employees. Employees will exercise self-control and contribute to organisational goals when given the opportunity. A few organisations today still use Theory X management, but many are trying Theory Y techniques. The Danish company, Oticon Holding A/S, brings out the creativity and enthusiasm of its employees by operating from Theory Y assumptions. human resources perspective A management perspective that suggests jobs should be designed to meet higherlevel needs by allowing workers to use their full potential. See Chapter 16 for a more detailed discussion of Maslow’s ideas. 66 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D EXHIBIT 2.4 Theory X and Theory Y ASSUMPTIONS OF THEORY X ASSUMPTIONS OF THEORY Y The average human being has an inherent dislike of work and will avoid it if possible. The expenditure of physical and mental effort in work is as natural as play or rest. The average human being does not inherently dislike work. Because of this, most people must be coerced, controlled, directed or threatened with punishment to get them to put adequate effort towards the achievement of organisational objectives. External control and the threat of punishment are not the only means for bringing about effort towards organisational objectives. A person will exercise self-direction and self-control in the service of objectives to which he or she is committed. The average human being prefers to be directed, wishes to avoid responsibility, has relatively little ambition and wants security above all. The average human being learns, under proper conditions, not only to accept but to seek responsibility. The capacity to exercise a relatively high degree of imagination, ingenuity and creativity in the solution of organisational problems is widely, not narrowly, distributed in the population. Under the conditions of modern industrial life, the intellectual potentialities of the average human being are only partially used. Source: D. McGregor, The Human Side of Enterprise, New York, McGraw-Hill, 1960. Reproduced by permission of McGraw-Hill; Graph page 71. Reprinted by permission of International Creative Management, Inc. Copyright © 1990 by Richard Pascale, pp. 33–48. Source: Courtesy Noreen Kam AUSTRALIAN MANAGER PROFILE NOREEN K AM, NATIONA L PROCUREMENT MA NAGER, SILLIKER AUSTR A LIA As the National Procurement Manager of Silliker Australia, I oversee the entire purchasing operations of the organisation, developing strategies for supplier management. Silliker Australia is a part of Merieux NutriSciences, a global laboratory testing corporation dedicated to providing food safety and quality. The challenges that confront procurement are not confined to new cost-saving initiatives, but also developing measures to improve productivity in a keenly contested market. I began my career as a Research Assistant with RMIT University, developing postgraduate study guides in Logistics and Supply Chain Management. I acquired a sound theoretical knowledge of Supply Chain Management while working at the university, which helped build a strong foundation for my formative years in the logistics industry. From the university, I joined a tier-two pharmaceutical supplier that specialises in sterile process components, managing its supply chain operations. I later moved to Konica Minolta, a photocopier manufacturer, coordinating the sales and logistics functions. I moved into the publishing industry in 2007, becoming the Inventory Controller, and Shipping and Inventory Manager of Hinkler Books, a mass market children’s book publisher. In 2009, I was appointed the Logistics and Inventory Manager of Random House Australia, the world’s largest book publishing company. One of the main reasons I enjoy working in logistics and supply chain management is the applicability of the skills and experience I learnt in the field. The skills are readily transferable across industries. As a result, there have been countless opportunities for growth and continuous learning outcomes for me. Completing my Masters in Supply Chain Management at the University of Melbourne in 2012 further bolstered my versatility. The greatest challenge, and also opportunity, I have discovered in my career is that the business world is fluid and constantly evolving. There is no place in business to be resistant to this change, and adaptability and innovation are critical to success in today’s workplace. For instance, the publishing industry evolved significantly between 2009–2012 due to technological innovations and the emergence of e-books, tablets and iPads, as well as the surge in online e-tailers. Consequently, the traditional singular channel to market for publishers through book retailers needed redefinition within a short time. Random House’s conventional B2B supply chain required a dramatic overhaul 2: THE EVOLUTION OF MANAGEMENT THINKING to accommodate a multi-channel network to serve end-consumers and B2C distribution. As the business project manager orchestrating this major change initiative, I had to build and motivate a high-velocity response team to adapt to the market uncertainties that pervaded the publishing industry during this turbulent period. Candour and open communication are vital in gaining respect and cooperation from key stakeholders. Additionally, a workplace culture open to change management is critical for maintaining successful collaboration and avoiding the occurrence of doublemarginalisation between business units. I have been able to make the biggest impact by being passionate about what I do, and being resilient in my resolve. Volunteering my time for charitable causes and building networks and affiliations with organisations dedicated to philanthropic endeavours are two of the most gratifying aspects of my personal development. I believe strongly in human rights and am an advocate for KIVA, a global not-for-profit micro-finance institution. I am also a volunteer mentor of refugee adults and children in Melbourne, teaching them to read and write English. Lastly, as a woman in operations, finding the right work–life balance and breaking through the glass ceiling of a male-dominant industry are other big challenges I face. Being a committee member of NAWO (National Association of Women in Operations), an organisation with the objective to attract, develop and retain women in operational roles, has enabled me to build a network of like-minded women professionals. My career goal is to become an executive board member of a not-for-profit organisation where I feel I will really be able to make a difference to people’s lives. SOURCE: Contributed by Noreen Kam. INNOVATIVE WAY SEMCO: GIVING POWER TO THE EMPLOYEE The Brazil-based company, Semco’s fundamental operating principle is to harness the wisdom of all its employees. It does this by letting people control their work hours, location, and even their pay plans. Employees also participate in all organisational decisions, including which businesses Semco should pursue. Semco leaders believe that economic success requires creating an atmosphere that puts power and control directly in the hands of employees. People can veto any new product idea or business venture. They choose their own leaders and manage themselves to accomplish goals. Information is openly and broadly shared so that everyone knows where they and the company stand. Instead of dictating Semco’s identity and strategy, leaders allow it to be shaped by individual interests and efforts. People are encouraged to seek challenges, explore new ideas and business opportunities, and question the ideas of anyone in the company. This high-level of trust in employees has helped Semco achieve decades of high profitability and growth despite fluctuations in the economy and shifting markets. ‘At Semco, we don’t play by the rules,’ says Ricardo Semler. Semler, whose father started the company in the 1950s, says it doesn’t unnerve him to ‘step back and see nothing on the company’s horizon’. He is happy to watch the company and its employees ‘ramble through their days, running on instinct and opportunity’. For managers like Ricardo Semler, command and control is a thing of the past, with the future belonging to those companies that build leadership throughout the organisation. The Theory Y approach has helped Semco succeed in a tough environment. Although few go as far as Semco, other companies are also using Theory Y principles that are more in line with today’s emphasis on employee empowerment and involvement. Source: Semler, R. (July–August 2007). Out of This World: Doing Things the Semco Way. Global Business and Organizational Excellence, 13–21. 67 68 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D T H E B E H AV I OU R A L S C I E N C E S A P P ROA C H behavioural sciences approach A subfield of the humanistic management perspective that applies social science in an organisational context, drawing from economics, psychology, sociology and other disciplines. See Chapter 11 for a more detailed discussion of the techniques and concepts of organisational development The behavioural sciences approach uses scientific methods and draws from sociology, psychology, anthropology, economics and other disciplines to develop theories about human behaviour and interaction in an organisational setting. This approach can be seen in practically every organisation. One specific set of management techniques based in the behavioural sciences approach is organisation development. In the 1970s, organisational development evolved as a separate field that applied the behavioural sciences to improve the organisation’s health and effectiveness through its ability to cope with change, improve internal relationships and increase problem-solving capabilities.47 The techniques and concepts of organisational development, which will be discussed in detail in Chapter 11 , have since been broadened and expanded to address the increasing complexity of organisations and the environment, and it is still a vital approach for managers. Other concepts that grew out of the behavioural sciences approach include matrix organisations, selfmanaged teams, ideas about corporate culture, and management by wandering around. Indeed, the behavioural sciences approach has influenced the majority of tools, techniques and approaches that managers have applied to organisations since the 1970s. All the remaining chapters of this book contain research findings and management applications that can be attributed to the behavioural sciences approach. R EMEMBE R THIS ◗◗ The humanistic perspective emphasised understanding human behaviour, needs and attitudes in the workplace. ◗◗ Mary Parker Follett and Chester Barnard were early advocates of a more humanistic approach to management. Follett emphasised worker participation and empowerment, shared goals and facilitating rather than controlling employees. Barnard’s contributions include the acceptance theory of authority. ◗◗ The human relations movement stresses the satisfaction of employees’ basic needs as the key to increased productivity. ◗◗ ◗◗ The Hawthorne studies were important in shaping ideas concerning how managers should treat workers. ◗◗ The behavioural sciences approach draws from psychology, sociology and other social sciences to develop theories about human behaviour and interaction in an organisational setting. ◗◗ Many current management ideas and practices can be traced to the behavioural sciences approach. The human resources perspective suggests that jobs should be designed to meet people’s higher-level needs by allowing employees to use their full potential. 2.4 management science perspective A management perspective that emerged after the Second World War and applied mathematics, statistics and other quantitative techniques to managerial problems. MANAGEMENT SCIENCE The Second World War caused many management changes. The massive and complicated problems associated with mass-scale global warfare presented managerial decision makers with the need for more sophisticated tools than ever before. The management science perspective emerged to treat those problems. This view is distinguished for its application of mathematics, statistics and other quantitative techniques to management decision making and problem solving. During the war, groups of mathematicians, physicists and other scientists were formed to solve military problems. Because those 2: THE EVOLUTION OF MANAGEMENT THINKING problems frequently involved moving massive amounts of materials and large numbers of people quickly and efficiently, the techniques had obvious applications to large-scale business firms.48 These management science techniques were enhanced with the development and perfection of the computer. Coupled with the growing body of statistical techniques, computers made it possible for managers to collect, store and process large volumes of data for quantitative decision making, and the quantitative approach is widely used today by managers in a variety of industries. The Walt Disney Company used quantitative techniques to develop FASTPASS, a sophisticated computerised system that spares parents the ordeal of standing in long lines for the most popular rides. Disney theme parks have machines that issue coupons with a return time calculated on the number of people standing in the actual line, the number who have already obtained passes and each ride’s capacity. The next generation of technology, xPass, allows visitors to book times for rides before they even leave home.49 Let’s look at three subsets of management science . Operations research grew directly out of Second World War groups (called operational research teams in the United Kingdom and operations research teams in the United States).50 It consists of mathematical model building and other applications of quantitative techniques to managerial problems. Operations management refers to the field of management that specialises in the physical production of goods or services. Operations management specialists use quantitative techniques to solve manufacturing problems. Some of the commonly used methods are forecasting, inventory modelling, linear and nonlinear programming, queuing theory, scheduling, simulation and break-even analysis. Management information systems and information technology are the most recent subfields of the management science perspective. These systems are designed to provide relevant information to managers in a timely and cost-efficient manner. The advent of the high-speed digital computer opened up the full potential of this area for management. This field is now rapidly developing into the domain of ‘big data’, in which organisations can identify trends, behaviours and preferences of consumers and others with very fine precision. Many of today’s organisations have departments of management science specialists to help solve quantitatively based problems. When Coles Group revamped its approach to use an integrated logistics system across its major businesses, it was applying a quantitative approach to management to determine the best system design. When Telstra analysed its very large and complex telecommunications network to plan how best to further develop it, it was employing management science tools. One specific technique used in many organisations is queuing theory. Queuing theory uses mathematics to calculate how to provide services that will minimise the waiting time of customers. It has been used to analyse the traffic flow through the CityLink road network in Melbourne, the Harbour Bridge in Auckland and the Harbour Tunnel in Sydney. Queuing theory was used to develop the single waiting line for tellers used in many banks. However, quantitative analysis did not stop managers in the United States and Europe from making thousands of bank loans to people and companies that proved to be unable to pay them back, which led to the global financial crisis (GFC). Scott Patterson, a Wall Street Journal reporter and author of The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It, suggests that the financial crisis, which began in 2008, occurred partly as a result of the quantitative analysts’ failure to observe market fundamentals, pay attention to human factors and heed their own intuition.51 69 See Chapter 20 for an indepth discussion of some of these concepts. PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D CASE STUDY BRUMBY’S BAKERIES COOKING ALONG Source: Fairfax syndication/Ken Irwin 70 Michael Sherlock founded and built Brumby’s Bakeries into a significant business group in Australia. From a single store in the Melbourne suburb of Ashburton in 1975, the franchise now has 300 stores across Australia and New Zealand. The business and product strategy revolves around product quality and freshness, using authentic raw materials baked onsite from scratch. Brumby’s supplies some AU$25 million each year to local communities as part of its community engagement strategy. It engages in ‘strategic local marketing’. Mr Sherlock has remained deeply involved in the business as it has grown and transformed into a franchising powerhouse. To maximise its effectiveness, Brumby’s has standardised and systemised its operations and approach. The system is based on: ✚✚ operational manuals to assist in retailing, food quality, marketing, training and internal communications ✚✚ a product range that we believe is second to none in both innovation,breadth of choice and consistency of quality ✚✚ product support by both trained Brumby’s team members and our preferred suppliers ✚✚ company-wide marketing campaigns focusing on building brand awareness, customer counts and sales per customer ✚✚ unique local area marketing strategies tailored for individual store requirements. Mr Sherlock has succeeded in taking the group from start-up to a large franchised chain by focusing on team work and team building. He equates ‘TEAM’ with the idea that Together Everyone Achieves More, but has made it much more than a catchy acronym and phrase. He works the team concept by having quarterly offsite strategy retreat meetings, usually at resorts. These came to also include suppliers who became part of the extended TEAM. These suppliers helped with product development. In a complex and competitive market where businesses such as bakeries often do not last very long, Brumby’s has survived, prospered and grown significantly, due in no small part to its strong TEAM-based management. Sources: Brumby’s. (2015). http://franchising.brumbys.com.au/ (accessed 11 February 2017); Sherlock, M. (4–10 November 2010). Smart Talk. BRW, 16. R EMEMBE R THIS ◗◗ Management science became popular based on its successful application in solving military problems during the Second World War. ◗◗ Management science, also called the quantitative perspective, uses mathematics, statistical techniques and computer technology to facilitate management decision making, particularly for complex problems. ◗◗ Three subsets of management science are operations research, operations management and information technology. 2.5 RECENT HISTORICAL TRENDS Of the approaches that we have discussed so far, the humanistic perspective has remained most prevalent from the 1950s until today. This is despite recent heavy use of management science techniques by some managers. The post-Second World War period saw the rise of new concepts, along with a continued strong interest in the human aspect of managing, such as team and group dynamics and other ideas that relate to the humanistic perspective. Three new concepts that appeared were systems thinking, the contingency view and total quality management. 2: THE EVOLUTION OF MANAGEMENT THINKING 71 S Y ST E M S T H I N K I NG Systems thinking is the ability to see both the distinct elements of a system or situation, and the complex and changing interaction among those elements. A system is a set of interrelated parts that function as a whole to achieve a common purpose.52 Subsystems are parts of a system, such as an organisation, that depend on one another. Changes in one part of the system (the organisation) affect other parts. Managers need to understand the synergy of the whole organisation, rather than just the separate elements, and to learn to reinforce or change whole system patterns.53 Synergy means that the whole is greater than the sum of its parts. The organisation must be managed as a coordinated whole. Managers who understand subsystem interdependence and synergy are reluctant to make changes that do not recognise subsystem impact on the whole organisation. Many people have been trained to solve problems by breaking a complex system, such as an organisation, into discrete parts and working to make each part perform as well as possible. However, the success of each piece does not add up to the success of the whole. In fact, sometimes changing one part to make it better actually makes the whole system function less effectively. For example, a small city embarked on a road-building program to solve traffic congestion without wholesystems thinking. With new roads available, more people began moving to the suburbs. Rather than reduce congestion, the solution actually increased traffic congestion, delays and pollution by enabling suburban sprawl.54 It is the relationship among the parts that form a whole system – whether a community, a car, a not-for-profit agency, a human being or a business organisation – that matters. Systems thinking enables managers to look for patterns of movement over time and focus on the qualities of rhythm, flow, direction, shape and networks of relationships that accomplish the performance of the whole. When managers can see the structures that underlie complex situations, they can facilitate improvement. But doing that requires a focus on the big picture. An important element of systems thinking is to discern circles of causality. Peter Senge, author of The Fifth Discipline, argues that reality is made up of circles rather than straight lines.55 For example, EXHIBIT 2.5 shows circles of influence for increasing a retail business’s profits. The events in the circle on the left are caused by the decision to increase advertising; hence the retail business adds to the advertising budget to aggressively promote its products. The advertising promotions increase sales, which increase profits, which provide money to further increase the advertising budget. Sales Advertising budget Stocking up Delay Profits Added cost system A set of interrelated parts that function as a whole to achieve a common purpose. subsystems Parts of a system that depend on one another for their functioning. synergy The concept that the whole is greater than the sum of its parts. EXHIBIT 2.5 Systems thinking and circles of causality Build warehouse Decision to advertise systems thinking An extension of the humanistic perspective that describes organisations as open systems that are characterised by entropy, synergy and subsystem interdependence. Hire people Source: Based on concepts presented in Peter M. Senge, The Fifth Discipline: The Art and Practice of the Learning Organization (New York: Doubleday/Currency, 1990). 72 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D But another circle of causality is being influenced as well. The decision by marketing managers will have consequences for the operations department. As sales and profits increase, operations will be forced to stock up with greater inventory. Additional inventory will create a need for additional warehouse space. Building a new warehouse will cause a delay in stocking up. After the warehouse is built, new people will be hired, all of which adds to company costs, which will have a negative impact on profits. Thus, understanding all the consequences of their decisions via circles of causality enables company leaders to plan and allocate resources to warehousing, as well as to advertising, to ensure stable increases in sales and profits. Without understanding system causality, senior managers would fail to understand why increasing advertising budgets could cause inventory delays and temporarily reduce profits. CO N T I NG E N C Y V I E W contingency view An extension of the humanistic perspective in which the successful resolution of organisational problems is thought to depend on managers’ identification of key variables (or contingencies) in the situation at hand. EXHIBIT 2.6 The contingency view of management A second, later, extension to management thinking is the contingency view. The classical perspective assumed a universalist view. Management concepts were thought to be universal; whatever worked in terms of management style, bureaucratic structure and so on in one organisation would work in any other one. In business education, however, an alternative view exists. In this case view, each situation is believed to be unique. Principles are not universal, and one learns about management by experiencing a large number of case problem situations. Managers face the task of determining what methods will work in every new situation. To integrate these views, the contingency view emerged, as illustrated in EXHIBIT 2.6.56 Here, neither of the other views is seen as entirely correct. Instead, certain contingencies, or variables, exist for helping managers identify and understand situations. The contingency view tells us that what works in one setting might not work in another. Contingency means that one thing depends on other things and a manager’s response to a situation depends on identifying key contingencies in an organisational situation. Important contingencies that managers must understand include the industry in which the organisation operates, technology, the environment and international cultures. The organisational structure that is effective for an Internet company, such as Google, would not be successful for a large car manufacturer, such as Ford. A management-by-objectives system that works well in a manufacturing organisation might not be right for a school system. When managers learn to identify important patterns and characteristics of their organisations, they can fit solutions to those characteristics. Case view ‘Every situation is unique.’ Universalist view ‘There is one best way.’ Contingency view Organisational phenomena exist in logical patterns. Managers devise and apply similar responses to common types of problems. T O TA L QUA L I T Y M A NAG E M E N T The theme of quality is another concept that permeates current management thinking. The quality movement is strongly associated with Japanese companies, but these ideas emerged partly as a result of American influence after the Second World War. The ideas of W. Edwards Deming, known as the ‘father 2: THE EVOLUTION OF MANAGEMENT THINKING of the quality movement’, were initially scoffed at in the United States, but the Japanese embraced his theories and modified them to help rebuild their industries into world powers.57 Japanese companies achieved a significant departure from the American model by gradually shifting from an inspectionoriented approach to quality control, towards an approach that emphasised employee involvement in the prevention of quality problems.58 During the 1980s and into the 1990s, total quality management, which focuses on managing the total organisation to deliver better quality to customers, moved to the forefront in helping United States managers deal with global competition. The approach infuses high-quality values throughout every activity within a company, with frontline workers intimately involved in the process. Four significant elements of quality management are employee involvement, focus on the customer, benchmarking and continuous improvement (often referred to as kaizen). Employee involvement means that achieving better quality requires company-wide participation in quality control. All employees are focused on the customer; companies find out what customers want and try to meet their needs and expectations. Benchmarking refers to a process whereby companies find out how others do something better than they do and then try to imitate or improve on it. Continuous improvement is the implementation of small, incremental improvements in all areas of the organisation on an ongoing basis. Total quality management is not a quick fix, but companies such as BHP Billiton, IAG (Insurance Australia), GE, the Walt Disney Company, Ford, and Toyota achieved astonishing results in efficiency, quality and customer satisfaction through this approach.59 It is still an important part of organisational life, and managers consider benchmarking in particular a highly effective and satisfying management technique.60 Some of today’s companies pursue highly ambitious quality goals to demonstrate their commitment to improving quality. For example, Six Sigma, popularised by Motorola and GE, specifies a goal of no more than 3.4 defects per million parts. However, the term also refers to a broad quality control approach that emphasises a disciplined and relentless pursuit of higher quality and lower costs. R EMEMBE R THIS ◗◗ Systems thinking means looking, not just at discrete parts of an organisational situation, but also at the continually changing interactions among the parts. ◗◗ When managers think systemically and understand subsystem interdependence and synergy, they can get a better handle on managing in a complex environment. ◗◗ The concept of synergy says that the whole is greater than the sum of its parts. The organisation must be managed as a whole. ◗◗ The contingency view tells managers that what works in one organisational situation might not work in others. Managers can identify important contingencies or variables that help guide their decisions regarding the organisation. ◗◗ The quality movement is associated with Japanese companies, but it emerged partly as a result of American influence after the Second World War. ◗◗ ◗◗ Total quality management focuses on managing the total organisation to deliver quality to customers. Four significant elements of this are employee involvement, focus on the customer, benchmarking and continuous improvement. 73 total quality management A concept that focuses on managing the total organisation to deliver quality to customers. Four significant elements of this are employee involvement, focus on the customer, benchmarking and continuous improvement. See Chapter 19 for a more detailed discussion of quality management. 74 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D INNOVATIVE MANAGEMENT THINKING FOR A CHANGING WORLD 2.6 All of the ideas and approaches discussed so far in this chapter go into the mix that makes up modern management. Dozens of ideas and techniques in current use can trace their roots to these historical perspectives.61 In addition, innovative concepts continue to emerge to address new management challenges. Smart managers heed the past but know that they and their organisations have to change with the times. General Motors (GM) was the ‘ideal’ organisational model in a post-Second World War environment, but by 2009 it had collapsed into bankruptcy and sought billions of dollars in government aid because managers failed to pay attention as the world changed around them.62 GM managers assumed that the pre-eminence of their company would shelter it from change, and they stuck far too long with strategy, culture and management approaches that were out of tune with the shifting environment. CO N T E M P O R A R Y M A NAG E M E N T T O O L S Recall from the beginning of this chapter our discussion of jugaad, an approach to innovation management used in India that many managers in other countries are trying. Management fads and fashions come and go, but managers are always looking for new techniques and approaches that more adequately respond to customer needs and the demands of the environment. A recent survey of European managers reflects that managers pay attention to currently fashionable management concepts. EXHIBIT 2.7 lists the percentage of managers reporting that they were aware of these selected management trends that have been popular over the past decade.63 EXHIBIT 2.7 Awareness of management trends CONCEPT AWARENESS PERCENTAGE E-business 99.41 Decentralisation 99.12 Customer relationship management 97.50 Virtual organisation 91.19 Empowerment 83.41 Re-engineering 76.65 Managers especially tend to look for fresh ideas to help them cope during difficult times. For instance, recent challenges such as the GFC (and accompanying public suspicion and scepticism), environmental and organisational crises and lingering anxieties over war and terrorism have left today’s executives searching for any management tool – new or old – that can help them get the most out of limited resources. The Management in practice box below lists a wide variety of ideas and techniques used by today’s managers. Management idea life cycles have been shrinking as the pace of change has increased. A study by the University of Louisiana at Lafayette found that, from the 1950s to the 1970s, it typically took more 2: THE EVOLUTION OF MANAGEMENT THINKING than a decade for interest in a popular management idea to peak. Now, the interval has shrunk to fewer than three years, and some trends come and go even faster.64 MANAGEMENT IN PRACTICE MANAGEMENT TOOLS AND TRENDS Over the history of management, many fashions and fads have appeared. Critics argue that new techniques may not represent permanent solutions. Others feel that managers must adopt new techniques for continuous improvement in a fast-changing world. In 1993, Bain & Company initiated a large research project to interview and survey thousands of corporate executives about the 25 most popular management tools and techniques. The most recent results and usage rates are shown. How many of the tools do you know? ✚✚ Popularity. In the most recent Benchmarking Strategic planning Mission and vision statements Customer relationship management Outsourcing Balanced scorecard Change management programs Core competencies Strategic alliances Customer segmentation Supply chain management Total quality management Knowledge management Business process re-engineering Mergers and acquisitions Satisfaction and loyalty management Scenario and contingency planning Enterprise risk management Social media programs Shared services centres Downsizing Open innovation Price optimisation models Decision rights tools Rapid prototyping survey, benchmarking held onto the top spot as the most popular tool, reflecting managers’ concern with efficiency and cost-cutting in a difficult economy. Mergers and acquisitions have decreased in popularity, with only 35 per cent of managers using this technique. Three tools that ranked high in both use and satisfaction were strategic planning, mission and vision statements, and customer segmentation, tools that can guide managers’ thinking on strategic issues during times of rapid change. ✚✚ Global trends. For the first time, firms in emerging markets reported using more tools than those in developed markets. More than half of emerging market executives reported using the balanced scorecard. North American managers decreased 67% 65% 63% 58% 55% 47% 46% 46% 45% 42% 39% 38% 38% 38% 35% 32% 30% 30% 29% 28% 25% 21% 21% 17% 11% 0 20 40 Significantly above overall mean Mean Significantly below overall mean 60 80 100 Usage their use of outsourcing and were the largest users of social media programs. Managers in Latin American companies used more tools than any other region, but they were the lightest users of downsizing and customer relationship management. Asian companies were the greatest users of knowledge management. Benchmarking and change management programs were top tools for managers in Europe, where acute economic uncertainty continues. SOURCE: Darrell Rigby and Barbara Bilodeau, Management Tools and Trends 2011. Copyright © 2011, Bain and Company, Inc., http://www.bain.com/publications/articles/Management-tools-trends-2011.aspx. Reprinted by permission. 75 76 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D M A NAG I NG T H E T E C H NO L O GY- D R I V E N WO R K P L AC E The physical world that Frederick Taylor and other proponents of scientific management measured determines less and less of what is valued in organisations and society. Our lives and organisations have been engulfed by information technology. Ideas, information and relationships are becoming more important than production machinery, physical products and structured jobs. Many employees perform much of their work on computers and may work in virtual teams, connected electronically to colleagues around the world. Even in factories that produce physical goods, machines have taken over much of the routine and uniform work, freeing workers to use more of their minds and abilities. Managers and employees in today’s companies focus on opportunities rather than efficiencies, which requires that they be flexible, creative and unconstrained by rigid rules and structured tasks. T H E S H I F T I NG WO R L D O F E - B U S I N E S S Today, much business takes place by digital processes over a computer network rather than in physical space. E-business refers to the work an organisation does by using electronic linkages (including the Internet) with customers, partners, suppliers, employees or other key constituents. E-commerce is a narrower term referring specifically to business exchanges or transactions that occur electronically. E-commerce replaces or enhances the exchange of money and products with the exchange of data and information from one computer to another. Companies such as Dell, Amazon.com, Red Balloon, Village cinemas and Coles Online are engaged in what is referred to as business-to-consumer e-commerce (B2C) because they sell products and services to consumers over the Internet. Although this is probably the most visible expression of e-commerce to the public, the fastest-growing area of e-commerce is business-to-business e-commerce (B2B), which refers to electronic transactions between organisations. Large organisations such as Coles and Woolworths, Toyota and Ford Motor Company buy and sell billions of dollars worth of goods and services a year via either public or private Internet linkages. Some companies have taken e-commerce to very high levels to achieve amazing performance. Dell Computer pioneered the use of end-to-end digital supply chain networks to keep in touch with customers, take orders, buy components from suppliers, coordinate with manufacturing partners and ship customised products directly to consumers. These advances mean managers not only need to be technologically savvy, but they also become responsible for managing a web of relationships that reaches far beyond the boundaries of the physical organisation, building flexible e-links between a company and its employees, suppliers, partners and customers. The third area of e-commerce, consumer-to-consumer (C2C), is made possible when an Internet-based business acts as an intermediary between and among consumers. One of the best-known examples of C2C e-commerce is web-based auctions such as those made possible by eBay. Internet auctions have created a large electronic marketplace where consumers can buy and sell directly with one another, often handling practically the entire transaction via the web. New electronic technologies also shape the organisation and how it is managed. A century ago, Frederick Taylor described the kind of worker needed in the iron industry: ‘Now, one of the first requirements for a man who is fit to handle pig iron as a regular occupation is that he shall be so stupid and so phlegmatic that he more nearly resembles in his mental makeup the ox than any other type’.65 The philosophy of scientific management was that managers structured and controlled jobs so carefully that thinking on the part of employees wasn’t required – indeed, it was usually 2: THE EVOLUTION OF MANAGEMENT THINKING discouraged. How different things are today! Many organisations depend on employees’ minds more than their physical bodies. In companies where the power of an idea determines success, managers’ primary goal is to tap into the creativity and knowledge of every employee. CASE STUDY ATLASSIAN: SUPPORTING COLLABORATION AND INNOVATION One company that has successfully tapped into the growing trend to work in virtual teams is Australian software firm Atlassian, which has designed software products to support collaboration among its team members. When cosmetic giant Lancôme looked to find a more effective way of coordinating the work of in-house and freelance web developers with creative staff from around the globe, they introduced Atlassian’s JIRA application. JIRA enables all team members to share access to the same information and track development changes, thus reducing confusion and costly time delays. It is a program that enables contributors to work cooperatively, view and participate in idea generation and make instant changes. This all speeds up the development process, allows ideas to be captured quickly and assists in new product innovation. With the company’s engineers being geographically displaced, the need for back and forth emails and the worry of trying to arrange meeting times across continents and time zones added to communication issues for Lancôme. JIRA improves collaboration and quickens the process of software development. Lancôme was so satisfied with how it enhanced their web development and the increased sales on their websites that they intend to roll it out to other divisions of the company. Around the world, over 60 000 companies rely on Atlassian to improve software development, project management, collaboration and code quality. Atlassian’s software supports a more technology driven workplace and a burgeoning desire to find ways to enhance collaboration between employees. Many big companies now use a range of Atlassian products to assist them in managing intellectual capital and enable knowledge sharing. Another of their programs, called Confluence, is designed especially to prevent tacit knowledge being trapped in a person’s email inbox where it may not be accessed or even known to others who need the information. Being able to share knowledge and manage knowledge can often be a challenge for a large company, where the doubling up on the search for information can create costly delays and inhibit speedy decision making. Atlassian’s customers include Citigroup, eBay, NASA and Microsoft; in fact, more than 85 per cent of Fortune 100 companies are users of Atlassian products. Co-founders Scott Farquhar and Mike Cannon Brookes recognise that their ability to produce innovative new solutions for their customers’ problems is through Atlassian’s own capacity to attract and retain the best software engineers and have a company culture that encourages risk taking and collaboration. Their now famous ‘ShipIt’ days where employees are given 24 hours in which to problem solve, develop and pitch a new idea has resulted in the creation of 550 internal projects. One idea for a testing tool has collected more than US$2 million in sales. The management support and encourage risk taking and learning, and they value their employees’ ability to think creatively as they see this as an opportunity to keep an edge on their competitors. The company’s priority has been to create knowledge sharing among employees and cooperation with their customers through building strong relationships. They have even hosted a ShipIt day for one of their customers Nintendo, to encourage the same sort of innovation and creativity that Atlassian has enjoyed. Sources: Atlassian (2013), http://www.atlassian.com (accessed 22 March 2012); Nintendo Named Winner of Atlassian’s 24-Hour FedEx Day Innovation Campaign, http://www.atlassian.com/it/company/press/press-releases/Nintendo-Named-Winner-of-Atlassians-24-Hour-ShipIt-Day-Innovation-Campaign (accessed 15 May 2013); ‘Atlassian’ (9 September 2012), http://www.atlassian.com/en/company/press/press-releases/new-atlassian-marketplace-surpassed1-million-in-transactions (accessed 14 May 2013); Geron, T. (3 March 2012). We’re All Coders. Forbes, 189:4, 44–6, http://www.forbes.com/forbes/2012/0312/ technology-software-atlassian-australian-all-coders.html (accessed 14 May 2013); Smith, F. (8 November 2012). Is Atlassian the Coolest Company in Australia? Business Review Weekly, http://www.brw.com.au/p/sections/features/is_atlassian_the_coolest_company_877SCYxXLwl7N9cNiMF6vJ (accessed 14 May 2013); http://www.atlassian.com/software/confluence/overview/team-collaboration-software (accessed 15 May 2013); Atlassian (2017) Customers, https://www.atlassian.com/customers?page=1&sortParam=date_created%20desc (accessed 20 February 2017). 77 78 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D B I G DATA A NA LY T I C S big data analytics Technologies, skills, and processes for searching and examining massive, complex sets of data that traditional data processing applications cannot handle, to uncover hidden patterns and correlations. The newest business technology is big data analytics. This refers to technologies, skills, and processes for searching and examining massive, complex sets of data that traditional data processing applications cannot handle, to uncover hidden patterns and correlations.66 Facebook, for example, uses the personal data that you put on your page and tracks and monitors your online behaviour, then searches through all that data to identify and suggest potential ‘friends’.67 Amazon.com collects large amounts of data on customers, including what books they buy, what else they look at, how they navigate through the website, and how much they are influenced by promotions and reviews. The company uses algorithms that predict and suggest what books a customer might be interested in reading next. The predictions get better every time a customer responds to or ignores a recommendation.68 Another example of the power of big data analytics comes from the world of online dating websites such as eHarmony and Match.com. These sift through huge amounts of data to compare millions of people across hundreds of different variables and make matches for users in a matter of minutes, sending new matches out on a daily basis. The professional networking site, LinkedIn, recently announced a similar idea with its recruiting feature, ‘People you may want to hire’. The company analyses its huge data mines and provides a list of perfect candidates for a company’s job openings.69 However, big data is not just for online companies. Big data analytics can be thought of as a direct descendant of Frederick Winslow Taylor’s scientific management and the most recent iteration of the quantitative approach to management.70 Walmart collects more than 2.5 petabytes of data (a petabyte is about a million gigabytes, or the equivalent of about 20 million filing cabinets of written data) every hour from customer transactions and uses the data to make better decisions.71 The gaming corporation Caesars Entertainment analyses customer data to fine-tune customer segments and build effective loyalty programs for its casinos and resorts. Researchers at the Johns Hopkins School of Medicine found that they could use data from Google Flu Trends (which Google uses to collect and aggregate flu-related search terms) to predict surges in flu-related emergency room visits a week before warnings came from the Centers for Disease Control.72 K NOW L E D G E M A NAG E M E N T knowledge management The efforts to systematically find, organise and make available a company’s intellectual capital, and to foster a culture of continuous learning and knowledge sharing so that a company’s activities build on what is already known. For many of the world’s leading companies, only 10 to 20 per cent of their market value is accounted for by the value of their ‘hard’ assets. Much of the rest of a firm’s value is its knowledge. Peter Drucker coined the term ‘knowledge work’ more than 40 years ago,73 but it is only in recent years that managers have genuinely recognised knowledge as an important organisational resource that should be managed just as they manage cash flow or raw materials. Knowledge management refers to the efforts to systematically find, organise and make available a company’s intellectual capital, and to foster a culture of continuous learning and knowledge sharing so that a company’s activities build on what is already known.74 Information technology plays an important role by enabling the storage and dissemination of data and information across the organisation, but technology is only one part of a larger management system.75 A complete knowledge management system includes not only the technology for capturing and storing knowledge for easy access, but also new management values that support risk taking, learning and collaboration. Rather than seeing employees as factors of production and looking for ways to use human and material resources for greatest efficiency, today’s most successful managers value people for their ability to think, create, share knowledge and build relationships. 2: THE EVOLUTION OF MANAGEMENT THINKING 79 TAKE A MOMENT As a new manager in today’s workplace, how would you develop your employees’ abilities to think independently, build relationships and share knowledge? Be prepared to learn to use technology as a tool to tap into the insight and creativity of each person in the organisation. One segment of knowledge management is the use of sophisticated customer relationship management (CRM) systems. These collect and manage large amounts of data about customers and make them available to employees, enabling better decision making and superior customer service. The use of CRM has virtually exploded over the past several years. In Bain & Company’s 2011 management tool survey, for example, 58 per cent of companies reported using CRM, up from only 35 per cent of companies in 2000, one of the largest and fastest usage increases ever revealed by the survey.76 Information technology has also contributed to the rapid growth of outsourcing, which means contracting out selected functions or activities to other organisations that can do the work more cost effectively. Today’s companies are outsourcing to free up cash for investment in long-term research and innovation. Outsourcing – along with other trends such as supply chain management, customer relationship management, telecommuting and virtual teamwork – requires that managers decide exactly what they can do competitively and what they should be getting other firms to do via a series of supply and partnering relationships. customer relationship management (CRM) Systems that help companies keep in close touch with customers, collect and manage customer data, and collaborate with customers to provide the most valuable products and services. outsourcing Contracting out to another company of a function or activity that could be, or was previously, produced in-house. S U P P LY C H A I N M A NAG E M E N T Supply chain management refers to managing the sequence of suppliers and purchasers, covering all stages of processing, from obtaining raw materials to distributing finished goods to consumers.77 EXHIBIT 2.8 illustrates a basic supply chain model. A supply chain is a network of multiple businesses and individuals that are connected through the flow of products or services.78 Many organisations manage the supply chain with sophisticated electronic technology. In India, for example, Walmart managers have invested in an efficient supply chain that electronically links farmers and small manufacturers directly to the stores, maximising value for both ends.79 However, today’s global supply chains create Suppliers Manufacturers Distributors Retailers Flow of products Source: Adapted from an exhibit from the Global Supply Chain Games Project, Delft University and the University of Maryland, R. H. Smith School of Business, www.gscg.org:8080/opencms/export/sites/default/gscg/images/supplychain_ simple.gif (accessed 6 February 2008). EXHIBIT 2.8 Supply chain for a retail organisation 80 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D many challenges for managers. Several garment factory fires in Bangladesh in 2012, and the collapse of another apparel plant in 2013 that killed 1100 workers, put the spotlight on poor working conditions in that country. The problem for retailers such as Woolworths, H&M, Target and other big companies, is that similar poor working conditions exist in other low-wage countries such as Pakistan, Cambodia, Indonesia and Vietnam, which produce most of the world’s clothing. Australian, European and United States retailers have announced plans aimed at improving safety in overseas factories, but the challenge of monitoring contractors and subcontractors in low-wage countries is a massive one. Even when an organisation such as H&M thinks that it is hiring a responsible supplier, that company might subcontract or obtain materials from less responsible ones.80 S O C I A L M E D I A P RO G R A M S Companies use social media programs to interact electronically with employees, customers, partners and other stakeholders. Although only 29 per cent of managers surveyed by Bain & Company said their companies used social media programs in 2010, more than half said they planned to use them that year.81 Social media programs include company online community pages, social media sites such as Facebook or LinkedIn, microblogging platforms such as Twitter and China’s Weibo, and company online forums. One frequent, and controversial, use of social media has been to look into the backgrounds and activities of job candidates. A survey by CareerBuilder found that 37 per cent of hiring managers said they had used social media sites to see if job applicants present themselves professionally, to learn more about an applicant’s qualifications or to see if the candidate would be a good fit with the organisational culture.82 Other uses of social media programs include generating awareness about company products and services, sharing ideas and seeking feedback from customers and partners, strengthening relationships among employees and selling products. One concern for many managers is how to measure the effectiveness of social media programs. M A NAG I NG T H E P E O P L E - D R I V E N WO R K P L A C E Organisations are undergoing tremendous changes. Some are related to new technology, whereas others are brought about primarily because of shifting needs of people. One concern of executives is the demands of younger employees for changes in workplace cultures and practices. Two responses to these issues are the bossless workplace and a renewed emphasis on employee engagement. THE BO SSLESS WORKPL A C E As described at the beginning of this chapter, a few bossless work environments have existed for decades, but this has become a real trend in recent years. For one thing, how and where work gets done has shifted in major ways, because many people can work from home or other locations outside an office with ease. At Symantec, for example, most employees used to work in cubicles, but now many of them work from home or other remote locations scattered all over the world.83 When everyone has access to the information they need and the training to make good decisions, having layers of managers just eats up costs and slows down response time.84 Many bossless companies, such as Valve Software (web platform for video games), Netflix (video streaming and rentals), and Atlassian (a global enterprise software founded and built in Australia), operate 2: THE EVOLUTION OF MANAGEMENT THINKING in technology-related industries. However, companies as diverse as GE Aviation (aviation manufacturing), W. L. Gore & Associates (best known for Gore-Tex fabrics), Whole Foods Market (supermarkets), and Semco (diversified manufacturing, described previously), have succeeded for years with bossless structures. One of the most interesting examples of a bossless work environment is that of the Morning Star tomato processor, discussed below. INNOVATIVE WAY MORNING STAR Chris Rufer believes that if people can manage the complexities of their own lives without a boss, there is no reason they can’t manage themselves in the workplace. The founder of Morning Star, the world’s largest tomato processor with three factories that produce products for companies such as Heinz and Campbell Soup Company, and in which around 400 employees produce over US$700 million a year in revenue, organised his company based on the following principles of self-management: ✚✚ No one has a boss. ✚✚ Employees negotiate responsibilities with their peers. ✚✚ Everyone can spend the company’s money. ✚✚ There are no titles or promotions. ✚✚ Compensation is decided by peers. How does such a system work? As the company grew from the original 24 colleagues (as employees are called) to around 400, problems occurred. Some people had trouble working in an environment with no bosses and no hierarchy. To help solve this issue, Rufer created the Morning Star Self-Management Institute to provide training for people in the principles and systems of self-management. Every colleague now goes through training in small groups of 10–15 people, to learn how to work effectively as part of a team; handle the responsibilities of planning, organising, leading, and controlling, which are typically carried out by managers; balance freedom and accountability; understand and effectively communicate with others; and manage conflicts. Today, every colleague writes a personal mission statement and is responsible for accomplishing it, including obtaining whatever tools and resources are needed. This means that anyone can order supplies and equipment, and colleagues are responsible for initiating the hiring process when they need more help. Every year, each person negotiates a Colleague Letter of Understanding (CLOU) with the colleagues most affected by his or her work. Every CLOU has a clearly defined set of metrics that enable people to track their progress in achieving their goals and meeting the needs of their colleagues. ‘Around here,’ one colleague said, ‘nobody’s your boss and everybody’s your boss.’ Source: Kirkpatrick, D. (October 2012). Self-Management’s Success at Morning Star. T+D: 25–27; Hamel, G. (December 2011). First, Let’s Fire All the Managers. Harvard Business Review: 48–60. In a bossless work environment such as that at Morning Star, nobody gives orders, and nobody takes them. Accountability is to the customer and the team, rather than to a manager. There can be many advantages to a bossless work environment, including increased flexibility, greater employee initiative and commitment, and better and faster decision making.85 However, bossless work environments also present new challenges. Costs may be lower because of reduced overhead, but money has to be invested in ongoing training and development for employees so that they can work effectively within a bossless system. The culture also has to engage employees and support the non-hierarchical environment. Employee engagement is essential for a successful bossless workplace. 81 82 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D EMPLO YEE ENGA GEMENT Source: Alamy Stock Photo/TAR-TASS Photo Agency/Emil Matveyev engagement An emotional and mental state in which employees enjoy their work, contribute enthusiastically to meeting goals, and feel a sense of belonging and commitment to the organisation. Employee engagement means that people are emotionally involved in their jobs and are satisfied with their work conditions, contribute enthusiastically to meeting team and organisational goals, and feel a sense of belonging and commitment to the organisation and its mission.86 To engage employees, managers unite people around a compelling purpose that encourages them to give their best. Young Generation Y employees (sometimes called Millennials), the most educated generation in the history of the Western world, grew up technologically adept and globally conscious. Unlike many workers in the past, they typically are not hesitant to question their superiors and challenge the status quo. They want a flexible, collaborative work environment that is challenging and supportive, with access to cutting-edge technology, opportunities to learn and further their careers and personal goals, and the power to make substantive decisions in the workplace. Meeting the shifting needs of this generation is one reason that organisations put employee engagement surveys near the top of the list of tools and techniques they are using (the technique ranked number one in North America).87 Meanwhile, smart managers are looking ahead Research has shown that organisations can deliberately create a culture that engages employees and encourages greater job satisfaction. At international shipping company Deutsche Post DHL Group (DHL), for example, the company thanks employees for their contributions through thank you notes, monetary rewards, and more. Other engagement tactics include communicating honestly with employees, supporting career development and enabling employees to serve their communities. to the next generation, alternatively called the Pluralist Generation, Generation Z, or the Re-Generation (Re-Gens). Re-Gens, born around 1995, will soon be flooding into the workforce, bringing their own changes and challenges to the practice and evolution of management. Some observers predict that a sense of meaning and commitment, especially environmental responsibility, will be high on their list of priorities.88 R EMEMBE R THIS ◗◗ Modern management is a lively mix of ideas and techniques from varied historical perspectives, but new concepts continue to emerge. ◗◗ ◗◗ ◗◗ Managers tend to look for innovative ideas and approaches, particularly during turbulent times. ◗◗ Customer relationship management (CRM) systems use information technology to keep in close touch with customers, collect and manage large amounts of customer data, and provide superior customer value. ◗◗ Social media programs include online community pages, social media sites such as Facebook and LinkedIn, microblogging platforms such as Twitter, and company online forums that enable managers to interact electronically with employees, customers, partners and other stakeholders. ◗◗ Sustainable development refers to the way in which organisations engage with and satisfy a wide variety of stakeholders with whom they interact. ◗◗ Two ideas related to a people-driven workplace are the bossless work environment and employee engagement. Many of today’s popular techniques are related to the transition to a technology-driven workplace. A complete knowledge management system includes technology for capturing and storing knowledge for easy access, as well as management values that support risk taking, learning and collaborating. 2: THE EVOLUTION OF MANAGEMENT THINKING ◗◗ Engagement means that people are involved in their jobs and are satisfied with their work conditions, contribute enthusiastically to meeting team and organisational goals, and feel a sense of belonging and commitment to the organisation and its mission. ◗◗ Managers are looking ahead to the next generation of employees, sometimes called Re-Gens, to try to predict what changes and challenges they may bring to the evolution of management thinking. ◗◗ These new approaches require managers to think in fresh ways about managing their relationships with employees, customers and business partners. Sustainable development is a relatively new term that refers to the way in which organisations engage with and satisfy a wide variety of stakeholders. This includes its shareholders, employees, suppliers, the environment (meaning the air, water, land resources and other aspects of keeping the planet in good shape for future generations in the long term) and the communities in which they operate. Executives are now recognising the requirement to satisfy not just shareholders, who principally demand profits, but also a wide variety of stakeholder groups, who place a range of demands on the company and its managers. To survive and prosper, firms must not pollute the environment, they must adhere to tightening safety and labour/employment standards, and they must act responsibly in balancing the needs of shareholders with other stakeholders, both in the present and the longer term. This means that life for managers has become even more complex and challenging as they pursue a broad set of objectives and try to satisfy many disparate requirements. In a nutshell, the things that employees want from a company are not necessarily the same things that environmentalists want, nor local communities, customers, government regulators, shareholders and so on.89 When one considers the history of the modern organisation, it is true that stakeholder relationships have not always been positive and seen as an opportunity to ‘Do well by doing good’. Employers and many managers often treated staff badly in the past, rather than seeing and treating them as partners in an organisation’s success. Furthermore, suppliers were often treated as adversaries, while customers were even treated with disdain, as a source of problems and complaints, or as a necessary evil. Government was seen as a bureaucratic constraint, making rules to make life difficult for business. Leading organisations have left all this behind. They have become proactive in their relationships with stakeholders. They realise it is better to invite all stakeholders in to the organisation, rather than hold them at arm’s length. They even share decision-making power with them. They engage in joint product development with suppliers and customers, negotiating working conditions with staff to ensure best outcomes for staff and the organisation, and they work with governments to ensure that issues such as workplace safety, environmental outcomes and many other facets of work can lead to better outcomes on the overall triple bottom line (financial, environmental and societal outcomes). These leading organisations use sustainable development practices and opportunities to drive innovation, as a source and motivation for change. As companies become more and more pervasive as institutions in our societies, this relatively new approach to management, of long-term sustainability, asks organisations to assume a higher level of overall responsibility in society, rather than the previous approach of taking what it can in order to profit. And society is lifting its standards and expectations of organisations: we now expect them to not pollute the environment more than the bare minimum, to treat employees well and to care for the local communities that give them a licence to operate. And when companies do the wrong thing, they are increasingly punished by societies, consumers and governments. The motivation and opportunities exist for organisational managers to do more than ever: to not only work to achieve short-term efficiency, quality, innovation, customer satisfaction and employee satisfaction, but also to drive win–win results across a broader range of outcomes than ever before, and to do this on a long-term, sustainable basis. The field of management just keeps evolving, and this modern manifestation of it promises to make managerial work increasingly interesting and challenging. Compare a modern progressive, advanced company such as Google, which gives US$5000 to its employees if they buy a fuel-efficient car and provides free unlimited food and many other benefits to staff at work, to the approach taken by generations of managers and business owners one hundred years ago, who often treated their workers as necessary evils. SUSTAINABLE DEVELOPMENT SUSTAINABLE DEVELOPMENT AND MANAGEMENT THINKING 83 84 STUDY TOOLS ONLINE STUDY RESOURCES Visit http://login.cengagebrain.com and use the access code that comes with this book for 12 months’ access to the resources and study tools for this chapter. Express COU RS EMATE EXPR E S S FO R MA NAGEMENT S E A R C H M E ! M A NAG E M E N T The CourseMate Express website contains: Explore Search Me! Management for articles relevant to this chapter. Fast and convenient, Search Me! Management is updated daily and provides you with 24-hour access to full text articles from hundreds of scholarly and popular journals, e-books and newspapers, including The Australian and The New York Times. Log in to the Search Me! Management database via http://login.cengagebrain.com and try searching for the following key words: • revision quizzes • video cases • self-assessments • audio summaries • and more! • Management history • Quality management • Scientific management • Big data • Administrative principles • Sustainable development Search tip: Search Me! Management contains information from both local and international sources. To get the greatest number of search results, try using both Australian and American spellings in your searches, e.g. ‘globalisation’ and ‘globalization’; ‘organisation’ and ‘organization’. RESPONSE TO THE MANAGEMENT CHALLENGE CEMEX: MANAGING IN CHAOTIC CIRCUMSTANCES One century-old company that is thriving as a technologydriven learning organisation is Cementos Mexicanos (Cemex), described at the beginning of the chapter. To help the organisation compete in a turbulent environment, managers looked for both technological and management innovations. A core element of the new approach is the company’s complex information technology infrastructure, which includes a global positioning satellite system and onboard computers in all delivery trucks that are continuously fed with streams of day-to-day data on customer orders, production schedules, traffic problems, weather conditions and so forth. Even more important are changes in how managers and employees think about and do their work. All drivers and dispatchers attend weekly secondary education classes for two years. Regular training in quality customer service and computer skills continues, with Cemex devoting at least 8 per cent of total work time to employee training and development. 2: THE EVOLUTION OF MANAGEMENT THINKING The company abolished strict, demanding work rules so that workers have more discretion and responsibility for identifying and solving problems. As a result, Cemex trucks now operate as self-organising business units, run by well-trained employees who think like businesspeople. The three-hour delivery window has been reduced to 20 minutes, and managers believe a goal of 10 minutes is within reach. According to Francisco Perez, operations manager at Cemex in Guadalajara: ‘They used to think of themselves as drivers. But anyone can deliver concrete. Now our people know that they’re delivering a service that the competition cannot deliver.’ Cemex transformed the industry by combining extensive networking technology with a new 85 management approach that taps into the mind power of everyone in the company. People at Cemex learn constantly – on the job, in training classes, and through visits to other organisations. As a result, the company achieves a startling capacity to anticipate customer needs, solve problems, and innovate quickly. And more recently, outsourcing, sustainable development, customer relationship management systems and other technologies have given managers more options and more pressure to get things right, or lose their right to manage. Sources: Petzinger, T. Jr (1999), The New Pioneers: The Men and Women Who Are Transforming the Workplace and Marketplace. New York: Simon & Schuster, 91–3. Fast Company (April 1999). In Search of the New World of Work. 214–20+; Katel, P. (July 1997). Bordering on Chaos. Wired, 98–107. DISCUSSION QUESTIONS 1 How would you feel about working in a bossless organisation? What might be your role as a ‘manager’ in such an environment? Do you think this is a trend that will continue to grow or fade away? Why? 2 Big data analytics programs (analysing massive data sets to make decisions) use gigantic computing power to quantify trends that would be beyond the grasp of human observers. As the use of this quantitative analysis increases, do you think it may decrease the ‘humanity of production’ in organisations? Why? 3 4 5 How do you think management practices might change in response to increasing government regulation in the banking and healthcare industries? What other recent political, social or economic forces can you identify that might affect your job as a manager? The Bain survey of management tools and trends, which was cited earlier in this chapter, found that the use of social media programs is growing, but that as a tool, social media also has one of the lowest satisfaction ratings. How would you explain this? Can you think of potential drawbacks to retailers using labourwaste elimination systems based on scientific management principles, as described in the text? Despite being around 100 years old, do you believe scientific management characteristics will ever cease to be a part of organisational life? Discuss. 6 A management lecturer once said that for successful management, studying the present was most important, studying the past was next and studying the future was least important. Do you agree? Why? 7 As organisations become more technology-driven, which do you think will become more important: the management of the human element of the organisation, or the management of technology? Discuss. 8 Why do you think Mary Parker Follett’s ideas tended to be popular with businesspeople of her day, but were ignored by management scholars? Why are her ideas appreciated more today? 9 Explain the basic idea underlying the contingency view. How would you go about identifying key contingencies facing an organisation? 10 Why can an event such as the Hawthorne studies be a major turning point in the history of management, even if the results of the studies are later shown to be in error? Discuss. 11 How would you apply systems thinking to a problem such as poor performance in your current academic studies? Or to a problem with a romantic partner or family member? Try to identify all the elements and their interdependencies. 12 Do you think management theory will ever be as precise as theories in the fields of finance, accounting or experimental psychology? Why or why not? 86 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D ETHICAL CHALLENGE THE SUPERVISOR Karen Lowry, a manager of a social service welfare agency in a suburb of Brisbane, loved to see her employees learn and grow to their full potential. When a rare opening for a supervising clerk occurred, Karen quickly decided to give Charlotte Hines a shot at the job. Charlotte had been with the agency for 17 years and had shown herself to be a true leader. Charlotte worked hard at being a good supervisor, just as she had always worked hard at being a top-notch clerk. She paid attention to the human aspects of employee problems and introduced modern management techniques that strengthened the entire agency. However, the Public Service Board decided that a promotional exam should be given to find a permanent placement for the supervising clerk position. For the sake of fairness, the exam was an open competition – anyone, even a new employee, could sign up and take it. The board wanted the candidate with the highest score to get the job but allowed Karen, as manager of the agency, to have the final say-so. Since she had accepted the provisional opening and proven herself on the job, Charlotte was upset that the entire clerical force was deemed qualified to take the test. When the results came back, Charlotte was devastated: she ranked twelfth in the field of candidates, while one of her newly hired clerks ranked first. The Public Service Board, impressed by the new clerk’s high score, is urging Karen to give her the permanent supervisory job. Karen wonders if it is fair to base her decision only on the test results. W H AT D O YO U D O ? 1 Ignore the test. Charlotte has proven herself and deserves the job. 2 Give the job to the candidate with the highest score. You don’t need to make enemies on the Public Service Board and, after all, it is an objective way to select a permanent placement. 3 Devise a more comprehensive set of selection criteria – including test results as well as supervisory experience, ability to motivate employees and knowledge of agency procedures – that can be explained and justified to the board and to employees. SOURCE: Based on Harrigan, B. (July 1986). Career Advice. Working Woman, 22–4. GROUP CHALLENGE TURNING POINTS ON THE ROAD TO MANAGEMENT Step 1. Interview a manager you know at your university or place of employment, or a parent or friend who is a manager, and ask the following question: ‘What was a turning point in your life that led you to become the person, and manager, that you are today?’(A turning point could be an event, such as a divorce, the birth of a child, business failure or the loss of a job; or a decision, such as to quit university and start a business, enrol in a postgraduate degree, get married and so on.) Then collect information on a second turning point, if the interviewee has one to describe. Your goal is to learn the specifics about how each turning point led to the person’s current position in life. Step 2. Divide into groups of four to six members. One person at a time, share what you learnt about a manager’s career turning points. What themes or patterns characterise the turning points among the managers interviewed? Step 3. Have you personally experienced any turning points in your life? Each group member should describe his or her personal turning point to the group. With these additional turning points, analyse again for themes and patterns across all the turning points. Step 4. What lessons does your group learn from its analysis? How does history (events, decisions) play a role in the lives and careers of the managers interviewed, and in the lives of your group members? 2: THE EVOLUTION OF MANAGEMENT THINKING CASE FOR CRITICAL ANALYSIS 87 MORE HASSLE FROM HR? In their three years at Melbourne’s Vreeland Pharmaceuticals, Vitorio Nuños and Gary Shaw had rarely crossed paths, and they had exchanged no more than a dozen sentences. But here they were, seat mates on a plane headed to company headquarters in Sydney. And suddenly, they had a lot to say to each other. ‘What I’d like to know is why we’re wasting a trip to Sydney to thrash out some new policies about leader competencies,’ Vitorio said. ‘Because Connie Wyland is HR at Vreeland, and you and I both know that policies and models and all touchy-feely people stuff is the lifeblood of HR,’ Gary replied. ‘I also think a lot of this is the result of panic on the heels of the scandals in sales last year.’ ‘I don’t think there’s any need to panic. The company fired the guys and apologised; you just move on,’ said Vitorio. Gary laughed sarcastically. ‘No, you fire them, you apologise, then you analyse the whole thing ad nauseam, and then you hamstring your management team with endless rules and bureaucratic standards just to make sure it doesn’t happen again.’ ‘So we all pay for their mistakes,’ replied Vitorio. ‘We pay because HR feels guilty that those guys moved up so high in the system,’ Gary replied. ‘So now Connie and her staff have devised the ultimate solution to the problem. I don’t know why we all have to go in to discuss it; she’s already decided what she’s going to do and she’s positive this is the cure-all to prevent any further embarrassment to the company.’ ‘Let’s look at the document,’ Vitorio said. He reached under the seat, retrieved and unpacked his tablet, placed it on the tray table, and turned it on. ‘Too much glare,’ Gary said, peeking over. Vitorio pulled down the window shade. ‘Is that better?’ Gary nodded. The two men read through the document. ‘I resent the term “rogue leaders”,’ Gary remarked, pointing to the phrase. Vitorio shrugged. ‘It’s a rough draft. They’ll clean up the language . . . I think.’ ‘It’s really just a rehash of the mission statement and all of the things we learnt in training. This is stuff we all learnt at university. I feel like I’m being lectured.’ ‘Yeah.’ Vitorio scrolled up and down the document. ‘Any business student could have written this.’ ‘I hear the HR crew put in lots of overtime,’ said Gary. Vitorio smirked. ‘For this? I’ll tell you – and this is just between you and me – but I really resent this, and we’re some of the newer members of management. I’d love to hear what the older managers are saying.’ ‘I know Connie,’ Gary said. ‘She and her staff are going to come in tomorrow all gung-ho on this.’ He turned the tablet in order to see it easier. ‘We already know what’s expected of us.’ He scrolled down, stopping at key phrases. ‘Look at this . . . “critical values” . . . “core behaviours” . . . “fostering conflict resolution” . . . and here’s one – “implementing employee involvement strategies”. How does she think we got these jobs in the first place?’ Gary paused. ‘What really makes me angry is that I heard Connie is going to start manager training sessions where she will teach us the behaviours associated with each value! Can you believe that? She will have us role-playing and stuff. I will fight this if it goes beyond general value statements that we can follow in our own way.’ ‘I can’t wait to hear what Vreeland says,’ Vitorio remarked. ‘Are you kidding? He’ll go along with it. He’ll spend 10 to 15 minutes telling us how great we all are and insinuating that we don’t really need this, and then he’ll back Connie all the way. Face it, this is the way it’s going to be, and he really doesn’t need our input or approval. It just looks good,’ commented Gary. Vitorio turned off and closed the tablet. ‘I just feel that imposing something like this on management is a slap at every one of us. We know what’s expected. We don’t need training. We also know our people and we have to have some flexibility within a broad set of boundaries. This sort of thing just hamstrings us.’ ‘I just hope a couple of senior managers speak up at this meeting and voice some concerns. Maybe it will be toned down a little,’ Gary said. ‘You and I are middle management and we haven’t been with the company long enough. All we can do at this meeting is sit and nod.’ QU E S T I O N S 1 Are Connie and her staff on the right track to avoid manager mishaps by defining a new set of leader rules and core values and imposing it by fiat from the top down? 2 Do you think a more participative and open culture can be imposed on managers with value statements and training sessions? Why? 3 Why do you think Vitorio and Gary are on the defensive? 4 Might the emphasis on core leadership behaviours be handled in a different way? What do you suggest? 88 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D ON THE JOB VIDEO CASE BARCELONA RESTAURANT GROUP: THE EVOLUTION OF MANAGEMENT THINKING For a real-world application of the management theories described in this chapter, log on to CourseMate Express to watch the On the Job video and answer the following questions. QU E S T IO NS 1 In what ways is Barcelona’s management approach consistent with modern developments in management thinking? 2 In what ways does Barcelona’s management approach run counter to contemporary developments in management thinking? 3 What aspects of restaurant work are especially challenging to wait staff, and how does Barcelona’s approach to management help employees overcome the downsides of the job? ENDNOTES 1 Pacific Hydro, http//:www.pacifichydro.com.au. 2 Smith, M. (9 August 2016). How Qantas CEO Alan Joyce became the turnaround king. ABC News, http://www.afr.com/brand/boss/true-leaders-2016-alan-joyce-qantas-ceo20160711-gq37e9 (accessed 24 October 2016); Ong, T. and Letts, S. (24 August 2016). Qantas posts record profit of $1b, first dividend in seven years. ABC News, http://www. abc.net.au/news/2016-08-24/qantas-posts-underlying-profit-of-$1.5b,-announces-sharebuyback/7779398 (accessed 20 February 2017). 3 (6 June 2012). Q&A: Why the West Needs ‘Jugaad’ Creativity (an interview with Navi Radjou, Jaideep Prabhu, and Simone Ahuja), The Wall Street Journal India Online, http://blogs.wsj. com/indiarealtime/2012/06/06/qa-why-the-west-needs-jugaad-creativity (accessed 19 June 2012); and Navi Radjou, Jaideep Prabhu and Simone Ahuja. (2012). Jugaad Innovation: Think Frugal, Be Flexible, Generate Break-through Growth (San Francisco: Jossey-Bass). 4 Saraf, D. (13 July 2009). India’s Indigenous Genius: Jugaad. The Wall Street Journal Online, http://online.wsj.com/article/SB124745880685131765.html (accessed 19 June 2012); N. Kumar and P. Puranam. (March–April 2012). Frugal Engineering: An Emerging Innovation Paradigm. Ivey Business Journal, www.iveybusinessjournal.com/topics/innovation/frugalengineering-an-emerging-innovation-paradigm (accessed 19 June 2012). 5 El Namaki, M. S. S. (March–April 2012). Does the Thinking of Yesterday’s Management Gurus Imperil Today’s Companies?’, Ivey Business Journal, http//:www.iveybusinessjournal. com/topics/strategy/does-the-thinking-of-yesterdays-management-gurus-imperil-todayscompanies (accessed 19 June 2012). 6 Abrahamson, E. (January 1996). Management Fashion. Academy of Management Review 21:1, 254–85. Also see ‘75 Years of Management Ideas and Practice’, a supplement to the Harvard Business Review (September–October 1997), for a broad overview of historical trends in management thinking. 7 Munk, N. (16 March 1998). The New Organization Man. Fortune, 62–74. 8 Based on T. Henneman. (2 April 2012). Talkin’ About Their Generations: The Workforce of the ’50s and Today. Workforce, http://www.workforce.com/article/20120402/ WORKFORCE90/120319965/talkin-about-their-generations-the-workforce-of-the-50sand-today (accessed 19 June 2012); and Stephanie Armour. (6 November 2005). ‘Generation Y: They’ve Arrived at Work with a New Attitude’, USA Today, www.usatoday.com/money/ workplace/2005-11-06-gen-y_x.htm (accessed 10 November 2005). 9 McGregor, E. (23 and 30 March 2009). There Is No More Normal. Business-Week, 30–4. 10 Tell, R. and Kleiner, B. (March–April 2009). Organizational Change Can Rescue Industry. Industrial Management, 20–4. 11 This discussion is based on Walter Kiechel III, ‘The Management Century’, Harvard Business Review (November 2012): 62–75. 12 These quotes are from Kiechel, ‘The Management Century’. 13 Jacques Bughin, Michael Chui, and James Manyika, ‘Capturing Business Value with Social Technologies’, McKinsey Quarterly (November 2012), http://www.mckinsey.com/insights/ high_tech_telecoms_internet/capturing_business_value_with_social_technologies (accessed 27 September 2013). 14 Roland Deiser and Sylvain Newton, ‘Six Social-Media Skills Every Leader Needs’, McKinsey Quarterly, Issue 1 (February 2013), http://www.mckinsey.com/insights/high_tech_telecoms_ internet/six_social-media_skills_every_leader_needs (accessed 21 August 2013). 15 David Kiron, Douglas Palmer, and Robert Berkman, ‘The Executive’s Role in Social Business’, MIT Sloan Management Review (Summer 2013): 83–89. 16 Ibid. 17 Leslie Gaines-Ross, ‘Get Social: A Mandate for New CEOs’, MIT Sloan Management Review (7 March 2013), http://sloanreview.mit.edu/article/get-social-a-mandate-for-new-ceos/ (accessed 21 August 2013). 18 Ibid. 19 Wren, D. A. (1987). Management History: Issues and Ideas for Teaching and Research. Journal of Management, 13, 339–50. 20 Business historian Alfred D. Chandler, Jr., quoted in J. Useem. (20th Anniversary Issue, 1999). Entrepreneur of the Century. Inc., 159–74. 21 Useem. Entrepreneur of the Century. 22 The following is based on Wren, Evolution of Management Thought, Chapters 4 and 5; and C. S. George, Jr. (1968). The History of Management Thought (Englewood Cliffs, NJ: PrenticeHall), Chapter 4. 23 Crossen, C. (6 November 2006). Early Industry Expert Soon Realized a Staff Has Its Own Efficiency. The Wall Street Journal. 24 Farnham, A. (21 July 1997). The Man Who Changed Work Forever. Fortune, 114; C. D. Wrege and A. M. Stoka. (October 1978). Cooke Creates a Classic: The Story Behind F. W. Taylor’s Principles of Scientific Management. Academy of Management Review, 736–49; R. Kanigel. (1997). The One Best Way: Frederick Winslow Taylor and the Enigma of Efficiency (New York: Viking); and ‘The X and Y Factors: What Goes Around Comes Around’, special section in (21–27 January 2006). The New Organisation: A Survey of the Company. The Economist, 17–18. 25 George, The History of Management Thought; Wren, D. A. (1979). The Evolution of Management Thought, 2nd edn (New York: Wiley). 26 O’Connell, V. (17 November 2008). Stores Count Seconds to Trim Labor Costs. The Wall Street Journal; and V. O’Connell. (10 September 2008). Retailers Reprogram Workers in Efficiency Push. The Wall Street Journal. 27 Hamel, G. (February 2006). The Why, What, and How of Management Innovation. Harvard Business Review, 72–84; Peter Coy. (20 and 27 August 2007). Cog or CoWorker? BusinessWeek, 58–60. 28 Weber, M. (1927). General Economic History (F. H. Knight, trans.) (London: Allen & Unwin); Weber, M. (1930). The Protestant Ethic and the Spirit of Capitalism (T. Parsons, trans.) (New York: Scribner); Weber, M. (1947). The Theory of Social and Economic Organizations (A. M. Henderson & T. Parsons, ed. and trans.) (New York: Free Press). 29 Cummings, S. and Bridgman, T. (2011). The Relevant Past: Why the History of Management Should Be Critical to Our Future. Academy of Management Learning & Education, 10:1, 77–93. 2: THE EVOLUTION OF MANAGEMENT THINKING 30 These are based on P. Downs. (4 June 2012). How I Fire People. You’re the Boss blog, The New York Times, http://boss.blogs.nytimes.com/2012/06/04/how-i-fire-people (accessed 20 June 2012). 31 Fayol, H. (1930). Industrial and General Administration, trans. J. A. Coubrough (Geneva: International Management Institute); H. Fayol. (1949). General and Industrial Management, trans. C. Storrs (London: Pitman and Sons); and W. J. Arnold et al. (vol. I, 1965; vol. II, 1966). BusinessWeek, Milestones in Management (New York: McGraw-Hill). 32 Bounds, G. M., Dobbins, G. H. and Fowler, O. S. (1995). Management: A Total Quality Perspective (Cincinnati, OH: South-Western Publishing), pp. 52–3. 33 Follett M. P. (1918). The New State: Group Organization: The Solution of Popular Government (London: Longmans, Green); and M. P. Follett. (1924). Creative Experience (London: Longmans, Green). 34 Metcalf, H. C. and Urwick, L. eds. (1940). Dynamic Administration: The Collected Papers of Mary Parker Follett (New York: Harper & Row); Arnold et al. Milestones in Management. 35 Follett. The New State; Metcalf and Urwick. (1941). Dynamic Administration (London: Sir Isaac Pitman). 36 Wolf, William B. (1968). How to Understand Management: An Introduction to Chester I. Barnard (Los Angeles: Lucas Brothers); and D. D. Van Fleet. (Spring 1982). The Need-Hierarchy and Theories of Authority. Human Relations, 9, 111–18. 37 Tausky, C. (1978). Work Organizations: Major Theoretical Perspectives. Itasca: F. E. Peacock, 42. 38 Wrege, C. D. (August 1976). Solving Mayo’s Mystery: The First Complete Account of the Origin of the Hawthorne Studies –The Forgotten Contributions of Charles E. Snow and Homer Hibarger. Paper presented to the Management History Division of the Academy of Management. 39 Greenwood, R. G., Bolton, A. A. and Greenwood, R. A. (Fall–Winter 1983). Hawthorne a HalfCentury Later: Relay Assembly Participants Remember. Journal of Management, 9, 217–31. 40 Roethlisberger, F. J., Dickson, W. J. and Wright, H. A. (1939). Management and the Worker (Cambridge, MA: Harvard University Press). 41 Parson, H. M. (1974). What Happened at Hawthorne? Science, 183, 922–32. Adair, J. G. (1984). The Hawthorne Effect: A Reconsideration of the Methodological Artifact. Journal of Applied Psychology, 69:2, 334–45. 42 Greenwood et al. Hawthorne a Half-Century Later: Relay Assembly Participants Remember. 43 Roethlisberger and Dickson. Management and the Worker. 44 Aldag, R. J. and Stearns, T. M. (1991). Management, 2nd ed. (Cincinnati, OH: South-Western Publishing), pp. 47–8. 45 Tausky, C. (1978). Work Organizations: Major Theoretical Perspectives. Itasca: F. E. Peacock, 55. 46 McGregor, D. (1960). The Human Side of Enterprise (New York: McGraw-Hill), pp. 16–18. 47 French, W. L. and Bell, C. H. Jr. A History of Organizational Development. In W. L. French, C. H. Bell Jr. and R. A. Zawacki. (2000). Organization Development and Transformation: Managing Effective Change (Burr Ridge, IL: Irwin McGraw-Hill), pp. 20–42. 48 Mansel G. Blackford and K. Austin Kerr, Business Enterprise in American History (Boston: Houghton Mifflin, 1986), Chapters 10 and 11; and Alex Groner and the editors of American Heritage and BusinessWeek, The American Heritage History of American Business and Industry (New York: American Heritage Publishing, 1972), Chapter 9. 49 Barnes, B. (28 December 2010). Disney Technology Tackles a Theme-Park Headache: Lines. The New York Times, B1; and (9 March 2012). Disney Cracks Down on FastPass Enforcement. Tampa Bay Times, B2. 50 Austin, L. M. and Burns, J. R. (1985). Management Science (New York: Macmillan). 51 Patterson, S. (2010). The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It (New York: Crown Business); and H. Hurt III. (21 February 2010). In Practice, Stock Formulas Weren’t Perfect. The New York Times. 52 Bertalanffy, Ludwig von et al. (December 1951). General Systems Theory: A New Approach to Unity of Science. Human Biology, 23, 302–61; and K. E. Boulding. (April 1956). General Systems Theory—The Skeleton of Science. Management Science, 2,197–208. 53 This section is based on P. M. Senge. (1990). The Fifth Discipline: The Art and Practice of the Learning Organization (New York: Doubleday); J. D. Sterman. (Summer 2001). Systems Dynamics Modeling: Tools for Learning in a Complex World. California Management Review, 43:4, 8–25; A. Gabor. (Summer 2010). Seeing Your Company as a System. Strategy 1 Business, http://www.strategy-business.com/article/10210?gko=20cca (accessed 20 June 2012); and R. Zemke. (February 2001). Systems Thinking. Training, 40–6. 54 This example is cited in Sterman. Systems Dynamics Modeling. 55 In P. M. Senge. (1990). The Fifth Discipline: The Art and Practice of the Learning Organization (New York: Doubleday/Currency). 56 Luthans, F. (June 1973). The Contingency Theory of Management: A Path Out of the Jungle. Business Horizons, 16, 62–72; and F. E. Kast and J. E. Rosenzweig. (1973). Contingency Views of Organization and Management (Chicago: Science Research Associates). 89 57 Greengard, S. (January 1997). 25 Visionaries Who Shaped Today’s Workplace. Workforce, 50–9; and A. Harrington. (22 November 1999). The Big Ideas. Fortune, 152–4. 58 Guillen, M. F. (Fall 1994). The Age of Eclecticism: Current Organizational Trends and the Evolution of Managerial Models. Sloan Management Review, 75–86. 59 Main, J. (19 October 1992). How to Steal the Best Ideas Around. Fortune, 102–6; Ingelsson, P. (2012). Can selecting the right values help TQM implementation? A case study about organisational homogeneity at the Walt Disney Company. Total Quality Management & Business Excellence. Vol. 23, Iss. 1, pp. 1–11; Toyota Motor Corporation (2012). Changes and innovations (include the creative idea suggestion system), http://www.toyota-global. com/company/history_of_toyota/75years/data/company_information/management_ and_finances/management/tqm/change.html (accessed 24 October 2016); Gabor, A. (13 June 2001). Management: Ford embraces Six Sigma. Available: http://www.nytimes. com/2001/06/13/business/management-ford-embraces-six-sigma.html?_r=0 (accessed 24 October 2016). 60 Rigby, D. and Bilodeau, B. (2009). Management Tools and Trends 2009. Bain & Company Inc., http://www.bain.com/management_tools/home.asp (accessed 10 March 2010). 61 Davenport, T. H. and Prusak, L. with J. Wilson. (2003). What’s the Big Idea? Creating and Capitalizing on the Best Management Thinking (Boston, MA: Harvard Business School Press); T. Kinni. (March–April 2003). Have We Run out of Big Ideas? Across the Board, 16–21, Hamel. The Why, What, and How of Management Innovation; and J. Thompson Heames and M. Harvey. (2006). The Evolution of the Concept of the Executive from the 20th-Century Manager to the 21st-Century Global Leader. Journal of Leadership and Organizational Studies, 13:2, 29–41. 62 Hurst, D. (May–June 2012). The New Ecology of Leadership: Revisiting the Foundations of Management. Ivey Business Journal, 1–5; M. Murphy. (29 January 2010). The Race to Failure (a review of Crash Course by Paul Ingrassia, Random House 2010), The Wall Street Journal, A13. 63 Van Rossem, A. and Van Veen, K. (2011). Managers’ Awareness of Fashionable Management Concepts: An Empirical Study. European Management Journal, 29, 206–16. 64 Study reported in P. Dvorak. (26 June 2006). Why Management Trends Quickly Fade Away (Theory and Practice column). The Wall Street Journal. 65 Colvin, G. (6 March 2000). Managing in the Info Era. Fortune, F-5–F-9. 66 Darrell K. Rigby, Management Tools 2013: An Executive’s Guide (Bain & Company 2013), http://www.bain.com/Images/MANAGEMENT_TOOLS_2013_An_Executives_guide.pdf (accessed 27 August 2013); Margaret Rouse, ‘Big Data Analytics,’ TechTarget.com (January 10, 2012), http://searchbusinessanalytics.techtarget.com/definition/big-data-analytics (accessed 27 August 2013); and David Kiron, Renee Boucher Ferguson, and Pamela Kirk Prentice,“From Value to Vision: Reimagining the Possible with Data Analytics,” MIT Sloan Management Review Special Report (5 March 2013), http://sloanreview.mit.edu/reports/ analytics-innovation/ (accessed 27 August 2013). 67 Steve Lohr,‘Sure, Big Data Is Great. But So Is Intuition’, The New York Times, 29 December 2012. 68 Andrew McAfee and Erik Brynjolfsson, ‘Big Data: The Management Revolution,’ Harvard Business Review (October 2012): 61–68. 69 Spandas Lui, ‘eHarmony Translates Big Data into Love and Cash,’ ZDNet.com (6 November 2012) http://www.zdnet.com/eharmony-translates-big-data-into-love-andcash-7000006884/ (accessed 27 August 2013); and Jeff Russell, ‘LinkedIn’s eHarmony-Style Recruiting: Big Data Meets HR,’ HR.com (16 April 2013), http://www.hr.com/en/app/ blog/2013/04/linkedin%E2%80%99s-eharmony-style-recruiting-big-data-meet_hfl6zpzd. html (accessed 27 August 2013). 70 Lohr, Sure, Big Data Is Great. 71 McAfee and Brynjolfsson, Big Data: The Management Revolution. 72 Examples reported in Thomas H. Davenport and Jeanne G. Harris, Competing on Analytics: The New Science of Winning (Boston, MA: Harvard Business School Press, 2007); and McAfee and Brynjolfsson, Big Data: The Management Revolution. 73 Drucker, P. (1993). Post-Capitalist Society (Oxford: Butterworth Heinemann), p. 5. 74 Mayo, A. (22 January 1998). MemoryBankers. People Management, 34–8. Miller, W. (January 1999). Building the Ultimate Resource. Management Review, 42–5. Datz, T. (15 April 1999). How to Speak Geek. CIO Enterprise, 2, 46–52. 75 Wah, L. (April 1999). Behind the Buzz. Management Review, 17–26. 76 Rigby, D. and Bilodeau, B. (2005). The Bain 2005 Management Tool Survey. Strategy & Leadership, 33:4, 4–12. 77 This definition is based on Steven A. Melnyk and David R. Denzler, Operations Management: A Value-Driven Approach (Burr Ridge, IL: Richard D. Irwin, 1996): p. 613. 78 The Global Supply Chain Games project, www.gscg.org (accessed 16 July 2008). 79 Eric Bellman and Cecilie Rohwedder, ‘Western Grocer Modernizes Passage to India’s Markets,’ The Wall Street Journal, 28 November 2007. 90 PA R T O N E : I N N O V AT I V E M A N A G E M E N T F O R A C H A N G I N G W O R L D 80 Steven Greenhouse and Stephanie Clifford, ‘U.S. Retailers Offer Safety Plan for Bangladeshi Factories’ The New York Times (10 July 2013), http://www.nytimes. com/2013/07/11/business/global/us-retailers-offer-safety-plan-for-bangladeshifactories.html?pagewanted=all&_r=0 (accessed 21 August 2013); and Kate O’Keeffe and Sun Narin, ‘H&M Clothes Made in Collapsed Cambodian Factory,’ The Wall Street Journal (21 May 2013), http://online.wsj.com/article/SB1000142412788732478700457849 7091806922254.html (accessed 21 August 2013). 81 Rigby and Bilodeau. Management Tools and Trends 2011. Bain and Company, Inc., http://www.bain.com/publications/articles/Managementtools-trends-2011.aspx (accessed 22 June 2012). 82 18 April 2012). Survey: 37% Use Social Media to Check Candidates. Workforce. http://www. workforce.com/article/20120418/NEWS01/120419964 (accessed 22 June 2012). 83 Roxane Divol and Thomas Fleming, The Evolution of Work: One Company’s Story, McKinsey Quarterly, Issue 4 (2012): 111–115. 84 Tom Ashbrook, The Bossless Office, On Point with Tom Ashbrook (20 June 2013), http:// onpoint.wbur.org. PART 1 CONTINUING CASE 85 Hamel, First, Let’s Fire All the Managers. 86 This definition is based on Mercer Human Resource Consulting’s Employee Engagement Model, as described in Paul Sanchez and Dan McCauley, Measuring and Managing Engagement in a Cross-Cultural Workforce: New Insights for Global Companies, Global Business and Organizational Excellence (November–December 2006): 41–50. 87 Rigby and Bilodeau, Management Tools and Trends 2013. 88 Max Mihelich, Another Generation Rises: Looking Beyond the Millennials, Workforce (12 April 2013), http://www.workforce.com/articles/108-another-generation-rises-lookingbeyond-the-millennials (accessed 22 August 2013). 89 Matson, E. (October–November 1997). You Can Teach This Old Company New Tricks. Fast Company, 44–6. 90 Toyota (2017) Guiding principles at Toyota, http://www.toyota-global.com/company/vision_ philosophy/guiding_principles.html (accessed 2 February 2017). 91 Toyota (2017) Toyota Way 2001, http://www.toyota-global.com/company/history_of_ toyota/75years/data/conditions/philosophy/toyotaway2001.html (accessed 2 February 2017). INNOVATIVE MANAGEMENT FOR A CHANGING WORLD By 2014, Toyota had become a very successful global automaker with 53 overseas manufacturing companies in 28 countries and regions, and vehicles sold in more than 170 countries and regions. Toyota was seen by many industries and researchers as a benchmark of ‘world’s best practice’ in operational excellence, which in Toyota was referred to as the Toyota Production System (TPS). More generally, Toyota built on the core values created by its founders and had implemented its ‘Toyota Way’ philosophy since 2001, based on two pillars of respect for people and continuous improvement, driving customer value creation and constantly pursuing perfection. These approaches have raised Toyota to a point where its vehicles were viewed by many customers as being high in their ‘value proposition’, based on reliability and durability, especially at the competitive price points that were offered to customers. Yet in Australia, Toyota faced some significant challenges. Its Australian business was established in 1963, created a proud history of being the biggest selling brand in the Australian market. It was well ahead of all competitors, based mainly on the locally produced Camry and all its other imported vehicles, such as RAV4, Corolla, Landcruiser, Hilux, Prius and others. Investments had been made in new model development, new technology such as the new hybrid synergy drive for Camry. However, with the changing business environment, the ongoing viability of its Australian manufacturing operations was being questioned. The local market was small, and local costs of manufacturing were high compared with many other countries. Australia was a place that had supplied Camry vehicles to Toyota’s Middle East markets for nearly 20 years, with about two thirds of the production volume from the Altona, Melbourne manufacturing facility being exported there. These 60 000 or so exported vehicles could be sourced from other Toyota plants if necessary. Australia was one of the very first plants that Toyota had established outside Japan, and Toyota had a corporate sense of loyalty to its Australian operations, where it had cut its teeth in some ways of managing manufacturing operations outside Japan, in a Western culture, some decades ago. Further, Toyota globally had corporately been expanding overseas year on year, continuously for some 50 years, apart from during the 2008–10 global financial crisis (when all automotive companies experienced economic difficulties), and was completely unused to reducing or shutting down operations or country level plants or business units, but rather was very well versed in growing, upgrading and investing in these. The challenges facing Toyota of high local costs and a small domestic market also faced the other two companies operating in Australia, Ford and General Motors Holden (GMH). When in 2013/4, first Ford and then GMH announced the closing of their Australian operations as of 2016 and 2017 respectively, Toyota followed, because the whole supply chain and industry could not be sustained in Australia when it was ‘feeding’ only one assembly plant operation. So in February 2014, Toyota announced their decision to close manufacturing operations at their Altona manufacturing facility. Toyota’s global president, Akio Toyoda, visited the Melbourne plant to make the plant closure announcement, which was a solemn, sad and momentous occasion for Toyota’s long serving employees, many of whom had been part of the company for over 30 years and had expected to be there until retirement. This introduced a new challenge to Toyota executives and managers at all levels in Australia, of how to manage the operations, motivation, quality and continuous improvement in a business unit that was going to close and ultimately make over 2500 people redundant. 2: THE EVOLUTION OF MANAGEMENT THINKING Despite Toyota’s proud history, this was a new type of challenge for the company and its philosophies. The company’s guiding principles, first published in 1935, were still proudly posted on its corporate website (as translated from Japanese): • ‘Always be faithful to your duties, thereby contributing to the Company and to the overall good. • ‘Always be studious and creative, striving to stay ahead of the times. • ‘Always be practical and avoid frivolousness. • ‘Always strive to build a homelike atmosphere at work that is warm and friendly. • ‘Always have respect for spiritual matters, and remember to be grateful at all times.’90 Further, the more recently articulated Toyota Way, from 2001, was expressed as: The Toyota Way is supported by two main pillars: ‘Continuous Improvement’ and ‘Respect for People’. We are never satisfied with where we are and always work to improve our business by putting forward new ideas and working to the best of our abilities. We respect all Toyota stakeholders, and believe the success of our business is created by individual effort and good teamwork.91 (See EXHIBIT 2.9.) The big new challenges for Toyota in Australia would be that the company had been truly excellent at implementing these high ideals during periods of growth, but new circumstances were upon them, and these would mean applying the Toyota Way in this new and challenging context. QU E S T I O N S 1 Toyota gave itself, its customers, dealers, suppliers and employees nearly four years to implement the manufacturing closure in Australia. What were the main specific challenges the company would face in that period? 2 Once the company announced the Australian manufacturing closure, it set a local goal, of ‘Last car equals best global car’. What would this imply, could it be accomplished, and how? 3 If you were a shop floor team member (factory worker) at Toyota in Melbourne, and like many of them, you had worked there for more than two decades, what emotional response would you have had to the closure announcement, and what support would you expect from the company and its executives? 4 For the many suppliers to the automotive industry in Australia, who make so many different parts, from seats to plastic components (e.g. Toyota had nearly 50 per cent of the parts sourced by local suppliers) losing their three end-use customers (Ford, GMH and Toyota) must have been a major disruptive shock. Even with some three to four years of notice of the closures, what would you have done if you were running a family owned business that supplied parts to the local automotive industry, once the closures were announced in 2014? 5 Toyota in Australia has always cared very much for its reputation in the market place and in the minds of its customers. One of its sayings was ‘Employee first equals customer first’. Interpret the likely meaning of this statement, and consider how it will play out given the new circumstances of the Toyota Australia planned 2017 manufacturing shutdown. Challenge Kaizen Genchi genbutsu Continuous improvement Respect for people Respect Teamwork EXHIBIT 2.9 Toyota company philosophy Source: Toyota Way 2001, http://www.toyota-global.com/company/history_of_ toyota/75years/data/conditions/philosophy/toyotaway2001.html) 91 PART T WO T HE E N V I RON M E N T O F M A N AGE M E N T Chapter 3 The environment and corporate culture Chapter 4 Managing in a global environment Chapter 5 Ethics, social responsibility and sustainable development Chapter 6 Managing start-ups and new ventures The environment surrounding a sporting contest plays a significant part in determining the outcome. In Test cricket, the nature of the pitch determines whether spin bowlers or fast bowlers are favoured for selection. In most football codes, the direction and strength of the wind can make a difference, and this certainly is also the case in sailing. In Davis Cup tennis contests, the playing surface chosen by the home team and the partisan home crowd are important parts of the environment that affect the outcome. In golf, the weather conditions, speed of the greens, pin placement and other factors are the environment that must be accounted for by competitors. Similarly, in business and management, the environment affects the outcome. When organisations are considering starting a business in a new country, the prevailing work culture plays a significant part in determining the outcome. So do the state of the market, the intensity of competition in an industry and economic circumstances, such as interest rates and unemployment rates. Each of these factors has an impact on the strategies and tactics managers must employ. What ethical standards are being applied in the industry and country of operation? What are the local idiosyncrasies in a foreign market, and how do customer preferences differ from those in the home market? These factors are dynamic, never static. In both sport and business, the environment in which we work and compete is forever changing. A change of wind can dramatically change a sailing competition or a football match, and these are difficult to predict in advance. In business, consider the massive changes going on in Europe such as Britain’s vote to leave the European Union, large influxes of refugees, and terror events. These situations bring changes to the environment in which organisations and their managers must work, and can also change consumer behaviour. The election of Donald Trump as President of the United States – which surprised many people – will impact on business conditions in the United States. Because of the changes to international trade conditions advocated in his election policies, many organisations around the world will feel the effects, should those promises become reality. In Part 2, you will study the environment of management, including the trend towards globalisation, the importance of managerial ethics and social responsibility, and entrepreneurship and smallbusiness management. 93 CHAPTER 3 T HE E N V I RON M E N T A ND C O R P O R AT E C U LT U R E L E A R N I NG OBJ E C T I V E S AFTER STU DYI N G T H I S C H A P T E R , YO U S H O U L D B E A B L E TO : 1 define an organisational ecosystem and how the general and task environments affect an organisation’s ability to thrive 2 explain the strategies that managers use to help organisations adapt to an uncertain or turbulent environment 3 define corporate culture and give organisational examples 4 explain organisational symbols, stories, heroes, slogans and ceremonies and their relationship to corporate culture 5 describe the four types of cultures and how corporate culture relates to the environment 6 define a cultural leader and explain the tools that a cultural leader uses to create a high-performance culture. Express Throughout this chapter, the CourseMate Express icons indicate an opportunity for online self-study, linking you to activities and other online resources. 94 MANAGEMENT CHALLENGE MICROSOFT: COPING WITH CHANGE Many people think of Microsoft and software as being almost synonymous, the same way people once thought of Xerox and photocopying. But Xerox learned the hard way that a dominant position is not guaranteed. To avoid the same fate at Microsoft, managers warned the company’s founder and chairman Bill Gates that Microsoft’s PC software business was in danger of becoming increasingly defunct. For years, Microsoft exerted significant control over what appears on the PC desktop and which software programs the majority of customers use, but that control is changing. Most people, especially home users, set up a new PC by clicking through a series of introductory screens and selecting the software and services they want. Microsoft historically controlled this set-up sequence and the software that comes installed on the computer. Now, though, PC makers are taking back control, selling desktop space to competing software and service providers and giving end users broader choices of software during setup. Google, for example, negotiated to have its software preinstalled on millions of Dell PCs. Hewlett-Packard gives users the option to sign up for a variety of programs and services from companies other than Microsoft. Because Microsoft has long garnered its largest source of revenue and profit from PC software, it’s a shift that could spell big trouble. Google continues to move its Android software and operating systems into more prominent positions on devices ranging from mobile phones to tablets and other computers. Apple has also made significant headway, passing Microsoft in its market capitalisation value after being much the smaller company for the near 40 years that these companies have competed. As more telecommunications and computing moves onto mobile platforms, questions still hang over Microsoft, which was once industry-dominant under Bill Gates, but under Steve Ballmer, was not as successful. Current CEO Satya Nadella is facing many challenges and changes. Sources: Guth, R. A. and Delaney, K. J. (7 February 2006). Default Lines; Pressuring Microsoft, PC Makers Team Up with Software Rivals. The Wall Street Journal, A1, A25. QU E S T I O N If you were a manager at Microsoft, how might you have been more prepared for this shift in the way PC makers do business with software companies? What steps would you take to help Microsoft maintain its status in the software industry as it faces new threats from competitors in the environment? 95 96 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T NEW MANAGER SELF-ASSESSMENT ARE YOU FIT FOR MANAGERIAL UNCERTAINTY? Do you approach uncertainty with an open mind? Think back to how you thought or behaved during a time of uncertainty when you were in a formal or informal leadership position. Please answer whether each of the following items was mostly true or mostly false in that circumstance. MOSTLY TRUE MOSTLY FALSE 1 Enjoyed hearing about new ideas even when working towards a deadline. 2 Welcomed unusual viewpoints of others even if we were working under pressure. 3 Made it a point to attend industry trade shows and company events. 4 Specifically encouraged others to express opposing ideas and arguments. 5 Asked ‘dumb’ questions. 6 Always offered comments on the meaning of data or issues. 7 Expressed a controversial opinion to bosses and peers. 8 Suggested ways of improving my own and others’ ways of doing things. Note: The self-assessment questions are based on ideas from R. L. Daft and R. M. Lengel, Fusion Leadership (San Francisco: Berrett Koehler, 2000): Chapter 4; B. Bass and B. Avolio, Multifactor Leadership Questionnaire, 2nd ed. (Menlo Park, CA: Mind Garden, Inc., 2004); and Karl E. Weick and Kathleen M. Sutcliffe, Managing the Unexpected: Assuring High Performance in an Age of Complexity (San Francisco: Jossey-Bass, 2001). Scoring and Interpretation: give yourself one point for each item you marked as mostly true. If you scored less than five you might want to start your career as a manager in a stable environment rather than unstable environment. A score of five or above suggests a higher level of mindfulness and a better fit for a new manager in an organisation with an uncertain environment. In an organisation in a highly uncertain environment everything seems to be changing. In that case, an important quality for a new manager is mindfulness, which includes the qualities of being open-minded and an independent thinker. In a stable environment, a manager with a closed mind may perform okay because much work can be done in the same old way. In an uncertain environment, even a new manager needs to facilitate new thinking, new ideas and new ways of working. A high score on the preceding items suggests higher mindfulness and a better fit with an uncertain environment. In high technology industries, environmental conditions are volatile. Telstra, Telecom NZ and Microsoft are currently in a situation similar to the one Xerox faced in the early 1990s. Xerox was dominant in its industry for many years, but managers missed cues from the environment and got blindsided by rivals Canon and Ricoh when they began selling comparable copy machines at lower prices. Moreover, Xerox failed to keep pace with changing methods of document management and had no new products to fill the gaps in the declining copy business. Consequently, the company struggled for more than a decade to find its footing in a vastly changed world. CEO Anne Mulcahy 3 : T H E E N V I R O N M E N T A N D C O R P O R AT E C U LT U R E used her management skills to mastermind a hot turnaround at Xerox and get the company moving forward again.1 Similarly to Xerox, Microsoft has held a dominant position for nearly 40 years, but the environment is shifting dramatically and Microsoft will have to change significantly to remain competitive. The acquisition of Nokia’s phone division by Microsoft (who paid US$7.85 billion for the business in 2013) was an indication that Microsoft was aware of the need to adapt to changes in the business environment. In 2015, Microsoft Mobile was restructured which included a US$7.6 billion write down on the acquisition of Nokia’s mobile device business, layoffs of up to 8000 workers, a plan to downsize its first-party smartphone business to release fewer devices per year, the retiring of the Nokia brand name and the introduction of the Lumia brand name, and pulling out of underperforming markets.2 In 2016, Microsoft sold the Nokia division to FIH Mobile (a division of Foxconn and HMD).3 In this instance Microsoft was looking to create a competitive response to Apple and Samsung’s smartphone dominance.4 The environment for Australia’s telecommunications company, Telstra, has changed dramatically since the mid-1990s because of increased competition, rapid advances in technology and growing demands from customers for enhanced networking services. Organisations around the world are waging war on a new level because of increased competition and advancing technology. In Thailand, Sony and Matsushita are battling for the consumer electronics market. As outlined above, Microsoft is facing challenges that may threaten the company’s pre-eminence in the software industry. Today, no company can rest on its laurels. The environment surprises many organisations. Mattel was shaken when it learned that a Chinese subcontractor used lead paint while manufacturing its toys. Because of the potential health hazard, Mattel recalled nearly 850 000 of its most popular toys – months before its holiday selling season. Not only did the recall frighten consumers, but it sparked a global debate about the safety of Chinese-made products. Mattel managers moved swiftly to reassure nervous parents of its high safety standards in its Chinese factories. In addition, then CEO Robert Eckert explained the recall to consumers on the company’s website and announced the steps Mattel was taking to prevent further recalls being necessary.5 Mattel’s prompt response, teamed with its long-standing history of successful manufacturing in China, led many independent analysts and watchdog groups to say that it may be the best role model for how to operate prudently in China. ‘Mattel realised very early that they were always going to be in the crosshairs of sensitivities about child labour and product safety, and they knew they had to play it straight. Mattel was in China before China was cool, and they learned to do business there in a good way,’ says M. Eric Johnson, a Dartmouth management professor.6 Most managers don’t pop on a crash helmet and fire-resistant suit to guide an organisation through tumultuous change. But when Toyota Motor Corporation’s president, Akio Toyoda, faced a series of calamities during his first few years as president, he tapped into his skills as a certified test car driver – high endurance, precise steering and strong mental focus – to lead Toyota to a surprising rebound. In 2011, Toyota toppled from its number one position as the world’s largest automaker to third, behind General Motors and Volkswagen, after suffering the effects of a global recession, the recall of 8 million vehicles and the impacts of the tsunami in Japan. Within the organisation, storms were also brewing. Toyota’s tortuous bureaucracy slowed decision-making and response times, and the company seemed to have lost touch with its customers. Toyota’s growth had been underpinned by the values of quality, dependability, 97 98 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T See Chapter 2 for a discussion on the classical, behavioural and management science schools and the internal aspects of organisations over which managers have direct control. and reliability, but customers also wanted style and design, and they were flocking to Hyundai, which had seized design leadership.7 By 2016, Toyota had bounced back to its number one global market position, with over 10 million vehicles sold per year, ahead of its largest rivals, Volkswagen and General Motors.8 These environmental factors – both external and internal – served as wake-up calls for a company that had grown complacent. Akio Toyoda’s response was to upend the corporate culture and create a more responsive organisation – one that could navigate with ease through even subtle environmental shifts. Government actions, regulations and red tape can also affect an organisation’s environment and provoke a crisis. State and federal governments in Australia directly control the funding and rules of operation of major industries such as education and healthcare. With the privatisation of most utilities in Australia, some people question the effectiveness of regulations and regulators when water quality problems in Sydney and gas supply problems in Melbourne cause inconvenience and disruption. Although few organisations experience a crisis as serious as a gas leak causing a major explosion, unexpected events that can seriously harm performance occur in the environment of every organisation. During the massive global financial crisis (GFC) of 2008–10, companies such as ANZ, BHP Billiton and Westpac underwent major internal changes – restructuring, discarding product lines and trimming workforces. Without these major changes, the companies would no longer fit the reality of the changed external environment. General Motors, which for decades was dominant in the United States and indeed global automotive markets, fell from having a massive 52 per cent market share at its peak to declaring provisional bankruptcy in 2009, and was bailed out by the US government. Yet as of 2016, the company’s first female Chairman and CEO, Mary Barra, is doing a solid job in returning General Motors to a position of substantial profitability, by revamping its vehicle offerings and growing its business activities in the world’s fastest growing large market, China. The environment surprises many managers and leaves them unable to adapt their companies to new competition, shifting consumer interests or new technologies. The study of management traditionally focused on factors within the organisation – a closed systems view – such as leading, motivating and controlling employees. The classical, behavioural and management science schools described in Chapter 2 looked at internal aspects of organisations over which managers have direct control. These views are accurate but incomplete. To be effective, managers must monitor and respond to the environment – in other words, they must adopt an open systems view. The events that have the greatest impact on an organisation typically originate in the external environment. In addition, globalisation and worldwide societal turbulence affect companies in new ways, making the international environment of growing concern to managers everywhere. This chapter explores in detail components of the external environment and the way they affect the organisation. We will also examine a major part of the organisation’s internal environment – corporate culture. Corporate culture is shaped by the external environment and is an important part of the context within which managers do their jobs. 3 : T H E E N V I R O N M E N T A N D C O R P O R AT E C U LT U R E 99 R EMEMBE R THIS ◗◗ Every organisation is impacted on by forces and constraints that the external environment imposes upon the organisation. ◗◗ The environment is far from a static or constant set of forces and can change in ways that are difficult to predict. 3.1 THE EXTERNAL ENVIRONMENT The world is undergoing tremendous and far-reaching change. The environmental changes that shook Toyota’s leadership position in the auto industry – a global recession, natural disasters and changing customer needs – were part of its external organisational environment. The external organisational environment includes all elements existing outside the boundary of the organisation that have the potential to affect the organisation.9 The environment includes competitors, resources, technology and economic conditions that influence the organisation. It does not include events so far removed from the organisation that their impact is not perceived. The organisation’s external environment can be conceptualised further as having two components: general and task environments, as illustrated in EXHIBIT 3.1.10 The general environment affects organisations indirectly. It includes social, economic, political, international, natural and technological factors that influence all organisations about equally. Changes in federal regulations or an economic recession are part of the organisation’s general environment. These events do not directly change day-to-day operations, but they do affect all organisations eventually. The task environment is closer to the organisation and includes the sectors that conduct day-to-day transactions with the organisation and directly influence its basic operations and performance. It is generally considered to include competitors, suppliers, customers and the labour market. A new view of the environment argues that organisations are now evolving into business ecosystems. An organisational ecosystem is a system formed by the interaction among a community of organisations in the environment. An ecosystem includes organisations in all the sectors of the task and general environments that provide the resource and information transactions, flows and linkages necessary for an organisation to thrive.11 For example, Apple’s ecosystem includes hundreds of suppliers and millions of customers for the products that it produces across several industries, including consumer electronics, Internet services, mobile phones, personal computers and entertainment.12 The organisation also has an internal environment, which includes the elements within the organisation’s boundaries. The internal environment is composed of current employees, management and especially corporate culture, which defines employee behaviour in the internal environment and how well the organisation will adapt to the external environment. EXHIBIT 3.1 illustrates the relationship among the general, task and internal environments. As an open system, the organisation draws resources from the external environment and releases goods organisational environment All elements existing outside the organisation’s boundaries that have the potential to affect the organisation. general environment The layer of the external environment that affects the organisation indirectly. task environment The layer of the external environment that directly influences the organisation’s operations and performance. organisational ecosystem Includes organisations in all the sectors of the task and general environments that provide the resource and information transactions, flows and linkages necessary for an organisation to thrive. internal environment Includes elements within the organisation’s boundaries, such as employees, management and corporate culture. 100 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T EXHIBIT 3.1 Dimensions of the organisation’s general, task and international environments General environment Technological Task environment Natural Customers Competitors Suppliers Internal environment Employees Culture Management Labour market Sociocultural Economic Legal/political International and services back to it. We will now discuss the two components of the external environment in more detail. Then we will discuss corporate culture, the key element in the internal environment. Other aspects of the internal environment, such as structure and technology, will be covered in later chapters of this book. G E N E R A L E N V I RO N M E N T The general environment is the outer layer of the environment – the dimensions that influence the organisation over time, but often are not involved in day-to-day transactions with it. The dimensions of the general environment include international, technological, sociocultural, economic, legal-political and natural. INTERNATIO NA L international dimension The portion of the external environment that represents events originating in foreign countries, as well as opportunities for local organisations in other countries. In his book The World Is Flat, Thomas Friedman challenges managers to view global markets as a level playing field where geographical divisions are irrelevant.13 A flat world, Friedman argues, creates opportunities for companies to expand into global markets and build a global supply chain. As managers plan for expansion into global markets, they have to consider the international dimension of the external environment, which includes events originating in foreign countries, as well as new opportunities for domestic companies in other countries. The international environment provides new competitors, customers, and suppliers and shapes social, technological and economic trends as well. As geographic boundaries dissolve and opportunities in developing economies like China increase, more companies are finding advantages in the global marketplace. For example, Coca-Cola’s CEO Muhtar Kent predicts that the China division will double its sales of Coke products, helping meet Kent’s goal of doubling Coke’s overall business by 2020. ‘China will be Coke’s largest market,’ Kent promises. ‘I can’t give you a time, but it will happen.’14 With more companies establishing a competitive presence in China, managers working in that country recognise that their competitive success begins with their ability to build personal relationships and emotional bonds with their Chinese contacts. This chapter’s Management in practice on page 102 offers tips for creating successful business relationships in China. 3 : T H E E N V I R O N M E N T A N D C O R P O R AT E C U LT U R E Indeed, in many industries, companies will have to compete on a global basis or disappear. Highquality, low-priced cars from Japan and Korea, for instance, have permanently changed the Australian car industry, which will close completely in 2017. Many companies have parts supplied from countries such as Malaysia and China because of low-priced labour. A drop in the Australian dollar’s foreign exchange rate lowers the price of Australian products overseas, increasing export competitiveness, but also makes imported products and components more expensive. When the Australian dollar got up to US$1.10 in May 2011, the opposite happened, making Australian goods and services expensive in global terms. Industries from automotive to tourism and education were challenged by the high currency. With the Australian dollar recently dropping well below US80c, these industry dynamics have changed again, influencing every company that trades or has international competitors. Today, every organisation must think internationally. Managers who are used to thinking only about the domestic environment must learn new rules to cope with goods, services and ideas circulating around the globe. A better machine built in Adelaide, Perth or Brisbane will find buyers from Europe, the United States and Asia. Moreover, competitors in a global village can come from anywhere. A company that does not export will still run into international competitors in its own marketplace, including some from developing nations. The world is also a source of supply as well as a market. For example, new products such as the latest mobile phones are made from materials and ideas from around the world. Companies find it more difficult to raise prices now than at virtually any time since the Second World War. Many companies have had to cut prices to remain competitive in the new global economy. Economic problems in other parts of the world now have a tremendous impact on local companies. The most dramatic change in the international environment in recent years is the shift of economic power to China and India. Together, these countries have the population, brainpower, and dynamism to transform the twenty-first century global economy. If things continue on the current track, analysts predict that India will overtake Germany as the world’s third-largest economy within three decades, and that China would overtake the United States as number one by mid-century. In China, per capita income has tripled in a generation, and leaders are building the infrastructure for decades of expansion, as reflected in the country’s hunger for raw materials. In 2010, China represented roughly 53 per cent of global cement consumption, 47 per cent of coal and 45 per cent of crude steel.15 No one can predict the future, but it is clear that however things in India and China turn out, Australian, New Zealand and other Western firms have no choice but to pay attention. Chapter 4 describes the way today’s businesses are operating in an increasingly borderless world and examines in detail how managing in a global environment differs from the management of domestic operations. Perhaps the hardest lesson for managers to learn is that they do not know best. Australian decision makers often know little about issues and competition in foreign countries. Arrogance is a short cut to failure. To counter this, many organisations increasingly employ people from a variety of national backgrounds, and send managers overseas to gather current information on markets and issues. Even small companies, such as bed linen manufacturer Dryen Australia, must use significant resources to send staff to trade shows in Europe, material suppliers in China and to look at recent product development trends in the United States. Large organisations such as Amcor, Google, Rio Tinto and PwC have a constant stream of people travelling between Australia and their overseas operations. 101 See Chapter 4 for a description of the way today’s businesses are operating in an increasingly borderless world and examines in detail how managing in a global environment differs from the management of domestic operations. 102 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T MANAGEMENT IN PRACTICE CREATING GUANXI IN CHINA With its low labour costs and huge potential market, China is luring thousands of companies from the United States in search of growth opportunities. Yet the University of New Haven’s Usha C. V. Haley recently found that only one-third of multinationals doing business in China have actually turned a profit. One reason many Western businesses fall short of expectations, experts agree, is that they fail to grasp the centuries-old concept of guanxi that lies at the heart of Chinese culture. At its simplest level, guanxi is a supportive, mutually beneficial connection between two people. Eventually, those personal relationships are linked together into a network, and it is through networks like this that business gets done. Anyone considering doing business in China should keep in mind the following basic rules: ✚✚ Business is always personal. It is impossible to translate, ‘Don’t take it so personally – it’s only business’ into Chinese. Western managers tend to believe that if they conclude a successful transaction, a good business relationship will follow. The development of a personal relationship is an added bonus, but it is not really necessary when it comes to getting things done. In the Chinese business world, however, a personal relationship must be in place before managers even consider entering a business transaction. Western managers doing business in China should cultivate personal relationships – both during and outside business hours. Accept any and all social invitations – for drinks, a meal, or even a potentially embarrassing visit to a karaoke bar, which some Chinese businessmen consider an important part of solidifying good business relationships. ✚✚ Don’t skip the small talk. Getting right down to business and bypassing the small talk during a meeting might feel like an efficient use of time to a western manager. To the Chinese, however, this approach neglects the all-important work of forging an emotional bond. Be aware that the real purpose of your initial meetings with potential business partners is to begin building a relationship, so keep your patience if the deal that you are planning to discuss never even comes up – there’s always tomorrow. ✚✚ Remember that relationships are not short-term. The work of establishing and nurturing guanxi relationships in China is never done. Western managers must put aside their usual focus on short-term results and recognise that it takes a long time for foreigners to be accepted into a guanxi network. Often, foreign companies must prove their trustworthiness and reliability over time. For example, firms that weathered the political instability that culminated in the 1989 student protests in Tiananmen Square found it much easier to do business afterward. ✚✚ Make contact frequently. Some experts recommend hiring ethnic Chinese staff members and then letting them do the heavy lifting of relationship building. Others emphasise that Westerners themselves should put plenty of time and energy into forging links with Chinese contacts; those efforts will pay off because the contacts can smooth the way by tapping into their own guanxi networks. Whatever the strategy, contact should be frequent and personal. In addition, be sure to keep careful track of the contacts that you make. In China, any and all relationships are bound to be important at some point in time. ✚✚ Do not openly criticise business partners, customers or suppliers, as this means an unacceptable ‘loss of face’. SOURCES: Australian Trade and Investment Commission. (2017). Doing Business – Export markets – China, http://www.austrade.gov.au/Australian/Export/Export-markets/ Countries/China/Doing-business (accessed 19 February 2017); Dammon Loyalka, M. (4 January 2006). Before You Set Up Shop in China. Part of the ‘Doing Business in China’ special report, BusinessWeek Online, http://www.businessweek.com/smallbiz/content/jan2006/sb20060104_466114.htm (accessed 6 January 2006); Los Angeles Chinese Learning Center. Chinese Business Culture. http://chinese-school.netfirms.com/guanxi.html; Beijing British Embassy. Golden Hints for Doing Business in China. http://chineseschool.netfirms.com/goldenhints.html; and Emily Flitter. (9 June 2008). Faux Pas: With Karaoke, a Deal in China for a Song. The Wall Street Journal Online, http://online.wsj. com/article/SB121268021240548769.html (accessed 24 September 2012). technological dimension The dimension of the general environment that includes scientific and technological advancements in the industry and society at large. T EC HNOLO GIC A L The technological dimension includes scientific and technological advancements in a specific industry as well as in society at large. Amazing breakthroughs are occurring in fields such as Internet technologies and biotechnology, coming together into ‘telemedicine’, with applications accelerating the progress of medical treatments, preventions and cures. Whole diseases are being wiped out. 3 : T H E E N V I R O N M E N T A N D C O R P O R AT E C U LT U R E Automation of tasks in all sorts of businesses continues to accelerate. We are not too far away from having self-driving cars. By mapping individuals’ human genomes, medical treatments can now be customised to each human’s specific needs. Genetic engineering is allowing for drought- and diseaseresistant crops to be developed. Stem cell technologies advance medical treatments for diseases that were previously not treatable. Telecommunications technologies are bringing benefits to consumers as never before. Twenty years ago, many organisations didn’t even use desktop computers. Today, computer networks, Internet access, handheld devices, videoconferencing capabilities, mobile phones and laptops are the minimum tools for doing business. A new generation of handhelds allows users to check their corporate email, daily calendars, business contacts and even customer orders from any location with a wireless network. Mobile phones can now switch seamlessly between mobile networks and corporate wi-fi connections. Some companies hand out wireless key fobs with continually updated security codes that enable employees to log onto their corporate networks and securely view data or write emails from any personal computer with a broadband connection.16 Many industries have been transformed by the Internet. For example, many people now choose and purchase hotel accommodation and many other goods and services over the Internet. Price competition has hurt the hotels’ profitability, and websites such as wotif.com.au, hotels.com, zuji.com and lastminute. com.au offer to find great deals for consumers on plane tickets, hotels, rental cars etc., essentially acting as travel agents that are available ‘24/7’ from our own homes. Consider too the fate of Australian bookstore chain Angus and Robertson. The liquidators were called in on 17 February 2011. The main reason was that massive changes in the business environment, namely a huge consumer shift to reading and purchasing books online, has left this traditional way of doing business behind, meaning that it is uncompetitive and unprofitable. Both local and international companies such as Amazon, Booktopia, Book Depository and others have very substantially disrupted this industry. This shift also included Whitcoulls newsagencies in New Zealand (which returned to New Zealand ownership when it was sold to Farmers, a mid-market department store chain) and all local Borders stores. This occurred just a day after the massive company US-based Borders filed for bankruptcy, for similar reasons. Ironically, as it was online book retailers like Book Depository and Amazon that essentially killed Angus & Robertson’s bricks and mortar stores, the company now exists as an online bookstore called Angus & Robertson Bookworld, following a merger of the Bookworld and Angus & Robertson online stores. Amazon has broadened its range of services way beyond its original offering as an online book seller, and is now selling thousands of other categories of goods and services. The company is globalising, with stated intentions to take on other retailers in the next few years, including those in Australia.17 Other technological advances will also affect organisations and managers. The decoding of the human genome could lead to revolutionary medical advances. Cloning technology and stem cell research are raising both scientific and ethical concerns. Nanotechnology, which refers to manipulating matter at its tiniest scale, is moving from the research lab to the marketplace. General Electric is researching how nanoceramics can make turbines more efficient. Medical researchers are looking at the potential for portable labs that offer instant analysis for everything from diabetes to HIV. Nanoparticles could some day give us golf balls designed to fly straight, army fatigues that resist chemical weapons, dent-resistant cars and super-charged fuel cells that could replace fossil-fuel engines. Some 1200 nanotechnology start-ups have emerged around the world, and smart managers at established organisations such as 3M, Dow Chemical, Samsung, NASA, Intel, Johnson & Johnson and IBM are investing research dollars in this technological breakthrough.18 103 104 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T SO C IOC ULT URA L sociocultural dimension The dimension of the general environment representing the demographic characteristics, norms, customs and values of the population within which the organisation operates. The sociocultural dimension of the general environment represents the demographic characteristics as well as the norms, customs and values of the general population. Important sociocultural characteristics are geographical distribution and population density, age and education levels. Today’s demographic profiles are the foundation of tomorrow’s workforce and consumers. Forecasters see increased globalisation of consumer markets and the labour supply, with increasing diversity within organisations and consumer markets.19 Consider the following key demographic trends. ◗◗ Multiculturalism is increasingly important in the Australian and New Zealand populations and workforces. ◗◗ The population and the workforce continue to age with the baby boomers, and there is a shortage of skilled workers, such as engineers. ◗◗ ◗◗ ◗◗ ◗◗ Australia will continue to receive high numbers of immigrants, largely from Asia. Low-carbohydrate diets have changed food consumption patterns. New religious groups with particular behavioural norms attract significant masses of people. Married couple households have halved as a proportion of the total in the past decade, with the increase being mostly single fathers and single mothers with children. ◗◗ Couples with children total just 20 per cent, with the number projected to drop further. Some 30 per cent of homes are inhabited by someone who lives alone. ◗◗ New generations of Gen Y and Gen Z employees want different things in their employment relationships from the retiring baby boomers, meaning that organisations are changing their cultures and ways of working to suit. How people want to consume has also changed, and will continue to change. A new generation of technologically savvy consumers, often called the Connected Generation or Generation C, has intimately woven technology into every aspect of their lives. Their primary digital devices (PDDs) shape the way they communicate, shop, travel and study. Generation C (typically defined as people born after 1990) will make up 40 per cent of the population by 2020 and will constitute the largest cohort of consumers worldwide.20 How we do many things, from listening to music and being entertained generally, to our shopping and banking, has moved substantially onto our phones! Additionally, as the population continues to age, organisations are rushing to create senior-friendly products and services. Organisations realise that it makes good business sense to create products and services for this ageing population; in 2011, Australians aged 65 years and over accounted for 14 per cent of the population21 and this proportion is increasing. The situation is similar in many parts of the globe. It is estimated that by 2050, more than 30 per cent of the population will be aged 65 and over in South Korea, Italy, Japan, Greece and Singapore. Australia, France and the United Kingdom will all be faced with 25 per cent of their population being over 65 and the United States will have 20 per cent. Issues regarding how to satisfy the increasing medical needs of these ageing populations and who will pay for these needs are questions that both government and business are starting to grapple with.22 economic dimension The dimension of the general environment representing the overall economic health of the country or region in which the organisation functions. EC O NOM IC The economic dimension represents the general economic health of the country or region in which the organisation operates. Consumer purchasing power, the unemployment rate and interest rates are part of an organisation’s economic environment. Because organisations today are operating in a global environment, the economic dimension has become exceedingly complex and creates even more uncertainty for managers. The economies of countries are more closely tied together than ever before. Economic problems in the United States in recent years, for example, have had a significant impact on both local companies as well as the share market in virtually every country. One significant trend in the economic environment is the frequency of mergers and acquisitions. Industries of all types are consolidating and rationalising ownership and control. For example in recent years, mergers and acquisitions have occurred between Tattersalls and Tabcorp, Bayer and Monsanto, and Dow and Dupont, where these large businesses found a strategic business logic for creating value through joining forces. Two gigantic insurance companies in Australia, National Mutual and AMP, demutualised. Rather than remaining as mutual societies, owned by their policyholders, they transformed themselves and became publicly listed and traded companies owned by shareholders. National Mutual was immediately acquired by a multinational company, AXA, and AMP launched a banking operation and acquired another major insurance company, GIO, which itself had previously been converted from government ownership to the private sector. AMP then discovered that GIO brought with it huge losses on its books, due to catastrophes that it had insured or reinsured around the world. Procter & Gamble and Gillette became one giant company in a merger that began in 2005 and took some years to fully bed down. During the 2008–10 GFC, many financial industry companies merged, restructured or just disappeared through bankruptcy. In the last decade children have had greater purchasing power than at any time in the past, and this trend is expected to continue, with children becoming important market segments and consumers of mobile phone services and fast foods. INNOVATIVE WAY SHOPPING ONLINE, EVEN FOR CARS Anyone who has ever bought a new car remembers what an ordeal it can be fending off overly aggressive salespeople, haggling over price and sometimes driving away with the uncomfortable feeling that you have been had. The strain of car shopping, combined with a decrease in leisure time and a demand for convenience, have more and more people turning to the Internet to shop for their dream car. A 2015 Google/TNS Auto Shopper Study found that 70 per cent of people who used YouTube as part of their car buying process were influenced by what they watched, a higher percentage than TV, newspapers or magazines. Fifty per cent of car shoppers will use their smartphones when they are in the actual car dealership to search for better deals, reviews, etc. In Australia today, www.carsales.com.au has become a highly prominent search and sales channel for consumers in both new and used car markets. A 2016 analysis by IBISWorld into Australian and New Zealand online shopping habits found some dramatic and interesting changes in consumer shopping trends during the past 15 years. Customers now research and compare prices for items and check reviewer feedback online before making purchases. Although online retail sales account for a small proportion of total expenditure on consumer goods, industry growth has significantly outpaced traditional 105 Source: iStockPhoto.com/lika-Erika-Szasz-Fabian 3 : T H E E N V I R O N M E N T A N D C O R P O R AT E C U LT U R E 106 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T retailers, with revenue expected to rise by an annualised 16.2 per cent over the five years through 2016–17. The continued popularity of online retail is expected to boost industry revenue by 14.9 per cent in 2016–17, to total AU$18.0 billion. Sales growth has been supported by rising consumer confidence in online shopping, the large variety of good-value items available and further growth in Internet use across the population. The range of products and services available for purchase from online retailers, like clothing, footwear, and personal accessories (20.6 per cent), groceries and liquor (17.2 per cent), computers, software, and electronic goods (16.9 per cent), recreational goods (12.4 per cent), homewares and domestic appliances (9.4 per cent), printed material, music, and movies (9.3 per cent), cosmetics, fragrances and toiletries (1.8 per cent), and other goods (12.4 per cent), has grown robustly over the past decade. Australian vehicle customers can compare prices, check the value of their trade-in and ask for bids from online car-buying services such as http://www.carpoint. com.au, http://www.carsales.com.au, http://www. carsguide.com.au, and http://www.redbook.com.au. Ford, Toyota, Mitsubishi, Honda and GMH also are running websites to link online shoppers with dealers. See http://www.ford.com.au, http://www.holden.com. au, http://www.toyota.com.au, and http://www.honda. com.au. Consumers can now choose their optional colours and features online, seeing full specifications, reviews and then shop very efficiently for the best price. Sources: Magner, L. (2016, July). Online Shopping in Australia. IBISWorld Industry Report X0004. http://www.ibisworld.com.au/industry/ default.aspx?indid=1837 (accessed 20 October 2016); Pricewaterhouse Coopers PwC. Australian and New Zealand Online Shopping Market and Digital Insights July 2012. http://pwc.com.au/industry/retail-consumer/assets/Digital-Media-Online-Shopping-Jul12.pdf (accessed 3 November 2013). LEGA L–POLITIC A L legal–political dimension The dimension of the general environment that includes federal, state and local government regulations, and political activities designed to control organisation behaviour. The legal–political dimension includes government regulations at the local, state and federal levels, as well as political activities designed to influence organisation behaviour. The Australian political system encourages capitalism, and the government tries not to over-regulate business. However, government laws do specify some rules of the game. Federal and state governments affect organisations with a vast range of legislation and regulation, including occupational health and safety, environmental protection, fair trade and competition practices, consumer protection legislation, product safety requirements, import and export restrictions, labour laws, and information and labelling requirements. Although regulation is designed to solve problems, complying with it often creates problems for organisations. For example, Australian unfair dismissal laws aimed at protecting the rights of employees against unscrupulous employers have been criticised as being ‘anti-business’ because they restrict the ability of employers to fire poor performers. The Australian government has also been criticised for its slowness in testing and approving new pharmaceuticals and for insisting on conducting its own trials rather than accepting selected foreign results, which means that some medical treatments are not available to Australian consumers as quickly as they could be.23 pressure group An interest group that works within the legal– political framework to influence organisations to behave in certain ways. Managers must recognise a variety of pressure groups that work within the legal/political framework to influence organisations to behave in socially responsible ways. Car manufacturers, toy makers and airlines have been targeted by influential consumer advocacy groups. Tobacco companies today are certainly feeling the far-reaching power of anti-smoking groups. Local community groups in New Zealand and Australian suburbia and country towns have lobbied against bank branch closures and McDonald’s openings. Greenpeace has managed to force significant changes in the whaling, tuna fishing and seal fur industries.24 3 : T H E E N V I R O N M E N T A N D C O R P O R AT E C U LT U R E 107 NATURA L ENV IRO NM ENT In response to pressure from environmental advocates, organisations have become increasingly sensitive to the earth’s diminishing natural resources and the environmental impact of their products. As a result, the natural dimension of the external environment is growing in importance. The natural dimension includes all elements that occur naturally on earth, including plants, animals, rocks and natural resources such as air, water and climate. The natural dimension is different from other sectors of the general environment because it has no voice of its own. Influence on managers to meet needs in the natural environment may come from other sectors, such as government regulation, consumer concerns, pressure from the media, competitors’ actions or even employees. For example, environmental groups advocate various action and policy goals that include reduction and clean up of man-made pollution, development of renewable energy resources and sustainable use of scarce resources such as water, land and air. More recently, there has been a strong concern about climate change such as global warming caused by greenhouse gases, most notably carbon dioxide. Concern about the environment has prompted companies to take these actions: ◗◗ Eliminating non-biodegradable plastic bags from the environment. Australia’s Target stores banned plastic bags in June 2009. Target customers not bringing their own bags can purchase compostable bags from 10c each, or reusable bags starting from $1. This change meant a saving of roughly 100 million plastic bags per year.25 But pressure from consumers led Target to bring plastic bags back a few years later. They have been banned in other countries and states, yet it is clearly a case of managers having to balance desires of multiple stakeholders. ◗◗ Improving efficiency of plants and factories. Nissan’s Sunderland (United Kingdom) factory will use eight wind turbines to generate six per cent of the plant’s energy requirement, cutting carbon dioxide emissions by 4000 tonnes per year. Toyota recycles 100 000 tonnes of wastewater a year in its reverse osmosis facility in its Burnaston (United Kingdom) plant.26 Environmental groups advocate various action and policy goals that include reduction and cleanup of pollution, development of renewable energy resources, reduction of greenhouse gases such as carbon dioxide, and sustainable use of scarce resources such as water, land, and air. The oil spill in the Gulf of Mexico in 2010 brought environmental issues to the forefront. Months after a BP-Transocean rig at the Deepwater Horizon oil well exploded, hundreds of thousands of gallons of oil were still flowing into open water each day, adding to the millions of gallons already contaminating the water and beaches along the coast in Louisiana, Mississippi, Alabama and Florida, and threatening the region’s fish, birds, turtles and vegetation. ‘One of the last pristine, most biologically diverse coastal habitats in the country is about to get wiped out,’ said Felicia Coleman, who directs the Florida State University Coastal and Marine Laboratory. ‘And there’s not much we can do about it.’27 The effects of the devastating spill are likely to continue for many years. TA S K E N V I RO N M E N T As described earlier, the task environment includes those sectors that have a direct working relationship with the organisation, among them customers, competitors, suppliers and the labour market. CU STOMERS Those people and organisations in the environment who acquire goods or services from the organisation are customers. As recipients of the organisation’s output, customers are important because they determine customers People and organisations in the environment who acquire goods or services from the organisation. 108 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T the organisation’s success. Patients are the customers of hospitals, students the customers of schools and travellers the customers of airlines. Many companies have designed special programs and advertising campaigns to court their older customers, who are, with the ageing of the baby boomers, becoming a larger percentage of their market. To survive in competition with mass merchandisers such as Target and Kmart, small retailers have been forced to come up with new ways to win and keep customers. Some small grocery and convenience stores have moved to seven-day, 24-hour operations to stay competitive with the bigger companies that have advantages of scale. Many companies are searching for ways to reach the coveted teen and youth market by tying marketing messages into online social networks such as Facebook and Instagram. With high school and university students representing a large spending market, it is serious business for managers at companies such as Apple, Coca-Cola and Walt Disney. Apple sponsors an Apple-lovers group on Facebook.com, giving away iPod Shuffles in weekly contests. Customers today have greater power because of the Internet, which presents threats as well as opportunities for managers. Today’s customers can directly affect the organisation’s reputation and sales, for example, through gripe sites such as http://untied.com, where United Airlines employees and disgruntled fliers rail against the air carrier. ‘In this new information environment,’ says Kyle Shannon, former CEO of e-commerce consultancy designory.com (formerly Agency.com), ‘you’ve got to assume everyone knows everything’.28 C O MPET ITORS competitors Other organisations in the same industry or type of business that provide goods or services to the same set of customers. Specific competitive issues characterise each industry. Other organisations in the same industry or type of business that provide goods or services to the same set of customers are referred to as competitors. Each industry is characterised by specific competitive issues. The recording industry differs from the steel industry and the pharmaceutical industry. Competition in the steel industry, especially from international producers, has caused some companies to go bankrupt. Companies in the pharmaceutical industry are highly profitable because it is difficult for new firms to enter it. The two major supermarket chains in Australia, Coles and Woolworths, have both significantly expanded their home branded product ranges as a new way of trying to achieve competitive advantage. This chapter’s Management in practice box reveals the extent to which some of today’s most competitive companies are cooperating to achieve common goals. SUP P LIERS Suppliers provide the raw materials that the organisation uses to produce its output. A chocolate manufacturer, for example, may use suppliers from around the globe for ingredients such as cocoa beans, sugar and cream. A supply chain is a network of multiple businesses and individuals that are connected through the flow of products or services. Every organisation survives and prospers, or otherwise, depending on the competitiveness and effectiveness of its supply chain partners. It is not unusual for manufacturing companies to pass on as much as 60 per cent of their revenue to their suppliers who provide the vital inputs and ingredients within their products. For Toyota, the supply chain includes over 500 global parts suppliers organised by a production strategy called just-in-time (JIT).29 JIT improves an organisation’s return on investment, quality and efficiency because much less money is invested in idle inventory. ‘Instead of months’ worth of inventory, there are now days and even hours of inventory,’ says Jim Lawton, head of supply management solutions at consultant Dun & Bradstreet. Lawton points out that there is a downside, however – one that became dramatically clear after a March 2011 earthquake in Japan, ‘If supply is disrupted, as in this situation, there’s nowhere to get product.’30 3 : T H E E N V I R O N M E N T A N D C O R P O R AT E C U LT U R E 109 The crisis in Japan revealed the fragility of today’s JIT supply chains. A powerful earthquake triggered a massive tsunami and caused the second-worst nuclear disaster in history, at the Fukushima power plant along the Pacific coastline. Japanese parts suppliers for the global automotive industry were shut down, disrupting production at automotive factories around the world. ‘Even a missing $5 part can stop an assembly line,’ said a Morgan Stanley representative.31 Because of this natural disaster, Toyota’s production was down 800 000 vehicles – 10 per cent of its annual output. Most organisations aren’t willing to boost inventory to minimise the risk of supply-chain disruptions. Boosting inventory even slightly to provide a cushion against disruptions can cost big companies millions of dollars. ‘I don’t see any of us moving away from a very disciplined supply chain management,’ says Ford Motor Company finance chief Lewis Booth.32 Just-in-time is discussed in more detail in Chapter 20. CASE STUDY Carol White was not a businesswoman in any sense of the word. She was a nurse and mother who had gone through a marriage breakdown, when she fell in love with a property in rural Victoria, and bought it. ‘I needed income and flexibility to look after my sons, so I set about researching production options,’ explains Carol. ‘I loved the Swiss-Italian heritage and culture, and had seen lavender grown commercially in France. My fate was sealed.’ Since then, she has developed the property into a thriving business offering products and services, such as a venue for weddings and seminars, a cafe and accommodation for the public. The outcome is Lavandula Swiss Italian Farm, named after the botanic name for lavender, which now grows lavender, olives and grapes, all harvested and processed for use on the property. With an attractive website, http://www.lavndula.com.au, this business has grown to employ 14 local people from the Daylesford area, and attract many customers through the year, annually selling, for example, some 40 000 bunches of locally grown herbs, amongst its large range of services and products. So how did Carol acquire the skills and capabilities to grow and run a substantial business? She attests to her general organisational skills in running a household and being a nurse as providing a good basis for it, supplemented with a variety of small business courses that she undertook and a lot of learning from networking with other local businesspeople. ‘I was a single woman in a man’s farming world when I started this business,’ says Carol. ‘But boutique farming offers wonderful opportunities to be individual, build a lifestyle and become an entity on your own. I value-add on-site and am delighted with the results.’ Carol has built a vision based on knowing that women in particular like lavender-based services and property. She started with some lavender seeds and an attractive Carol White and Lavandula property, and has acquired the business and management Farm skills needed along the way. Her support from other local businesses has been of great help; however, her challenge has been to find the right staff to buy into the vision and operate the business without her constant hands-on supervision. This business, and this entrepreneurial businesswoman, show that even without a long and strong corporate experience base, a niche operation can be incrementally built based on an attractive proposition to a focused market, and a lot of hard work. This business has recently grown and broadened its range of services, including both product and services such as festivals, wedding services and food products. Sources: Lindhe, J. (4–10 November 2010). Lavender Lessons. BRW, 42; Small Business Festival Victoria (2016). 'Bringing a bit of Europe to Australia. The story of Lavandula Swiss Italian Farm.' Available: http://www.business.vic.gov.au/events-workshops-and-mentoring/victorias-small-business-festival/ festival-interviews/bringing-a-bit-of-europe-to-australia (accessed: 24 October 2016). Source: Fairfax Syndication/Sandy Scheltema GROWING A BUSINESS FROM SCRATCH – LAVENDER! 110 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T INNOVATIVE WAY COSTCO’S WINNING FORMULA Costco Wholesale Corporation, a no-frills, self-service warehouse club, operates an international chain of membership warehouses offering a limited selection of products at reduced prices. Costco’s business model focuses on maintaining its image as a pricing authority, consistently providing the most competitive prices. ‘Everything we do is to provide goods and services to the customer at a lower price,’ said Jim Sinegal, CEO and founder. Costco warehouses are designed to operate efficiently and to communicate value to members. The warehouse decor – high ceilings, metal roofs, exposed trusses – keeps costs low and contributes to the perception that Costco is for serious shoppers seeking serious bargains. Other strategies for keeping prices low include offering only 3600 unique products at a time and negotiating low prices with suppliers. Only about a quarter of sales come from outside the United States, but store sales in overseas markets – including Australia – have been growing about four times faster than those in the United States. Costco plans to expand its customer base by delving further into the Asian markets, where consumer spending and growth is higher than mature United States and European markets. Costco’s complex environment is illustrated in EXHIBIT 3.2. Costco’s biggest competitive advantage is its workforce. ‘Costco compensates employees very well, well above the industry in terms of wages and benefits,’ says R. J. Hottovey, a retail analyst at Morningstar. ‘When retailers are cutting health benefits, Costco employees don’t have to worry about that,’ he says. The happiness and morale of employees is often overlooked in the retail industry, but not at Costco. Thanks to its good treatment of workers, Costco has one of the lowest turnovers in the retail industry (only six per cent), and it earns US$530 000 of revenue per employee. Costco has successfully opened stores in Australia and is planning more than the eight major stores it had in 2016, due to the great success it has achieved in Melbourne and Sydney. Costco has entered the petrol retailing market in Australia in three states. Sources: Edelson, S. (30 January 2012). Costco Keeps Formula as It Expands. Women’s Wear Daily, 19, 1; Cheng, A. (2 April 2010). Costco Cracks Taiwan Market. The Wall Street Journal, B5; and Form 10-K for Costco Wholesale Corporation. Item 7 – Management’s Discussion and Analysis of Financial Conditions and Results of Operations, Costco Annual Report, http://www.sec.gov/Archives/edgar/data/909832/000119312511271844/d203874d10k. htm#toc203874_9 (accessed 10 July 2012). LA BO UR MA RKET labour market The people available for hire by the organisation. The labour market represents people in the environment who can be hired to work for the organisation. Every organisation needs a supply of trained, qualified personnel. Unions, employee associations and the availability of certain classes of employees can influence the organisation’s labour market. Labour market forces affecting organisations right now include (1) the growing need for computer-literate knowledge workers; (2) the necessity for continuous investment in human resources through recruitment, education and training to meet the competitive demands of the borderless world; and (3) the effects of international trading blocs, automation, outsourcing and shifting facility locations upon labour dislocations, creating unused labour pools in some areas and labour shortages in others.33 Argyle Diamonds in Western Australia is a company with substantial management challenges – in particular, the need to manage a large workforce at a very remote location. This is a typical challenge faced by mining and oil companies. Changes in these various sectors of the general and task environments can create tremendous challenges, especially for organisations operating in complex, rapidly changing industries. 3 : T H E E N V I R O N M E N T A N D C O R P O R AT E C U LT U R E General environment Technological Costco.com offers opportunities to reach a wider audience Applies technology to manage store and corporate operations Task environment Natural Greenhouse inventories to track emission trends Energy-efficient building design Committed to aggressive environmental protection in the petrol business Customers 66.5 million members 30% are small business owners Appeals to customers seeking high volume and low price 89% membership renewal Sociocultural Competitors Vigorous and widespread Woolworths, Coles, Kmart, Target, Lowes Costco Wholesale Corporation Focuses on bulk needs of families in suburban communities Targets wide range of customers Average customer income is US$57 000 Economic Suppliers Brand-name vendors, such as P&G, Kraft, and Whirlpool Builds close supplier relationships to keep prices low Supplier Diversity Program for minority- and women-owned businesses Negatively affected by economic slowdown Susceptible to fluctuating currency exchange rates Value pricing drives customer traffic Legal/political Labour market 160 000 loyal, highly productive employees Considers employees a competitive advantage Lean and stable executive ranks Labour and benefits comprise 70% of operating costs Sources: Costco Wholesale Corporation website, http://www.costco.com (accessed 10 July 2012); (30 April 2012). Costco Wholesale Corporation. Marketline, 3–9; Alaric DeArment. (12 December 2011). Costco’s Lobbying Changes Washington State’s Liquor Laws: Who Is Next? DrugstoreNews.com, 12, http://www.drugstorenews.com/article/ costco%E2%80%99s-lobbying-changes-%E2%80%A9wa%E2%80%99s-liquor-lawswho-next; and Sharon Edelson. (30 January 2012). Costco Keeps Formula As It Expands. Women’s Wear Daily, 1. Government-mandated minimum wage Supports privatisation of liquor sales (licence states) International Strong growth expected in Asian markets 27% of sales from countries outside of US 111 EXHIBIT 3.2 The external environment of Costco Wholesale Corporation 112 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T R EMEMBE R THIS ◗◗ The organisational environment, consisting of both general and task environments, includes all elements existing outside the boundary of the organisation that have the potential to affect the organisation. ◗◗ An organisational ecosystem includes organisations in all the sectors of the task and general environments that provide the resource and information transactions, flows and linkages necessary for an organisation to thrive. ◗◗ The general environment indirectly influences all organisations within an industry and includes five dimensions. ◗◗ The task environment includes the sectors that conduct day-to-day transactions with the organisation and directly influence its basic operations and performance. ◗◗ The international dimension of the external environment represents events originating in foreign countries, as well as opportunities for Australian companies in other countries. ◗◗ The technological dimension of the general environment includes scientific and technological advances in society. ◗◗ The sociocultural dimension includes demographic characteristics, norms, customs and values of a population within which the organisation operates. ◗◗ The economic dimension represents the general economic health of the country or region in which the organisation operates. ◗◗ The legal–political dimension includes government regulations at the local, state and federal levels, as well as political activities designed to influence company behaviour. ◗◗ The internal environment includes elements within the organisation’s boundaries, such as employees, management and corporate culture. ◗◗ The natural dimension includes all elements that occur naturally on Earth, including plants, animals, rocks and natural resources such as air, water and climate. ◗◗ Suppliers provide the raw materials the organisation uses to produce its output. THE ORGANISATION– ENVIRONMENT RELATIONSHIP 3.2 Why do organisations care so much about factors in the external environment? The answer is that the environment creates uncertainty for organisation managers, who must respond by designing the organisation to adapt to the environment or influence the environment. TAKE A MOMENT Refer to your score in the new manager self-assessment at the start of this chapter to see how well you might adapt as a new manager in an uncertain environment. 3 : T H E E N V I R O N M E N T A N D C O R P O R AT E C U LT U R E 113 E N V I RO N M E N TA L U N C E RTA I N T Y Uncertainty means that managers do not have sufficient information about environmental factors to understand and predict environmental needs and changes.34 As indicated in EXHIBIT 3.3, environmental characteristics that influence uncertainty depend upon the number of factors that affect the organisation and the extent to which those factors change. A large multinational such as Costco has thousands of factors in the external environment creating uncertainty for managers. When external factors change rapidly, the organisation experiences very high uncertainty. Examples include the electronics and aerospace industries. Firms must make efforts to adapt to these changes. When MySpace’s audience plummeted 27 per cent in 2010, managers struggled to identify the factors that were upending the then popular social media service. One factor was the changing tastes of fickle social media customers, which are difficult to predict. When Facebook provided a better customer experience and a simple Google-like interface, customers left MySpace in droves. In fact, MySpace lost 9 million customers between 2009 and 2010. ‘MySpace was like a big party, and then the party moved on,’ said Michael J. Wolf, the former president of Viacom’s MTV Networks and managing partner at media consulting firm Activate.35 Similarly, Facebook has become a giant business in offering both personal and business communications for a decade, and many business users are now spending their time and effort increasingly on Snapchat and Instagram platforms. When an organisation deals with only a few external factors and these factors are relatively stable, such as for soft-drink bottlers or food processors, managers experience low uncertainty and can devote less attention to external issues. Two basic strategies for coping with high environmental uncertainty are to adapt the organisation to changes in the environment and to influence the environment to make it more compatible with organisational needs. High High uncertainty Rate of change in factors in environment Low uncertainty Low Low High Number of factors in organisation environment Adapt to and influence environment uncertainty Managers know what goal they wish to achieve, but information about alternatives and future events is incomplete. EXHIBIT 3.3 The external environment and uncertainty 114 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T A DA P T I NG T O T H E E N V I RO N M E N T TAKE A MOMENT Read the Ethical challenge at the end of chapter, pertaining to competitive intelligence. Would you have the courage to risk your job by challenging your boss’s inappropriate use of confidential information? Environmental changes may evolve unexpectedly, as in the shifting customer tastes for social media sites, or they may occur violently, as in the devastating Japanese earthquake and tsunami. The level of turbulence created by an environmental shift will determine the type of response that managers must make in order for the organisation to survive. Managers continuously scan the business horizon for both subtle and dramatic environmental changes, also called strategic issues, and identify those that require strategic responses. Strategic issues are ‘events or forces either inside or outside an organisation that are likely to alter its ability to achieve its objectives’. As environmental turbulence increases, strategic issues emerge more frequently.36 Managers use several strategies to adapt to these strategic issues, including boundary-spanning roles, interorganisational partnerships, and mergers or joint ventures. BO UNDA RY-SPA NNING R O L E S boundary-spanning roles Roles assumed by people and/or departments that link and coordinate the organisation with key elements in the external environment. Departments and boundary-spanning roles link and coordinate the organisation with key elements in the external environment. Boundary spanners serve two purposes for the organisation: they detect and process information about changes in the environment, and they represent the organisation’s interest to the environment.37 People in departments such as marketing and purchasing span the boundary to work with customers and suppliers, both face-to-face and through market research. For example, LEGO became frustrated with the long lead times it took to produce their packaging, as they wanted to be able to delay decisions about box design until the last minute. They wanted this ability so that they could integrate the most recent toy trends into their designs and this meant changes in their existing processes. The quality and design of LEGO boxes is viewed as critical to both the retail and customer experience with the product and could not be compromised. The company looked to the external market and established a competitive process for suppliers to come up with creative solutions. From an application process that involved submitting ideas, a short list of potential suppliers was established. The suppliers were all invited to work collaboratively with LEGO managers and designers to understand the company’s needs and best generate original solutions. In this way the suppliers could utilise their own expertise and lean processes to come up with answers to LEGO’s problems. After this collaborative process each supplier was given a day to make a presentation. This creative and competitive process can be lucrative to both LEGO and the supplier.38 Another recent approach to boundary spanning is the use of business intelligence, which results from using sophisticated software to search through large amounts of internal and external data to spot patterns, trends and relationships that might be significant. For example, Verizon uses business intelligence software to actively monitor customer interactions and fix problems almost immediately.39 Business intelligence is related to the growing area of boundary spanning known as competitive intelligence (CI), which refers to activities such as snooping as much information as possible about one’s 3 : T H E E N V I R O N M E N T A N D C O R P O R AT E C U LT U R E rivals. Competitive intelligence specialists use websites, commercial databases, financial reports, market activity, news clippings, trade publications, personal contacts and numerous other sources to scan an organisation’s environment and spot potential threats or opportunities.40 Visa has an employee who searches the web for two hours each day for insights on MasterCard and other competitors. Harley-Davidson hires an outside research firm to search through massive amounts of data and reveal patterns that help decipher and predict competitors’ actions.41 Eighty per cent of large companies maintain in-house snoops, also known as competitive intelligence (CI) professionals. Companies such as Nortel Networks, Motorola, NutraSweet Co. and Xerox employ CI specialists to scope out their competitors and help managers make better decisions and plans. TELUS Corp., a Canadian telecommunications company, has beefed up its CI team to cope with a tidal wave of competition from rivals in long-distance data communication, mobile phone and paging services. NutraSweet’s CI professionals helped the company delay a costly advertising campaign when the company learned that a rival sweetener was at least five years away from gaining government approval. Most CI work is strictly legal, relying on commercial databases, news clippings, employment advertisements, trade publications, product literature and personal contacts.42 Boundary spanning is an increasingly important task in organisations because environmental shifts can happen so quickly in today’s world. Managers need good information about their competitors, customers, and other elements of the environment to make good decisions. Thus, the most successful companies involve everyone in boundary-spanning activities. People at the grassroots often can see and interpret significant changes sooner than managers who are more removed from the day-to-day work.43 However, top executives, too, need to stay in tune with the environment. Tom Stemberg, CEO of Staples, visits a competitor’s store once a week and shares what he learns with others on the management team.44 Perceiving environmental shifts that could impact the organisation isn’t always easy. Managers must learn not only to interpret the data right in front of them but also to see weak signals on the periphery and answer the question, ‘What don’t we know that might matter?’45 FORECA STING A ND P LA NNING Forecasting and planning for environmental changes are major activities in many organisations. Planning departments often are created when uncertainty is high.46 Forecasting is an effort to spot trends that enable managers to predict future events. Forecasting techniques range from quantitative economic models of environmental business activity to newspaper clipping services. For example, a company called iSentia provides media monitoring services to over 6000 clients in 15 countries and employs over 1200 people (http://isentia.com). iSentia started out as a small family business in Australia over 30 years ago.47 Heinz, Qantas, Malaysian, Singapore and Air New Zealand airlines, Shell, BP, Herron Pharmaceuticals and Arnott’s Biscuits have all devised specific management plans for handling crises. Whether the crisis is a hostile takeover attempt or product tampering, an organisation that does not have a plan will make mistakes. Planning can soften the adverse effect of rapid shifts in the environment. IN TERO RGA NISAT IONA L PA RTNE R S HI P S With tough global competition, constantly changing technology and shifting government regulations, few companies can compete effectively unless they join with other firms in various partnerships. Organisations around the world are embedded in complex networks of complicated relationships – collaborating in some markets, competing fiercely in others. The number of corporate alliances has been increasing at a 115 116 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T rate of 25 per cent annually, and many of those have been between competitors.48 For example, in the auto industry, Ford and General Motors (GM) compete fiercely, but the two joined together to develop a six-speed transmission. Hyundai, Chrysler and Mitsubishi jointly run the Global Engine Manufacturing Alliance to build four-cylinder engines. Volvo is now owned by Zhejiang Geely Holding Group of China, but it maintains an alliance with its previous owner, Ford, to supply engines and certain other components.49 In a partnership, each organisation both supports and depends on the others for success, and perhaps for survival, but that doesn’t mean they don’t still compete fiercely in certain areas.50 Managers in partnering organisations shift from an adversarial orientation to a partnership orientation. The new paradigm, shown in EXHIBIT 3.4, is based on trust and the ability of partners to work out equitable solutions to conflicts so that everyone profits from the relationship. Managers work to reduce costs and add value to both sides, rather than trying to get all the benefits for their own company. The new model is also characterised by a high level of information sharing, including e-business links for automatic ordering, payments and other transactions. In addition, person-to-person interaction provides corrective feedback and solves problems. People from other companies may be on site, or they may participate in virtual teams to enable close coordination. Partners are frequently involved in one another’s product design and production, and they are committed for the long term. It is not unusual for business partners to help one another, even outside of what is specified in the contract.51 EXHIBIT 3.4 The shift to a partnership paradigm FROM ADVERSARIAL ORIENTATION TO PARTNERSHIP ORIENTATION Suspicion, competition, arm’s length Trust, value added to both sides Price, efficiency, own profits Equity, fair dealing, everyone profits Information and feedback limited e-business links to share information and conduct digital transactions Lawsuits to resolve conflict Close coordination – virtual teams and people onsite Minimal involvement and up-front investment Involvement in partner’s product design and production Short-term contracts Long-term contracts Contracts limit the relationship Business assistance goes beyond the contract MERGERS A ND JO INT V E NT UR E S Mergers are a major factor in an organisation’s external environment. A merger is also a way to reduce uncertainty. A merger occurs when two or more organisations combine to become one. In the AsiaPacific region, Kim Jung Tae was CEO of Korea’s most successful bank, Kookmin Bank, and he oversaw the major merger of the previous Kookmin organisation with the Housing and Commercial Bank in Korea. The merged organisation became ranked number 60 in the world with US$200 billion in assets. The business environment of the Korean banking industry has been tough, thanks to the GFC. Kim refocused his bank away from the risky sectors, from a profit of some US$800 million in 2000, leading to the solid organisational base that achieved a listing on the New York Stock Exchange. The merger succeeded despite difficult economic circumstances that have sent competitors to the wall. On a more personal note, Kim did not draw a monetary salary from the Kookmin Bank that he led, preferring to 3 : T H E E N V I R O N M E N T A N D C O R P O R AT E C U LT U R E engage in a performance-based system of share allocation. As in his previous company, he replaced the seniority-based system of promotion with a merit system, and accepted 400 000 shares when their value was US$7 each. He led the company to a position where these shares each have a market value of US$40, and his challenge, in rationalising a merged organisation with some 1100 branches and 23 000 staff, was to continue its stellar performance.52 A joint venture involves a strategic alliance or program by two or more organisations. This typically occurs when a project is too complex, expensive or uncertain for one firm to do alone. Today, keeping pace with rapid technological change and competing in the global environment have stretched the resources of even the richest companies. Oil and mining companies have used joint ventures to explore for oil on the North West Shelf or in remote regions of Western Australia. In 1998, 73 Australian automotive components makers joined together to design and build a car from scratch, independently of the major automotive assemblers. Their aim was to take the car around the world to car shows, to demonstrate their capabilities and sell up to AU$1 billion worth of Australian automotive components overseas.53 Many small businesses are also turning to joint ventures with large firms or with international partners. A larger partner can provide sales staff, distribution channels, financial resources or research staff. Small businesses seldom have the expertise to deal internationally, and so a company such as Nypro Inc., a plastic injection-moulding manufacturer in Massachusetts, US, joins with overseas experts who are familiar with the local rules. Nypro now does business in four countries.54 I N F L U E N C I NG T H E E N V I RO N M E N T The other major strategy for handling environmental uncertainty is to reach out and change those elements causing problems. Widely used techniques for changing the environment include advertising and public relations, political activity and trade associations. EXHIBIT 3.5 summarises the techniques organisations can use to adapt to and influence the external environment. AD VERTISING A ND P UBLIC R E L AT I O NS Advertising has become a very successful way to manage demand for an organisation’s products or services. Organisations spend large amounts of money to influence consumer tastes. Vodafone was established as the third mobile phone supplier in Australia in 1992 and had a slow and shaky start; five years later, brand awareness was only 28 per cent. A major investment in promotion, using Kramer (a character from the popular television show Seinfeld) and the Australian Wallabies rugby team, lifted brand awareness to 53 per cent in a relatively short time. Vodafone’s customer growth in 1998 was an amazing 83 per cent, from 500 000 to nearly 900 000, putting it in the big league behind Optus and Telstra.55 Ricky Gervais became the face of promoting Optus in recent years, to good effect. More recently, much of this advertising has moved onto the Internet, which attracted more advertising revenue than traditional television for the first time in 2010. Vodafone, Telstra and Optus all spent tens of millions of dollars in total on advertising in 2016 and were expected to do the same in 2017. Also in Australia, increased competitiveness among accounting and law firms has caused them to start advertising for clients, a practice unheard of a decade ago. Hospitals have also begun to advertise through newspapers and radio commercials to promote special services. So, increasingly in non-traditional sectors, advertising is being used as an important way to reduce uncertainty about customers. Public relations is similar to advertising, except that its goal is to influence public opinion about the organisation itself. Most organisations care a great deal about their public image. Each year the US-based 117 joint venture A variation of direct investment in which an organisation shares costs and risks with another firm to build a manufacturing facility, develop new products or set up a sales and distribution network. 118 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T magazine Fortune rates more than 300 companies to see which are the most and least admired in each of 32 industries. Public relations and a good public image are accomplished through advertising as well as speeches and press reports. In the 1990s, companies in the tobacco industry launched aggressive public relations campaigns touting smokers’ rights and freedom of choice in an effort to survive in this antismoking era.56 Today, their products, cigarettes, have been completely banned in Australia from all forms of advertising and even point of sale display, while ‘quit’ campaigns continue to advertise ever more aggressively with their anti-smoking messages. In other countries, especially developing countries, this is still not the case and cigarette sales continue to grow. EXHIBIT 3.5 Organisational responses to environmental changes Organisation structures for adapting to the environment Advertising/ Public relations Boundary-spanning roles Forecasting/planning Flexible structures Mergers/joint ventures Political activity Trade associations Techniques for influencing the environment As another example, Carlton & United Breweries (CUB), which has succeeded in making Foster’s a global brand name, has advertised sensible, limited and controlled consumption of their beer products, particularly in the context of discouraging drinking and driving. P O LIT IC A L A C T IV IT Y Political activity represents organisational attempts to influence government legislation and regulation. Many companies pay lobbyists to express their views to federal and state politicians. National Australia Bank (NAB) employs lobbyists to inform and influence key people in Canberra of its views on the antimerger, ‘four-pillar’ bank policy and other issues, as do many of Australia’s other banks and major companies. Foreign companies also attempt to influence government policymakers on product design rules, import regulations and other elements of government activity influencing their businesses. Some retired politicians and business leaders become professional lobbyists after retiring from active political or executive life, using their networks and relationships for lobbying purposes. T RA DE A SSOC IATIO NS trade association An association made up of organisations with similar interests for the purpose of influencing the environment. Most organisations join with others having similar interests – the result is a trade association. In this way, organisations work together to influence the environment, including federal legislation and regulation. Trade associations are numerous and varied. Most industries in Australia have industry-based trade associations to represent them collectively; for example, the Plastics and Chemicals Industry Association (PACIA) and the Metal Trades Industry Association (MTIA). These organisations are usually funded through a levy or fees from their industry members. They may also provide ‘fee for service’ information and activities. Higher-level organisations such as the Business Council of Australia (BCA) represent the corporate sector more generally, providing government and the community with their views on business, policy and economic issues. 3 : T H E E N V I R O N M E N T A N D C O R P O R AT E C U LT U R E better outcomes, an impassioned workforce and ultimately a more sustainable business.’ Justin says managers also must recognise that just as there are markets for their wares, markets exist for their workers, too! So there are supply and demand forces for the workforce. Staff become loyal for organisations that respect their positions as people. As one of very few retailers that bucked the trend of the post global financial crisis (GFC), Cotton On’s flat, nonhierarchical structure underpinned its ability to mobilise and react to what are sometimes phenomenal demands in retail. The workforce is energetic, agile and owns the Cotton On message. And getting them there didn’t happen by accident. Effective, two-way communication channels engage staff to be part of the outcome. Initiatives such as ‘bring your dog to work day’, ‘bring your kids to work day’, the onsite osteopath and dietitian and the new Cotton On University are examples that delight staff on a daily basis. They all contribute to the message that the organisation cares about how the workforce feels about their employer and the employees feel impelled to invest more of themselves in the organisation – reciprocity in action! AUSTRALIAN MANAGER PROFILE Source: Courtesy Justin Pierce Dr Justin Pierce is a project manager with the Cotton On Group, a non-executive director of Straight Jacket Capital and financial controller of a private equity firm. During high school and university, Justin’s career was settling in both the retail and education industries, as were his part-time roles. Justin now manages to fit both his passions together while he maintains two high-profile roles – one in retail and the other in education. Justin is also building a portfolio of non-executive directorial roles. In Justin’s own words, management is about people. ‘To get the most out of people, they must feel they are treated like people, which means mutually respected and empathised with. When you think about it, your own needs and wants, your ambitions, your hopes and dreams – everybody has these things. Many philosophers over the years, and those we revere, have put the so-called ‘ethic of reciprocity’ this way: do unto others as you would have them do unto you (King James Bible); choose actions you can will to be universal (Immanuel Kant); never impose on others what you would not choose for yourself (Confucius). Living the reciprocity message as a manager will lead to DR JUSTIN PIERCE, COTTON ON GROUP SOURCE: Contributed by Dr Justin Pierce R EMEMBE R THIS ◗◗ ◗◗ When external factors change rapidly, the organisation experiences high uncertainty. ◗◗ Boundary-spanning roles link to and coordinate the organisation with key elements in the external environment. ◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗ Interorganisational partnerships reduce boundaries and increase collaboration with other organisations. Strategic issues are events and forces that alter an organisation’s ability to achieve its goals. As environmental turbulence increases, strategic issues emerge more frequently. A merger occurs when two or more organisations combine to become one. A joint venture is a strategic alliance or program by two or more organisations. Forecasting is an effort to spot trends that enable managers to predict future events. Planning can soften the adverse effect of rapid shifts in the environment. Organisations need to adapt to the changing and uncertain environment to be successful. Through activities such as advertising and lobbying, it is possible to influence the external environment. 119 120 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T THE INTERNAL ENVIRONMENT – CORPORATE CULTURE 3.3 culture The shared knowledge, beliefs, values, behaviours and ways of thinking among members of a society. EXHIBIT 3.6 Levels of corporate culture The internal environment within which managers work includes corporate culture, production technology, organisation structure and physical facilities. Of these, corporate culture surfaces as extremely important to competitive advantage. The internal culture must fit the needs of the external environment and company strategy. When this fit occurs, highly committed employees create a high-performance organisation that is tough to beat.57 Most people don’t think about culture, it is often expressed as ‘how we do things around here’ or ‘the way things are here’. However, managers have to think about culture because it typically plays a significant role in organisational success. Organisational culture has been defined and studied in many and varied ways. For the purposes of this chapter, we define culture as the set of key values, beliefs, understandings and norms shared by members of an organisation.58 The concept of culture helps managers understand the hidden, complex aspects of organisational life. Culture is a pattern of shared values and assumptions about how things are done within the organisation. This pattern is learned by members as they cope with external and internal problems, and taught to new members as the correct way to perceive, think and feel. Culture that can be seen at the surface level Visible 1. Artefacts, such as dress, office layout, symbols, slogans, ceremonies Invisible 2. Expressed values 3. Underlying assumptions and deep beliefs, such as ‘people here care about one another like a family’ Deeper values and shared understandings held by organisation members Although strong corporate cultures are important, they can also sometimes promote negative values and behaviours. When the actions of top leaders are unethical, for instance, the entire culture can become contaminated. Consider what happened at News Corporation, a corporate giant with a lucrative string of media properties all over the world. The Murdoch organisation has been accused of frequently applying unethical, sometimes seedy tactics in business dealings. In addition, ‘blunt force’ spending has allegedly been used to cover up unscrupulous tactics and silence critics with multimilliondollar payoffs. ‘Bury your mistakes,’ Murdoch was fond of saying, according to news reports.59 But he couldn’t bury the scandal that rocked the organisation after private investigators working for News Corporation newspapers hacked private voicemail messages and journalists offered bribes to police in the pursuit of hot scoops. One investigator went so far as to hack the voicemail of a murdered 13-year-old girl, Milly Dowler, while she was still listed as missing.60 As this example illustrates, the 3 : T H E E N V I R O N M E N T A N D C O R P O R AT E C U LT U R E values and behaviours of top leaders have the potential to shape significantly the decisions made by employees throughout the organisation. Mark Lewis, the lawyer for the family of the murdered girl, pointed out: ‘This is not just about one individual, but about the culture of an organization.’61 Culture can be analysed at two levels, as illustrated in EXHIBIT 3.6.62 At the surface level are visible artefacts, which include things such as manner of dress, patterns of behaviour, physical symbols, organisational ceremonies and office layout. Visible artefacts are all the things one can see, hear and observe by watching members of the organisation. At a deeper, less obvious level are values and beliefs, which are not observable but can be discerned from how people explain and justify what they do. Members of the organisation hold some values at a conscious level. These values can be interpreted from the stories, language and symbols that organisation members use to represent them. Some values become so deeply embedded in a culture that members are no longer consciously aware of them. These basic, underlying assumptions and beliefs are the essence of culture and subconsciously guide behaviour and decisions. In some organisations, a basic assumption might be that people are essentially lazy and will shirk their duties whenever possible; thus, employees are closely supervised and given little freedom and colleagues are frequently suspicious of one another. More enlightened organisations operate on the basic assumption that people want to do a good job; in these organisations, employees are given more freedom and responsibility, and colleagues trust one another and work cooperatively. At the Zappos Family of companies, a culture of wellbeing and happiness has been instrumental in the growth of this successful online retailer. The company has created a unique culture that is reflected in its core values. Fundamental values are demonstrated in organisations through symbols, stories, heroes, slogans and ceremonies. INNOVATIVE WAY ZAPPOS FAMILY Zappos.com, an online retail site best known for its wide selection of shoes and its free shipping, boldly proclaims its unique culture in an offbeat set of 10 core values. CEO Tony Hsieh believes that these values illustrate the company’s innovative culture and demonstrate its ultimate business goal – cultivating happiness. Hsieh’s management theory goes like this – If you create a work culture that fosters wellbeing, good practices and (eventually) good profits will naturally flow out of the operation. So far, his theory is producing outstanding business results. Zappos.com, Inc. is raking in US$1 billion worth of annual gross sales, and employees widely report that their work is exciting and challenging. ‘We really buy into the idea that the better we treat each other, the better we’ll all be able to treat our customers’, says Rebecca Ratner, director of human resources. Hsieh knows firsthand how important a strong, positive culture is when it comes to employee and customer happiness. Before Zappos, he had experienced the joyless grind of working in a job that had no meaning, where technical skill was all that mattered. Hsieh decided to write the book Delivering Happiness to document his journey from ‘chasing profits to chasing passion,’ the life lessons he has learned, and how those lessons have been applied at Zappos. Here are some key points for business leaders: ✚✚ Get the right values. Zappos has a set of 10 core values that include ‘create fun and a little weirdness’; ‘deliver wow through service’; ‘embrace and drive change’; ‘be adventurous, creative, and open-minded’; ‘pursue growth and learning’; and ‘be humble’. But Hsieh didn’t dictate the values from on high. He sent an email to all employees asking them what values should guide the company. The responses were discussed, condensed, and combined to come up with the final list. ✚✚ Get the right people. Zappos does two sets of interviews when hiring new employees. The first focuses on relevant experience, professional and technical skills, and the ability to work with the team. The second focuses purely on culture fit. There are questions for each of the core values, such as ‘How weird are you?’ People are carefully 121 122 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T selected to fit the Zappos culture, even if that means rejecting people with stronger technical skills. offered US$2000 to resign if they believe that they aren’t a good fit with the culture. Every year, Zappos releases a ‘Culture Book’, in which employees share their own stories about what the Zappos culture means to them. ✚✚ Make culture a top priority. All employees attend a four-week training session and commit the core values to memory. At the end of training, they’re Copyright © 2010 Zappos.com, Inc. or its affiliates. Used by permission. Sources: Carlin Flora. (September–October 2009). Paid to Smile. Psychology Today, 58–9; and Tony Hsieh, Delivering Happiness: A Path to Profits, Passion, and Purpose (New York: Business Plus, 2012). CASE STUDY GREEN POWER Many companies are pursuing reductions in their environmental outputs. Zara is an example of a business that not only likes to stay ahead of trends in terms of its fashion offerings, but is also doing many things to reduce its deleterious impact on the green environment. Zara is careful in the materials it buys, the transport systems it uses and even in its building designs – to ensure it has strong regard for reducing its greenhouse house profile, aiming ultimately for eco-efficiency by 2020. Even service businesses are pursuing these goals; for example, Australia’s four big banks have recognised that they can contribute to environmental progress in everything from the uniforms they buy, the buildings they use and the green energy that they procure. Source: Dumaine, B. (24 June 2014). Is Apple ‘greener’ than Starbucks?. Fortune, http://fortune.com/2014/06/24/50-best-global-green-brands-2014/ (accessed 11 February 2017). Creating and influencing organisational culture is one of the most important things leaders do, because this has a significant impact on performance. In comparing 18 companies that have experienced longterm success with 18 similar companies that have not done so well, James C. Collins and Jerry I. Porras found the key determining factor in successful companies to be a culture in which employees share such a strong vision that they know in their hearts what is right for the company. Their book, Built to Last: Successful Habits of Visionary Companies, describes how companies such as Hewlett-Packard, Walt Disney and Procter & Gamble have successfully adapted to a changing world without losing sight of the core values that guide the organisation. Some companies put values in writing so they can be passed on to new generations of employees. Hewlett-Packard created a list of cultural concepts called ‘The HP Way’, which is evident wherever one goes in the Hewlett-Packard world. Companies known for their strong, distinctive cultures, such as Hewlett-Packard, regularly show up on lists of the best companies for which to work.63 The fundamental values that characterise cultures at these and other organisations can be understood through the visible manifestations of symbols, stories, heroes, slogans and ceremonies. Any organisation’s culture can be interpreted by observing these factors. S Y M BO L S symbol An object, act or event that conveys meaning to others. A symbol is an object, act or event that conveys meaning to others. Symbols can be considered a rich, nonverbal language that vibrantly conveys the organisation’s important values concerning how people relate to one another and interact with the environment.64 Mindy Grossman, CEO of HSN Inc., found that something as simple as an office chair can be symbolic. When Grossman became HSN’s eighth CEO in 10 years, she inherited a downtrodden workforce. During her first few months, Grossman learned as much about the business as possible. ‘As I grew to understand the business, it became clear that it was fundamentally broken. To fix it, I needed to dramatically alter the company’s culture,’ she said. Part of the cultural transformation included improving the work environment, which had dirty offices full of broken-down furniture and clutter. ‘I looked around and realized we had 40 different kinds of office chairs. So I bought several thousand Herman Miller Aeron chairs,’ said Grossman. She received over 100 emails expressing appreciation on the day they were delivered.65 For Grossman, the new office chairs were an important symbol of a new company value of caring for employees. Symbols are often used by senior executives to let staff and other stakeholders know of the expected standards of behaviour and service. ST O R I E S In February 2014 Toyota voluntarily recalled 1.9 million Prius vehicles after concerns about a potential programming error. The recall was viewed as a significant change to how it handled the 2010 crisis and Toyota now recall more vehicles than any other automaker in the United States. Critics attributed the company’s reticence to go public in 2010 with its quality problems to its deep roots in Japanese culture, in which airing dirty linen in public is impolite. However, the Toyota culture has also been historically linked with a powerful commitment to quality, which has enabled the company, under the leadership of president and CEO Akio Toyoda, to return to its previous strong market position. A story is a narrative based on true events and is repeated frequently and shared among organisational employees. Stories paint pictures that help symbolise the firm’s vision and values and help employees personalise and absorb them.66 A frequently told story at UPS concerns an employee who, without authorisation, ordered an extra Boeing 737 to ensure timely delivery of a load of Christmas packages that had been left behind in the holiday rush. As the story goes, rather than punishing the worker, UPS rewarded his initiative. By telling this story, UPS workers communicate that the company stands behind its commitment to worker autonomy and customer service.67 123 Source: Reuters/J. P. Moczulski 3 : T H E E N V I R O N M E N T A N D C O R P O R AT E C U LT U R E See Chapter 15 for a focused discussion on leadership. H E RO E S A hero is a figure who exemplifies the deeds, character and attributes of a strong corporate culture. Lee Iacocca is a well-known US hero who proved the courage of his convictions by working for US$1 a year when he first went to Chrysler. Heroes are role models for employees to follow. The deeds of heroes are out of the ordinary, but not so far out as to be unattainable by other employees. Heroes show how to do the right thing in the organisation. Organisations with strong cultures take advantage of achievements to define heroes who uphold key values. Many people have wondered if the culture that Steve Jobs created at Apple would be sustained after his death in 2011. Jobs exemplified the creativity, innovation, risk-taking and boundary-breaking thinking that made the company famous.68 When Jobs’ health began to fail, Apple’s story A narrative based on true events that is repeated frequently and shared by organisational employees. hero A figure who exemplifies the deeds, character and attributes of a strong corporate culture. board began considering replacements who could sustain the fertile culture that Jobs created. They chose Tim Cook, who long had served as second-in-command. Cook now cultivates a culture that reflects the values and behaviours of Apple’s hero, Steve Jobs. ‘Apple has a culture of excellence that is, I think, so unique and so special. I’m not going to witness or permit the change of it,’ he said.69 S L O GA N S A slogan is a phrase or sentence that succinctly expresses a key corporate value. Many companies use a slogan or saying to convey special meaning to employees. For example, Disney uses the slogan ‘The happiest place on earth’ and The Queensland Tourism Board used an effective slogan ‘Beautiful one day, slogan A phrase or sentence that succinctly expresses a key corporate value. 124 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T perfect the next’. The Ritz-Carlton adopted the slogan, ‘Ladies and gentlemen taking care of ladies and gentlemen’ to demonstrate its cultural commitment to take care of both employees and customers. ‘We’re in the service business, and service comes only from people. Our promise is to take care of them, and provide a happy place for them to work,’ said former general manager Mark DeCocinis, who managed the Portman Hotel in Shanghai, recipient of the ‘Best Employer in Asia’ award for three consecutive years.70 Cultural values can also be discerned in written public statements, such as corporate mission statements or other formal statements that express the core values of the organisation. The mission statement for Hallmark Cards, for example, emphasises values of excellence, ethical and moral conduct in all relationships, business innovation and corporate social responsibility.71 CE RE MONI E S ceremony A planned activity that makes up a special event and is conducted for the benefit of an audience. See Chapter 17 for a focused discussion on communications. A ceremony is a planned activity that makes up a special event and is conducted for the benefit of an audience. Managers hold ceremonies to provide dramatic examples of organisational values. Ceremonies are special occasions that reinforce valued accomplishments, create a bond among people by allowing them to share an important event, and anoint and celebrate heroes.72 The value of a ceremony can be illustrated by the presentation of a major award. When Dryen Australia, a company in Melbourne of some 40 people that imports and manufactures sheets, wanted to recognise and reward its longest-serving staff, it presented plaques and significant monetary rewards at a celebratory dinner to its 10- and 15-year employees. When the company achieved record sales revenue, managing director Peter Dryen gave each employee a AU$300 shopping centre gift voucher in recognition of their hard work and contribution.73 This practice led to higher levels of motivation and grew loyalty and has been repeated from time to time in that firm. Such ceremonies are a powerful form of communicating the values and priorities of an organisation. Yet nothing stays the same for long – in 2016, Peter Dryen sold that business which had been in his family for 40 years, to a new Chinese owner, who merged it with another iconic Australian firm it acquired: Moran (furniture). Needs of the environment EXHIBIT 3.7 Four types of corporate culture Flexibility Stability Adaptability culture Achievement culture Involvement culture Consistency culture Strategic focus External Internal Sources: Based on D. R. Denison and A. K. Mishra. (March–April 1995). Toward a Theory of Organizational Culture and Effectiveness. Organization Science, 6:2: 204–23; R. Hooijberg and F. Petrock. (1993). On Cultural Change: Using the Competing Values Framework to Help Leaders Execute a Transformational Strategy. Human Resource Management, 32:1, 29–50; and R. E. Quinn, Beyond Rational Management: Mastering the Paradoxes and Competing Demands of High Performance (San Francisco: Jossey-Bass, 1988). 3 : T H E E N V I R O N M E N T A N D C O R P O R AT E C U LT U R E 125 In summary, organisational culture represents the values, understandings and basic assumptions that employees share, and these values are signified by symbols, stories, heroes, slogans and ceremonies. Managers help to define important symbols, stories and heroes to shape the culture. R EMEMBE R THIS ◗◗ Organisational culture is the set of key values, beliefs, understandings, and norms shared by members of an organisation. ◗◗ ◗◗ A symbol is an object, act or event that conveys meaning to others. ◗◗ ◗◗ ◗◗ A hero is a figure who exemplifies the deeds, character and attributes of a strong culture. A story is a narrative based on true events and is repeated frequently and shared among organisational employees. A slogan, such as Disney’s ‘The happiest place on earth’, succinctly expresses a key corporate value. Managers hold ceremonies, planned activities at special events to reinforce company values. 3.4 TYPES OF CULTURE We have already established that the external environment is a big influence on internal corporate culture. Cultures can vary widely across organisations; however, organisations within the same industry often reveal similar cultural characteristics because they are operating in similar environments.74 The internal culture should embody what it takes to succeed in the environment. If the external environment requires extraordinary customer service, the culture should encourage good service; if it calls for careful technical decision making, cultural values should reinforce managerial decision making. In considering what cultural values are important for the organisation, managers consider the external environment, as well as the company’s strategy and goals. Studies suggest that the right fit between culture, strategy and the environment is associated with four categories or types of culture, as illustrated in EXHIBIT 3.7. These categories are based on two dimensions: (1) the extent to which the external environment requires flexibility or stability; and (2) the extent to which a company’s strategic focus is internal or external. The four categories associated with these differences are adaptability, achievement, involvement and consistency.75 A DA P TA B I L I T Y C U LT U R E The adaptability culture emerges in an environment that requires fast response and high-risk decision making. Managers encourage values that support the company’s ability to rapidly detect, interpret and translate signals from the environment into new behaviours. Employees have the autonomy to make decisions and act freely to meet new needs, and responsiveness to customers is highly valued. Managers also actively create change by encouraging and rewarding creativity, experimentation and risk taking. Lush Cosmetics, a fast-growing maker of shampoos, lotions and bath products made from fresh ingredients such as mangoes and avocados, provides a good example of an adaptability culture. A guiding motto adaptability culture Characterised by values that support the company’s ability to interpret and translate signals from the environment into new behaviour responses. 126 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T at the company is ‘We reserve the right to make mistakes’. Founder and CEO Mark Constantine is passionately devoted to change and encourages employees to break boundaries, experiment and take risks. The company kills off one-third of its product line every year to offer new and offbeat products.76 Other companies in the cosmetics industry, as well as those involved in electronics, e-commerce and fashion, often use an adaptability culture because they must move quickly to respond to rapid changes in the environment. CASE STUDY MCDONALD’S Ray Kroc, founder of McDonald’s, once said, ‘I don’t know what we’ll be serving in the year 2000, but we’ll be serving more of it than anybody’. From its founding through to the early 1980s, McDonald’s changed with consumers’ tastes, seeming to give us what we wanted before we even knew we wanted it. Today, however, Kroc’s bold claim does not seem so assured. Although McDonald’s still has a majority share of the US fast-food market and continues to expand internationally, the company is slipping fast in its ability to recognise and shape popular trends. Some analysts and investors believe the widespread problems with McDonald’s are due to the company’s insular, arrogant culture. The average top executive at McDonald’s started working at the company when Richard Nixon was President of the United States, and the company has been reluctant to bring in outside leaders to guide management as the external environment changes. And the board is made up of close-knit insiders who have done little to agitate for change. As performance declined, top leaders tended to blame others, such as dissident franchisees, news reporters and Wall Street analysts. ‘If there were one thing I would change about McDonald’s,’ said senior vice-president Brad A. Ball, ‘it would be to correct the misconceptions and misperceptions that have become so pervasive in the last few years.’ In the late 1990s, McDonald’s embarked on an effort to reform. Management was reorganised, and the then-head of the US domestic division, Jack M. Greenberg, brought in at least a handful of new managers, including executives from Burger King, Boston Market and General Electric. He also divided the United States into territories, creating smaller companies to recapture some of McDonald’s entrepreneurial zeal. ‘We are not afraid to do things differently,’ Greenberg said. Managers began to recognise that, even though McDonald’s was still the world’s most successful restaurant company, it was far from achieving its potential. They were trying to return McDonald’s to the healthy, adaptive culture of the early years, when it was constantly in touch with the tastes of consumers. By the late 2000s, McDonald’s had made many changes, was operating more efficiently and sustainably and offering new products such as salads and café products. It increased sales across its 35 000 stores, obviously giving its 60 million customers per day an experience that they value, while also increasing the company’s stock price by a factor of three over the five years to 2007. Growth in emerging economies has been very solid. McDonald’s has more recently refurbished its stores and redesigned its products in leading markets such as Australia, now making many products to the specific orders of its customers. By 2014, McDonald’s had substantially accomplished this product and process upgrade through rolling it out on an international basis. As of 2016, McDonald’s has engaged in significant innovations, from ‘Create Your Taste’ to table service options and a range of new services and initiatives. McCafe’s, which are an Australian innovation for McDonald’s, have been rolled out internationally. These new services have led to significant sales growth, and have even brought new customers to consume from McDonald’s. Sources: Euromonitor International. (September 2013). Country Report: Fast Food In The US. http://www.euromonitor.com/fast-food-in-the-us/report (accessed 3 November 2013; Leonardt, D. (9 March 1998). McDonald’s: Can it Regain its Golden Touch? BusinessWeek, 70–7 3 : T H E E N V I R O N M E N T A N D C O R P O R AT E C U LT U R E 127 AC H I E V E M E N T C U LT U R E The achievement culture is suited to organisations concerned with serving specific customers in the external environment, but without the intense need for flexibility and rapid change. This results-oriented culture values competitiveness, aggressiveness, personal initiative, cost-cutting and willingness to work long and hard to achieve results. An emphasis on winning and achieving specific ambitious goals is the glue that holds the organisation together.77 Brewing giant InBev provides an example. When InBev bought Anheuser-Busch, it replaced lavish perks and generous spending with a no-frills culture focused on cost cutting and meeting strict profit goals. Managers also created an incentive-based compensation system to reflect ‘an increased focus on meritocracy’. The system handsomely rewards high performers rather than spreading dollars more evenly among employees. ‘We always say, the leaner the business, the more money we’ll have at the end of the year to share,’ said Carlos Brito, InBev’s CEO.78 achievement culture A results-oriented culture that values competitiveness, personal initiative and achievement. I N VO LV E M E N T C U LT U R E The involvement culture emphasises an internal focus on the involvement and participation of employees to adapt rapidly to changing needs from the environment. This culture places high value on meeting the needs of employees, and the organisation may be characterised by a caring, family-like atmosphere. Managers emphasise values such as cooperation, consideration of both employees and customers, and avoiding status differences. involvement culture A culture that places high value on meeting the needs of employees and values cooperation and equality. CO N S I ST E N C Y C U LT U R E The final category of culture, the consistency culture, uses an internal focus and a consistency orientation for a stable environment. Following the rules and being thrifty are valued, and the culture supports and rewards a methodical, rational, orderly way of doing things. In today’s fast-changing world, few companies operate in a stable environment, and most managers are shifting towards cultures that are more flexible and in tune with changes in the environment. However, Pacific Edge Software (now part of Serena Software), successfully implemented elements of a consistency culture to ensure that all its projects stayed on time and under budget. The husband-and-wife team of Lisa Hjorten and Scott Fuller implanted a culture of order, discipline and control from the moment they founded the company. The emphasis on order and focus meant employees could generally go home by 6.00 p.m. rather than working all night to finish an important project. Although sometimes being careful means being slow, Pacific Edge managed to keep pace with the demands of the external environment.79 Each of these four categories of culture can be successful. In addition, organisations usually have values that fall into more than one category. The relative emphasis on various cultural values depends on the needs of the environment and the organisation’s focus. Managers are responsible for instilling the cultural values the organisation needs to be successful in its environment. consistency culture A culture that values and rewards a methodical, rational, orderly way of doing things. 128 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T R EMEMBE R THIS ◗◗ For an organisation to be effective, corporate culture should be aligned with organisational strategy and the needs of the external environment. ◗◗ Organisations within the same industry often reveal similar cultural characteristics because they are operating in similar environments. ◗◗ The adaptability culture is characterised by values that support the company’s ability to interpret and translate signals from the environment into new behaviour responses. ◗◗ An achievement culture is a results-oriented culture that values competitiveness, personal initiative and achievement. ◗◗ A culture that places high value on meeting the needs of employees and values cooperation and equality is an involvement culture. ◗◗ A consistency culture values and rewards a methodical, rational, orderly way of doing things SHAPING CORPORATE CULTURE FOR INNOVATIVE RESPONSE 3.5 Research conducted by a Stanford University professor indicates that the one factor that increases a company’s value the most is people and how they are treated.80 In addition, surveys show that CEOs often cite organisational culture as their most important mechanism for attracting, motivating and retaining talented employees, a capability considered the single best predictor of overall organisational excellence.81 In a survey of Canadian senior executives, fully 82 per cent believe a direct correlation exists between culture and financial performance.82 Consider how an ‘employees first’ corporate culture drives stellar financial performance at Southwest Airlines. Profitable for 38 consecutive years and touting the lowest ratio of complaints per passenger in the industry, Southwest offers industry-leading salaries and benefits, intense career development programs and a commitment to diversity among its workforce. In addition, Southwest promotes a strong collaborative culture and fosters good relationships with organised labour.83 At Southwest, a positive culture that reflects an intense commitment to employees results in a competitive advantage. Corporate culture plays a key role in creating an organisational climate that enables learning and innovative responses to threats from the external environment, challenging new opportunities or organisational crises. However, managers realise they can’t focus all their effort on values – they also need a commitment to solid business performance. M A NAG I NG T H E H I G H - P E R F O R M A N C E C U LT U R E Companies that succeed in a turbulent world are those that pay careful attention to both cultural values and business performance. Cultural values can energise and motivate employees by appealing to higher ideals and unifying people around shared goals. In addition, values boost performance by shaping and guiding employee behaviour, so that everyone’s actions are aligned with strategic priorities.84 EXHIBIT 3.8 illustrates four organisational outcomes based on the relative attention managers pay to cultural values and business performance.85 For example, a company in Quadrant C pays little attention to either values or business results 3 : T H E E N V I R O N M E N T A N D C O R P O R AT E C U LT U R E and is unlikely to survive for long. Managers in Quadrant D organisations are highly focused on creating a strong cohesive culture, but they don’t tie organisational values directly to goals and desired business results. When cultural values aren’t connected to business performance, they aren’t likely to benefit the organisation during hard times. The corporate culture at the LEGO Group, with headquarters in Billund, Denmark, nearly doomed the toymaker in the 1990s when sales plummeted as children turned from traditional toys to video games. At that time, LEGO reflected the characteristics found in Quadrant D of EXHIBIT 3.8. Imagination and creativity, not business performance, were what guided the company. The attitude among employees was, ‘We’re doing great stuff for kids – don’t bother us with financial goals.’ A new CEO, Jørgen Vig Knudstorp, upended the corporate culture with a new employee motto: ‘I am here to make money for the company.’ The shift to bottom-line results had a profound impact, and LEGO has become one of the most successful companies in the toy industry.86 Quadrant A represents organisations that are focused primarily on bottom-line results and pay little attention to organisational values. This approach may be profitable in the short run, but the success is difficult to sustain over the long term because the ‘glue’ that holds the organisation together – that is, shared cultural values – is missing. Finally, companies in Quadrant B put high emphasis on both culture and solid business performance as drivers of organisational success. Managers in these organisations align values with the company’s day-to-day operations – hiring practices, performance management, budgeting, criteria for promotions and rewards, and so forth. Consider the approach that General Electric (GE) took to accountability and performance management. High Attention to business performance Quadrant A Quadrant B High performance Low cultural values High performance High cultural values Managers meet performance goals but fail to uphold cultural values. Managers achieve performance goals and uphold desired cultural values. Quadrant C Quadrant D Low performance Low cultural values Low performance High cultural values Managers do not meet performance goals or uphold cultural values. Managers do not meet performance goals but do uphold cultural values. EXHIBIT 3.8 Combining culture and performance Low Low High Attention to values Sources: Adapted from Jeff Rosenthal and Mary Ann Masarech. (Spring 2003). High-Performance Cultures: How Values Can Drive Business Results. Journal of Organizational Excellence, 3–18; and Dave Ulrich, Steve Kerr and Ron Ashkenas, Figure 11-2, GE Leadership Decision Matrix, The GE Work-Out: How to Implement GE’s Revolutionary Method for Busting Bureaucracy and Attacking Organizational Problems – Fast! (New York: McGraw-Hill, 2002), p. 230. 129 130 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T When he was CEO, Jack Welch helped GE become one of the world’s most successful and admired companies. He achieved this by creating a culture in which risk was rewarded and accountability and measurable goals were keys to individual success and company profitability.87 The company’s traditional approach had achieved stellar financial results, but managers motivated people to perform primarily through control, intimidation and reliance on a small circle of staff. Welch was interested in more than just financial results – he wanted managers to exhibit the following cultural values in addition to ‘making their numbers’:88 ◗◗ Have a passion for excellence and hate bureaucracy. ◗◗ Be open to ideas from anywhere. ◗◗ ‘Live’ quality, and drive cost and speed for competitive advantage. high-performance culture Created when managers emphasise both values and business results. Welch knew that for the company to succeed in a rapidly changing world, managers needed to pay careful attention to both cultural values and business performance. Quadrant D organisations represent the high-performance culture, a culture that: (1) is based on a solid organisational mission or purpose; (2) embodies shared adaptive values that guide decisions and business practices; and (3) encourages individual employee ownership of both bottom-line results and the organisation’s cultural backbone.89 One of the most important things managers do is create and influence organisational culture to meet strategic goals because culture has a significant impact on performance. In Corporate Culture and Performance, John Kotter and James Heskett provided evidence that companies that intentionally managed cultural values outperformed similar companies that did not. Recent research validates that elements of corporate culture are positively correlated with higher financial performance.90 Consider Virgin Australia, the Australian airline that came into a market dominated by longstanding corporate, Qantas. Its culture and ways of working are vastly different from Qantas. One major difference comes from the behavioural expectations set by management in Virgin Australia. The process of selection of new staff is more like an audition than an interview process. The company is looking for ‘Virgin flair’ in its staff, according to its head of human resources management, Bruce Highfield. On each flight, every staff member is evaluated on seven dimensions of ‘people competencies’ and this information is taken very seriously, and hence drives behaviour. Virgin Australia staff are all multi-skilled and are expected to pitch in and do a number of different jobs as required by the company. These working conditions have been agreed to by the unions and are very different from the rigid demarcations between who does what at Qantas. Virgin has a new approach and four unions to deal with, whereas Qantas is a victim of its fine history, and must manage relations with 13 unions. Virgin Australia has been compared to the very successful US-based airline Southwest, whose CEO has the business philosophy that business should be about ‘fun, humour and celebration’. While these are not traditional work values, the runs are on the board at Southwest, as it is the only US-based airline to have made a profit every year since 1973.91 This raises the fundamental question – does making work a fun experience for staff increase their productivity and level of customer service? Virgin Australia and Southwest firmly believe the answer is yes. Whether this approach translates well to other companies and industries is yet to be seen. Could Qantas, Cathay, Air New Zealand or Singapore Airlines adopt this approach?92 R EMEMBE R THIS ◗◗ ◗◗ Managers emphasise both values and business results to create a high-performance culture. Culture enables solid business performance through the alignment of motivated employees with the mission and goals of the company. 3 : T H E E N V I R O N M E N T A N D C O R P O R AT E C U LT U R E 3.6 CULTURAL LEADERSHIP A primary way in which managers shape cultural norms and values to build a high-performance culture is through cultural leadership. Managers must overcommunicate to ensure that employees understand the new culture values, and they signal these values in actions as well as words. A cultural leader defines and uses signals and symbols to influence corporate culture. Cultural leaders influence culture in two key areas: 1 The cultural leader articulates a vision for the organisational culture that employees can believe in. The leader defines and communicates central values that employees believe in and will rally around. Values are tied to a clear and compelling mission, or core purpose. 2 The cultural leader heeds the day-to-day activities that reinforce the cultural vision. The leader makes sure that work procedures and reward systems match and reinforce the values. Actions speak louder than words, so cultural leaders ‘walk their talk’.93 Managers widely communicate the cultural values through words and actions. Values statements that aren’t reinforced by management behaviour are meaningless, or even harmful, for employees and the organisation. Whole Foods founder and CEO John Mackey wants his managers to place more value on creating ‘a better person, company, and world’ than on pursuing personal financial gain. To demonstrate his personal commitment to this belief, he asked the board of directors to donate all his future stock options to the company’s two foundations, the Animal Compassion Foundation and the Whole Planet Foundation.94 Cultural leaders also uphold their commitment to values during difficult times or crises. Upholding the cultural values helps organisations weather a crisis and come out stronger on the other side. Creating and maintaining a high-performance culture is not easy in today’s turbulent environment and changing workplace, but through their words – and particularly their actions – cultural leaders let everyone in the organisation know what really counts. C H A NGI NG A N D M E RGI NG COR P OR AT E C U LT U R E S Culture gaps can be immense, especially in mergers and acquisitions.95 Despite the popularity of mergers and acquisitions as a corporate strategy, many still fail. Almost half of acquired companies are sold within five years, and some experts claim that 90 per cent of mergers never live up to expectations.96 One reason for failure is that although managers are able to integrate the acquired firm’s financial systems and production technologies, they typically are unable to integrate the unwritten norms and values that have an even greater impact on an organisation’s success.97 These problems increase in scope and frequency with global companies and cross-cultural mergers and acquisitions. Culture gaps can also exist in organisations that have not gone through merger or acquisition. When Chuck Mitchell took over at GTO, a nearly bankrupt US maker of automatic gate openers, he quickly realised that the most damaging inefficiencies were not in the company’s products or processes but in the hearts of its employees. Transforming an unadaptive culture requires leaders who are in tune with their own inner values and are motivated by seeing others learn and grow to their full potential. Many companies in Australia – from the biggest companies such as Telstra and National Australia Bank (NAB) to smaller companies such as Dryen Australia – have used employee satisfaction questionnaires to measure the nature and extent of culture gaps, with a view towards driving improvement on the basis of facts. cultural leader Defines and articulates important values that are tied to a clear and compelling mission. 131 132 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T TAKE A MOMENT Consider an organisation in which you have worked, been a repeat customer, or for some other reason been able to closely observe the workplace culture. Describe that culture, and consider how it developed and has been led to its current state. R EMEMBE R THIS ◗◗ ◗◗ Managers create and sustain adaptive high-performance cultures through cultural leadership. Cultural leaders define and articulate important values that are tied to a clear and compelling mission, which they communicate widely and uphold through their actions MANAGEMENT IN PRACTICE UNLOCKING INNOVATIVE SOLUTIONS THROUGH PEOPLE – IT IS POWER (AND RESPONSIBILITY) TO THE PEOPLE Feeling all too burdened by responsibility, 24-year-old Ricardo Semler created a new vision for the culture of his family’s business in 1983, while recuperating from a stress-related illness. When Semler had taken over Brazil-based Semco Corporation from his father in 1980 as a freshly minted Harvard MBA (one of the youngest ever to earn the prestigious degree), the company was manufacturing equipment for a Brazilian shipbuilding industry that was in abysmal shape. As Semco’s president and majority owner, Semler fired most of the top management and used a series of strategic acquisitions to steer the company into more viable markets. Ironically, as the company’s fortunes began to revive, Semler’s own health took a nosedive. As he lay in a hospital bed, Semler had a vision for a new way to manage – by relinquishing control to his employees. Thus began a five-year process of building a radically democratic culture based on open information and employee participation. Semler started modestly – letting employees choose their uniform colour, for example – and eventually moved to the creation of egalitarian project teams that had complete responsibility for particular projects, total authority regarding how to perform them, and the opportunity for team members to pocket a substantial percentage of any profits generated. Today, self-directed teams form the basis of the company’s loose, flexible organisation structure. People typically have a chance to choose what projects they will work on, based on how they think they can best make a contribution. Semco uses few job titles and only three management levels: counsellors (the name Semler now goes by); partners; and associates. The CEO position rotates every six months among the counsellors. Workers set their own hours, elect and evaluate supervisors, and have major input into how they are compensated, with some actually setting their own pay rates. All financial information, including salaries, is available to everyone, and any employee is eligible to attend any meeting, including board meetings, where two seats are reserved for employees on a first-come, first-served basis. The result of applying these rather radical cultural values is that Semco has not only survived but prospered in Brazil’s often chaotic economic and political climate. The conglomerate now produces a diverse range of products and services, from manufacturing giant oil pumps to participating in mail processing joint ventures. Its revenues grew from US$4 million in 1982 to approximately US$240 million recently. ‘It’s about competitive advantage,’ Semler says. ‘Once you stop trying to control employees,’ he insists, ‘you release the powerful twin forces of self-discipline and peer pressure. Performance becomes the only criterion for success.’ At Semco, treating employees like responsible adults is just good business. With this 3 : T H E E N V I R O N M E N T A N D C O R P O R AT E C U LT U R E culture and the corporate capability it has brought, Semco has taken advantage of growth opportunities in new industries such as its intelligent systems business, called Pitney Bowes Semco, and its Branco (ethanol from sugarcane) business which are doing business successfully both domestically and internationally through the efforts of flexible, adaptable and creative staff. SOURCES: Fisher, L. (Winter 2005). Ricardo Semler Won’t Take Control. Strategy + Business, 78−88; Caulkin, S. (29 April 2003). Who’s in Charge Here? No One. Observer, http://observer.guardian.co.uk; Ricardo Semler, Wikipedia, http://en.wikipedia.org; Easen, Nick (14 June 2004), Interview with Ricardo Semler. CNN.com, http://edition.cnn. com; and Lancourt, Joan and Savage, Charles (Autumn 1995). Organizational Transformation and the Changing Role of the Human Resource Function. Compensation & Benefits Management. Some really important things have occurred in the world of organisations in the last 20 years. There are five clear and pervasive aspects of the world that have major implications for managers. 1. Globalisation – goods and services are now traded all over the world, and managers must compete with the best in the world, not just other local industry players. 2. Advanced technology – related to globalisation, the Internet has empowered consumers who have never been better informed, and can choose to buy goods and services in new and different ways. 3. Industry maturity – many industries have reached a point of overcapacity, where potential supply much exceeds demand in industrialised economies. For example, in the automotive industry, if all the world’s car factories were producing at capacity, many more cars would be produced than consumers are willing to pay for. So competition is fierce in many industries. 4. Variance and volatility – inside many societies, the gap between rich and poor is not decreasing, and on a global basis, there are some very rich countries and many which are still impoverished. Further, the stability of economies and markets has been strongly threatened in recent years by crises and recessions, in which there were many bankruptcies, job and home losses and disruption, that bounced around the whole world. 5. Climate change – although some still dispute it, most credible scientists clearly suggest that human-induced global warming is a trend that cannot be ignored and that the current trajectory of environmental degradation is a journey towards planetary disaster if unchecked. How can managers and their organisations plan and execute strategies that will assure their success given these massive challenges in their external business environment? Perhaps the best way is to build close relationships with stakeholders and to integrate their success with ‘yours’, to show consumers that the organisation is doing good things and not bad things in terms of the environment, and to provide a fair and balanced set of outcomes to communities in which that organisation operates. Modern managers are doing just this. They are considering it as important to satisfy their customers and employees as their shareholders, and importantly, are finding ways to satisfy all these stakeholders, and others, at higher levels than previously on a broad (triple bottom line) set of measures. This proactive approach, of sustainable development, to ‘doing well by doing good’ ultimately becomes ingrained in every aspect of the progressive organisation – in other words, it becomes core to its culture. It can become more than just an afterthought, or something separate to the mainstream business activities. Instead, it can be an integral part of them, namely, core to behaviours, ingrained into a broad range of the company’s key measures and its everyday behaviour. For a mining company, this means doing real, long-term good in the local community where its mines operate. For a supermarket chain, it might mean promoting recycling of packaging and eliminating the use of plastic bags. For a manufacturing company, university or bank, it might mean reducing electricity and water use, and providing support for employee health improvement initiatives. These ways of building stakeholder support, and organisational effectiveness are perhaps the best way of coping with the challenging circumstances of today’s business environment, and finding new and different ways of getting, and staying, ahead. To promote and indeed accelerate the uptake of sustainable development practices into organisations, many have recently appointed executives with this responsibility specifically into their top management team. SUSTAINABLE DEVELOPMENT SUSTAINABLE DEVELOPMENT AND THE BUSINESS ENVIRONMENT 133 134 STUDY TOOLS ONLINE STUDY RESOURCES Visit http://login.cengagebrain.com and use the access code that comes with this book for 12 months access to the resources and study tools for this chapter. Express COU RS EMATE EXPR E S S FO R MA NAGEMENT S E A R C H M E ! M A NAG E M E N T The CourseMate Express website contains: Explore Search Me! Management for articles relevant to this chapter. Fast and convenient, Search Me! Management is updated daily and provides you with 24-hour access to full text articles from hundreds of scholarly and popular journals, e-books and newspapers, including The Australian and The New York Times. Log in to the Search Me! Management database via http://login.cengagebrain.com and try searching for the following key words: • revision quizzes • video cases • self-assessments • audio summaries • and more! • Corporate culture • Cultural leadership • Organisational behaviour Search tip: Search Me! Management contains information from both local and international sources. To get the greatest number of search results, try using both Australian and American spellings in your searches, e.g. ‘globalisation’ and ‘globalization’; ‘organisation’ and ‘organization’. RESPONSE TO THE MANAGEMENT CHALLENGE MICROSOFT: COPING WITH CHANGE One problem for Microsoft, described in the chapter-opening Management Challenge, is that the culture is out of alignment with its environment. Years of success led to complacency and even resistance to changes in key sectors of the environment. The company’s adaptability culture did not stay aggressive. The focus on protecting Microsoft’s dominance in PC software caused the company to miss two of the hottest technology advances – Internet search engines and downloading music. Now, its PC software business, which Microsoft still relies on for up to 80 per cent of its sales and 140 per cent of its profits, is under attack. Former CEO Steven Ballmer tried various structural alternatives and management changes to beef up boundary spanning and get employees more focused on customers and new trends in the shifting external environment. Microsoft released many new products late in Ballmer’s tenure, which he believed would keep the company on top. However, most of those products were considered ‘catch-up’, while younger, more adaptable companies already moved to the next level of new products. Microsoft is a large and powerful company, but it may have reached a midlife crisis and likely will need a cultural adjustment from current CEO Satya Nadella to stay in tune with changes in key environmental sectors. Managers can use symbols, stories, heroes, slogans and cultural 3 : T H E E N V I R O N M E N T A N D C O R P O R AT E C U LT U R E leadership to engage adaptable values that will help Microsoft move fast in response to new opportunities. In recent years in Australia, Microsoft has made great strides to overcome its previous challenges. It has used global power and technology that comes from its global parent, which it combines with local managers and a culture that gives Australian flavour to its local customers. It fosters a high level of creativity and innovation in its local workplace, and uses its staff in Australia to achieve competitive advantage, having won the prestigious Hewitt award of ‘Best Employer in Australia’ more than once. This demonstrates clearly that Microsoft’s advantage, which was originally technical, followed by one based on scale and the market dominance of being the standard setter in PC software operating systems, is (as it must be) now supplemented by a culture- and people-based capability. Without this enduring capability that comes from culture and inspired leadership, 135 Microsoft would lose its industry leading position. Microsoft has acquired new-economy businesses such as LinkedIn, to ensure it is current with major trends in technology and consumer and professional behaviours, that will keep Microsoft relevant. It has also launched new software and hardware products, aiming to lift its sales, profits and reputation. Yet the company is still successful by many measures: it employed over 110 000 people and generated profits of US$16.8 billion in 2016, and most of the world still uses its software on our computers. Sources: Guth, Robert and Delaney, Kevin (2005). Microsoft tests software link of web searches to advertisers; pilot in France, Singapore engages Google and Yahoo! in battle for ad dollars. The Wall Street Journal, http://online.wsj.com/news/articles/ SB111093200460980588; Birger, J. and Stires, D. (20 February 2006). The Toughest Jobs in Business: 10 on the Spot. Fortune, 81–8. Krim, J. (22 December 2005). Microsoft Is Losing Some of Its Elbow Room; As Software King’s Growth Slows, Rivals Stake Out Their Own Territory. The Washington Post, D1. DISCUSSION QUESTIONS 1 What are the characteristics of a flat world, a term used by Thomas Friedman to describe today’s business environment? 2 What challenges do they pose? How can you prepare to manage in a flat world? 3 Would the task environment for a mobile phone company discussed in this chapter contain the same elements as that for a government welfare agency? Discuss. 4 What do you think are the most important forces in the external environment creating uncertainty for organisations today? Do the forces you identified typically arise in the task environment or the general environment? 5 Contemporary best-selling management books often argue that customers are the most important element in the external environment. Do you agree? In what company situations might this statement be untrue? 6 Why do you think many managers are surprised by environmental changes and unable to help their organisations adapt? Can a manager ever be prepared for an environmental change as dramatic as that experienced by airlines in the United States following the 11 September 2001 terrorist attacks in New York and Washington? 7 Why are interorganisational partnerships so important for today’s companies? What elements in the current environment might contribute to either an increase or a decrease in interorganisational collaboration? Discuss. 8 Many companies are ‘going green’ or adopting environmentally friendly business strategies. How do companies benefit from going green? 9 Why are symbols important to a corporate culture? Do stories, heroes, slogans and ceremonies have symbolic value? Discuss. 10 Both China and India are rising economic powers. How might your approach to doing business with communist China be different from your approach to doing business with India, the world’s most populous democracy? In which country would you expect to encounter the most rules? The most bureaucracy? 11 General Electric is famous for firing the lowest-performing 10 per cent of its managers each year. Valero Energy has a strict no-layoff 136 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T policy, believing that people need to feel secure in their jobs to perform their best. Both General Electric and Valero Energy are high-performing companies. How do you account for the success of such opposite philosophies? think these changing attitudes might affect the manager’s job over the next few years? 13 What do you see as the primary advantage of using big data analytics – understanding the environment or influencing the environment? Why? 12 Surveys reveal dramatic shifts in social attitudes toward issues such as gay marriage and citizenship for illegal immigrants. How do you ETHICAL CHALLENGE COMPETITIVE INTELLIGENCE PREDICAMENT Michael Vasquez was proud of his job as a new product manager for a biotechnology start-up, and he loved the high stakes and tough decisions that went along with the job. But as he sat in his office after a long day, he was troubled, struggling over what had happened earlier that day and the information he now possessed. Just before lunch, Michael’s boss had handed him a stack of private strategic documents from their closest competitor. It was a competitive intelligence gold mine – product plans, pricing strategies, partnership agreements and other documents, most clearly marked ‘proprietary and confidential’. When Michael asked where the documents came from, his boss told him with a touch of pride that he had taken them right off the competing firm’s server. ‘I got into a private section of their intranet and downloaded everything that looked interesting,’ he said. Later, realising Michael was suspicious, the boss would say only that he had obtained ‘electronic access’ via a colleague and had not personally broken any passwords. Maybe not, Michael thought to himself, but this situation wouldn’t pass the 60 Minutes test. If word of this acquisition of a competitor’s confidential data ever got out to the press, the company’s reputation would be ruined. Michael didn’t feel good about using these materials. He spent the afternoon searching for answers to his dilemma, but found no clear company policies or regulations that offered any guidance. His sense of fair play told him that to use the information was unethical, if not downright illegal. What bothered him even more was the knowledge that this kind of thing might happen again. Using this confidential information would certainly give him and his company a competitive advantage, but Michael wasn’t sure he wanted to work for a firm that would stoop to such tactics. W H AT D O YO U D O ? 1 Go ahead and use the documents to the company’s benefit, but make clear to your boss that you don’t want him passing confidential information to you in the future. If he threatens to fire you, threaten to leak the news to the press. 2 Confront your boss privately and let him know you’re uncomfortable with how the documents were obtained and what possession of them says about the company’s culture. In addition to the question of the legality of using the information, point out that it is a public relations nightmare waiting to happen. 3 Talk to the company’s legal counsel and contact the Society of Competitive Intelligence Professionals for guidance. Then, with their opinions and facts to back you up, go to your boss. SOURCE: Adapted from Weber, K. (January−February 2001). Gold Mine or Fool’s Gold? Business Ethics, 18. GROUP CHALLENGE SHOULD YOU GO GLOBAL? Suppose you are running a family-owned business in Adelaide which gives financial advice and performs financial planning services for individuals, families and small businesses. Your business gives investment advice, sets up superannuation funds and helps retirees, business people and others with advice on how to plan their financial future. You operate out of rented premises near the city. You have heard that in Melbourne and Sydney, a US-based global player has entered the market and basically wiped out the small independent firms such as yours. Conduct a board meeting of your company, in which the following strategic questions are on the agenda: 3 : T H E E N V I R O N M E N T A N D C O R P O R AT E C U LT U R E 137 1 Is Adelaide too small a place for a global player to enter so will this factor protect us? 4 Should we try to partner with a bigger company in order to survive and what would this mean to our income levels and autonomy? 2 Can we improve our service levels to customers so they won’t switch when the global player (which has a very well respected brand) comes to town. How? 5 Should we ‘accept the inevitable’ and try to sell the business? 6 What other considerations are important in our planning: for example, can technology help us to cope? Can we reduce our costs as a way of competing? 7 What decisions would you make on these questions? 3 CASE FOR CRITICAL ANALYSIS RICHMOND SUPPLY CO. Jasper Hennings, owner of Richmond Supply Co., knew full well a company’s top executives were largely responsible for determining a firm’s corporate culture. That’s why he took such personal pride in the culture of his wholesale plumbing supply company. It didn’t just pay lip service to the values it espoused – integrity, honesty and a respect for each individual employee. His management team set a good example by living those principles. At least that’s what he’d believed until recently. The importance Jasper attached to respecting each individual was apparent in the company’s Internet use policy. It was abundantly clear that employees weren’t to use Richmond’s computers for anything but business-related activities. However, Jasper himself had vetoed the inclusion of what was becoming a standard provision in such policies that management had the right to access and review anything employees created, stored, sent or received on company equipment. He cut short any talk of installing software filters that would prevent abuse of the corporate computer system. Still, the company reserved the right to take disciplinary action, including possible termination, and to press criminal charges if an employee was found to have violated the policy. So how was he to square his cherished assumptions about his management team with what he’d just discovered? Henry Darger, his hard-working chief of operations, had summarily fired a female employee for having accessed another worker’s email surreptitiously. She hadn’t taken her dismissal well. ‘Just ask Darger what he’s up to when he shuts his office door,’ she snarled as she stormed out of Jasper’s office. She made what Jasper hoped was an idle threat to hire a lawyer. When Jasper asked Henry what the fired employee could possibly have meant, tears began to roll down the operations chief’s face. He admitted that ever since a young nephew had committed suicide the year before and a business he’d helped his wife start had failed, he’d increasingly been seeking escape from his troubles by logging onto adult pornography sites. At first, he’d indulged at home, but of late he’d found himself spending hours at work visiting pornographic sites, the more explicit the better. Jasper was stunned. After a few speechless minutes, he told Henry to take the rest of the day off, go home and think things over. The owner himself needed the afternoon to gather his wits. How should he handle this turn of events? On the one hand, Henry’s immediate dismissal of the woman who’d tapped into another employee’s email when the operations chief was violating the Internet policy himself was hypocritical, to say the least. The person charged with enforcing that policy needed to be held to the highest standards. On the other hand, Jasper knew that Richmond employees routinely used computers at their desks to check personal email, do banking transactions, check the weather or make vacation arrangements. The company had turned a blind eye because it didn’t seem worth the effort of enforcing the hard-and-fast policy for such minor infractions. Besides, Henry was a valued, if clearly troubled, employee. Replacing him would be costly and difficult. If Jasper decided to keep him on, the president clearly had no choice but to cross the line and get involved in Henry’s private life, and he would be treating Darger differently from the treatment the female employee received. When he met with Henry again first thing in the morning, he needed to have a plan of action. QU E S T I O N S 1 What environmental factors have helped to create the situation Jasper Hennings faces? What factors does Jasper need to consider when deciding on his course of action? 2 Analyse Richmond’s culture. In addition to the expressed cultural values and beliefs, what other subconscious values and beliefs do you detect? Are conflicting values present? When values are in conflict, how would you decide which ones take precedence? 138 3 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T Assume you are Jasper. What are the first two steps you would take to handle the Henry Darger situation? How would your role as a cultural leader influence your decision? What message will your solution send to the other managers and rank-and-file employees? Sources: Based on Green, Willard P. (Summer 2003). Pornography at Work. Business Ethics, 19; Marley, P. (24 January 2006). Porn-Viewing Parole Agent Regains Job. Milwaukee Journal Sentinel: http:// www.jsonline.com/story/idex.aspx?id=387492; Sample Internet Policies for Businesses and Organizations. Websense, http://www.websense-sales.com/internet-access-policy.html; and Lambert, A. (14 February 2005). Technology in the Workplace: A Recipe for Legal Trouble. Workforce, http://www.workforce.com/archive/article/23/95/08.php ON THE JOB VIDEO CASE CAMP BOW WOW – THE ENVIRONMENT AND CORPORATE CULTURE For a real-world application of the management theories described in this chapter, log on to CourseMate Express to watch the On the Job video and answer the following questions. DI S C US SIO N QUESTIONS 1 2 Why did Camp Bow Wow have to change its culture when it became a national franchise? 3 What impact does Heidi Ganahl’s story have on employees at Camp Bow Wow? What aspects of Camp Bow Wow’s corporate culture are visible and conscious? What aspects are invisible and unconscious? ENDNOTES 1 Harrington, A. and Bartosiewicz, P. (18 October 2004). The 50 Most Powerful Women in Business: Who’s Up? Who’s Down? Fortune, 181–8; Morris, B. (23 June 2003). The Accidental CEO. Fortune, 58–67; Moore, P. L. (6 August 2001). She’s Here to Fix the Xerox. BusinessWeek, 47–8. 2 Bass, D. and Ewing, A. (8 July 2015). Microsoft to cut jobs, take $7.6 billion writedown on Nokia. https://www.bloomberg.com/news/articles/2015-07-08/microsoft-to-cut-7-800jobs-as-it-restructures-phone-business (accessed 24 October 2016). 3 Scott Barr, C. (18 May 2016). Microsoft sells Nokia brand use to Foxconn and HMD global. http://www.slashgear.com/microsoft-sells-nokia-brand-to-foxconn-and-hmdglobal-18440501/ (accessed 24 October 2016). 4 Ewing, A. and Viita, K. (20 November 2013). Nokia Investors Approve Phone Unit’s Sale to Microsoft. Bloomberg, http://www.bloomberg.com/news/2013-11-19/nokia-investorsapprove-phone-unit-s-sale-to-microsoft.html (accessed 22 November 2013). 5 Palmeri, C. (14 August 2007). What Went Wrong at Mattel. BusinessWeek Online, http:// www.businessweek.com/bwdaily/dnflash/content/aug2007/db20070814_154726_page_2. htm (accessed 5 February 2008). 6 Barboza, D. and Story, L. (26 July 2007). Dancing Elmo Smackdown. The New York Times Online, http://www.nytimes.com/2007/07/26/business/26toy.html?_r=1&scp=1&sq=dancing +elmo+smackdown&st=nyt&oref=slogin (accessed 5 February 2008). 7 Colvin, G. (27 February 2012). How It Works. Fortune, 72–9. 8 Kubota, Y. (26 January 2016), Toyota again No. 1 in global car sales, MarketWatch, http://www. marketwatch.com/story/toyota-again-no-1-in-global-car-sales (accessed 26 January 2016). 9 Daft, R. L. (1995). Organization Theory and Design, 5th edn, St Paul: West. 10 Bourgeois, L. J. (1980). Strategy and Environment: A Conceptual Integration. Academy of Management Review, 5, 25–39. 11 Moore, J. (1996) The Death of Competition: Leadership and Strategy in the Age of Business Ecosystems (New York: HarperCollins). 12 Reece, D. J. (March/April 2011). Dynamic Capabilities: A Guide for Managers. Ivey Business Journal, http://www.iveybusinessjournal.com/topics/strategy/dynamiccapabilities-a-guidefor-managers (accessed 12 June 2012). 13 Friedman, T. L. (2005). The World Is Flat: A Brief History of the Twenty-First Century (New York: Farrar, Straus and Giroux), pp. 3–23. 14 Sellers, P. (21 May 2012). The New Coke. Fortune, 140. 15 Lenzer, R. The Most Crucial Event Since the Industrial Revolution. http://www.forbes.com/ sites/robertlenzner/2011/04/25/chinese-demand-assures-higher-resource-prices-andglobal-shortages/ (accessed 30 July 2013). 16 Edwards, C. (20 June 2005). Wherever You Go, You’re On the Job. BusinessWeek, 87–90. 17 Angus & Robertson Bookworld (2015). About Angus & Robertson Bookworld. http://www. angusrobertson.com.au/company-information (accessed 24 October 2016). 18 Baker, S. and Astor, A. (14 February 2005). The Business of Nanotech. BusinessWeek, 64–71. 19 Johnston, W. B. (March–April 1991). Global Work Force 2000: The New World Labor Market. Harvard Business Review, 115–27. 20 Friedrich, R., Peterson, M. and Koster, A. The Rise of Generation C. Strategy + Business, Issue 62 (Spring 2011), http://www.strategy-business.com/article/11110?gko=64e54 (accessed 25 June 2012). 21 Australian Bureau of Statistics, Population by Age and Sex, Australian States and Territories, June 2010, http://www.abs.gov.au/ausstats/abs@.nsf/mf/3201.0. 22 Australian Bureau of Statistics, Population Projections, http://www.abs.gov.au/ausstats/ abs@.nsf/7d12b0f6763c78caca257061001cc588/0046daf21caa349bca2573d20010fe65!OpenD ocument (accessed 30 July 2013). 23 Slow to Approve Cancer Drugs, http://www.medscape.com/viewarticle/814285slow to approve cancer drugs; Survey of Research Governance Timelines in Australia, http:// medicinesaustralia.com.au/files/2010/01/20130222-rpt-survey-of-research-governancetimelines-in-australia.pdf. 24 Himelstein, L. and Zinn, L., with Mallory, M., Carey, J., Dunham, R. S. and Hamilton, J.O. (4 July 1994). Tobacco: Does it Have a Future? Business Week, 24–9. 25 Cubby, B. (1 May 2009). Target bans plastic bags next month. The Age, http://www.theage. com.au/national/target-bans-plastic-bags-next-month-20090430-aoyb.html (accessed 11 February 2017); Collier, K. (1 October 2013). Discount department store Target brings back free plastic bags after hundreds of customer complaints. Herald Sun, http://www.heraldsun.com. 3 : T H E E N V I R O N M E N T A N D C O R P O R AT E C U LT U R E 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 au/news/discount-department-store-target-brings-back-free-plastic-bags-after-hundreds-ofcustomer-complaints/story-fni0fiyv-1226730267164 (accessed 19 February 2017). Birch, S. (25 January 2008). Now Companies Are Going Green Right from the Start. The Times, Green Motoring Focus Report 7. Weise, E. and Rice, D. Even the ‘Best’ Outcome Won’t Be Good; The Oil Spill’s Potential Toll Is Becoming Clear. USA Today, 9 June 2010. Simons, J. (2 April 2001). Stop Moaning About Gripe Sites and Log On. Fortune,181–2. Colvin, G. (2 February 2012). Toyota’s Comeback Kid. Fortune, 73. Downsides of Just-in-Time Inventory. Bloomberg Businessweek (28 March–3 April 2011), 17–18. Valdes-Dapena, P. (30 March 2011). Japan Earthquake Impact Hits U.S. Auto Plants. CNNMoney, http://money.cnn.com/2011/03/28/autos/japan_earthquake_autos_outlook/ index.htm# (accessed 13 June 2012). Murphy, M. (11 January 2012). Reinforcing the Supply Chain. The Wall Street Journal, B6. Czinkota, M. R. and Ronkainen, I. A. (Winter 1992). Global Marketing 2000: A Marketing Survival Guide. Marketing Management, 37–42. Daft, R. L. (1995). Organization Theory and Design, 5th edn, St Paul: West; Daft, R. L. (1994). Management, 3rd edn, Fort Worth: The Dryden Press, 44; Duncan, R. B. (1972). Characteristics of Organizational Environment and Perceived Environmental Uncertainty. Administrative Science Quarterly, 17, 313–27. Arango, T. (11 January 2011). Hot Social Networking Site Cools as Facebook Grows. The New York Times Online, http://www.nytimes.com/2011/01/12/technology/ internet/12myspace.html?pagewanted=all (accessed 14 June 2012). Perrott, B. E. (2011). Strategic Issue Management as Change Catalyst. Strategy & Leadership, 39:5, 20–9. Dollinger, M. J. (1984). Environmental Boundary Spanning and Information Processing Effects on Organizational Performance. Academy of Management Journal, 27, 351–68; Jemison, D. B. (1984). The Importance of Boundary Spanning Roles in Strategic Decisionmaking. Journal of Management Studies, 21, 131–52. Andersen, P. H., Kragh, H. and Lettl, C. (January 2013). Spanning organizational boundaries to manage creative processes: The case of the LEGO Group. Industrial Marketing Management, 42: 1, 125–34. Duffy, T. (Winter 2004). Spying the Holy Grail. Microsoft Executive Circle, 38–9. Abramson, G. (15 July 1999). All Along the Watchtower. CIO Enterprise, 24–34. Girard, K. (May 2003). Snooping on a Shoestring. Business 2.0, 64–6. McBride, H. (July 1997). They Snoop to Conquer. Canadian Business, 45–7; Crock, S., Smith, G., Weber, J., Melcher, R. A. and Himelstein, L. (28 October 1996). They Snoop to Conquer. BusinessWeek, 172–6; Teitelbaum, R. S. (2 November 1992). The New Race for Intelligence. Fortune, 104–7; Dumaine, B. (7 November 1988). Corporate Spies Snoop to Conquer. Fortune, 68–76. Epstein, E. M. (Autumn 2003). How to Learn from the Environment about the Environment – A Prerequisite for Organizational Well-Being. Journal of General Management, 29:1, 68–80. McNeilly, M. (2002). Gathering Information for Strategic Decisions, Routinely. Strategy & Leadership, 30:5, 29–34. Day, G. S. and Schoemaker, P. J. H. (November 2005). Scanning the Periphery. Harvard Business Review, 135–48. Lenz R. T. and Engledow, J. L. (1986). Environmental Analysis Units and Strategic Decisionmaking: A Field Study of Selected ‘Leading Edge’ Corporations. Strategic Management Journal, 7, 69–89; Javidan, M. (1984). The Impact of Environmental Uncertainty on Longrange Planning Practices of the US Savings and Loan Industry. Strategic Management Journal, 5, 81–92. See http://www.isentia.com/en-au/about/our-story. Hughes, J. and Weiss, J. (November 2007). Simple Rules for Making Alliances Work. Harvard Business Review, 122–31; Muson, H. (March–April 2002). Friend? Foe? Both? The Confusing World of Corporate Alliances. Across the Board, 19–25; and D. R. Gnyawali and R. Madhavan. Cooperative Networks and Competitive Dynamics: A Structural Embeddedness Perspective. Academy of Management Review 26, no. 3 (2001): 431–45. Merx, K. Automakers Interconnected Around World. Edmonton Journal (6 April 2007), H14; and Bradsher, K. (28 March 2010). Ford Agrees to Sell Volvo to a Fast-Rising Chinese Company. The New York Times Online, http://www.nytimes.com/2010/03/29/business/ global/29auto.html (accessed 1 August 2011). Petzinger, T. Jr. (1999). The New Pioneers: The Men and Women Who Are Transforming the Workplace and Marketplace (New York: Simon & Schuster), pp. 53–4. 139 51 Wagner, S. M. and Boutellier, R. (November–December 2002). Capabilities for Managing a Portfolio of Supplier Relationships. Business Horizons, 79–88; Peter Smith Ring and Andrew H. Van de Ven. (1994). Developmental Processes of Corporate Interorganizational Relationships. Academy of Management Review, 19: 90–118; Myron Magnet. (21 February 1994). The New Golden Rule of Business. Fortune, 60–4; and Grittner, P. (October 1996). Four Elements of Successful Sourcing Strategies. Management Review. 41–5. 52 Asiaweek.com. (26 October 2001). The Superbanker. http://www.asiaweek.com/asiaweek/ magazine/dateline/0878218016600.html. 53 Costa, G. (21 December 1999). $400,000 for Concept Car. The Age, Melbourne. 54 Hyatt, J. (December 1988). The Partnership Route. Inc., 145–8; Svatko, J. E. (December 1988). Joint Ventures. Small Business Reports, 65–170. 55 Bryant, G. (1 February 1999). Clearer Message Gets a Mobile Network Moving. Business Review Weekly, 60. 56 Carey, J. (10 November 1997). Big Tobacco’s Hidden War. BusinessWeek, 139–40; Himelstein, L. and Zinn, L., with Mallory, M., Carey, J., Dunham, R. S. and Hamilton, J. O. (4 July 1994). Tobacco: Does it Have a Future? BusinessWeek, 24–9. 57 Wiener, Y. (1988). Forms of Value Systems: A Focus on Organizational Effectiveness and Culture Change and Maintenance. Academy of Management Review 13, 534–45; Meek, V. L. Organizational Culture: Origins and Weaknesses. Organization Studies 9 (1988): 453–73; Sherwood, J. J. (Winter 1988). Creating Work Cultures with Competitive Advantage. Organizational Dynamics, 5–27; and Brown, A. D. and Starkey, K. (November 1994). The Effect of Organizational Culture on Communication and Information. Journal of Management Studies, 31, no. 6: 807–28. 58 Martin, J. Organizational Culture: Mapping the Terrain (Thousand Oaks, CA: Sage Publications, 2002); Kilmann, R. H., Saxton, M. J. and Serpa, R. Issues in Understanding and Changing Culture. California Management Review 28 (Winter 1986): 87–94; and Smircich, L. Concepts of Culture and Organizational Analysis. Administrative Science Quarterly 28 (1983): 339–58. 59 Carr, D. Troubles That Money Can’t Dispel. The New York Times Online (17 July 2011), http:// www.nytimes.com/2011/07/18/business/media/fornews-corporation-troubles-that-moneycant-dispel.html?pagewanted=all (accessed 13 June 2012). 60 Burns, J. F. and Peters, J. W. (16 July 2011). Two Top Deputies Resign as Crisis Isolates Murdoch. The New York Times Online, http://www.hongkong-mart.com/forum/viewtopic. php?f=2&t=367 (accessed 13 June 2012). 61 Carr, D. Troubles That Money Can’t Dispel. The New York Times Online (17 July 2011), http:// www.nytimes.com/2011/07/18/business/media/fornews-corporation-troubles-that-moneycant-dispel.html?pagewanted=all (accessed 13 June 2012). 62 Based on Edgar H. Schein. (1992). Organizational Culture and Leadership, 2nd ed. (San Francisco: Jossey-Bass): 3–27. 63 Levering, R. and Moskowitz, M. (12 January 1998). The 100 Best Companies to Work For in America. Fortune, 84–95; Collins, J. C. (29 May 1995). Change is Good – But First Know What Should Never Change. Fortune, 141. 64 Pratt, M. G. and Rafaeli, A. Symbols as a Language of Organizational Relationships. Research in Organizational Behavior 23 (2001): 93–132. 65 Grossman, M. HSN’s CEO on Fixing the Shopping Network’s Culture. Harvard Business Review (December 2011): 43–6. 66 Jarnagin, C. and Slocum, J. W. Jr. (2007). Creating Corporate Cultures through Mythopoeic Leadership. Organizational Dynamics 36: 3, 288–302. 67 Quinn, R. E. and Spreitzer, G. M. (Autumn 1997). The Road to Empowerment: Seven Questions Every Leader Should Consider. Organizational Dynamics, 37–49. 68 Kane, Y. I. and Vascellaro, J. E. (26 August 2011). Successor Faces Tough Job at Apple. The Wall Street Journal Online, http://allthingsd.com/20110826/successor-faces-tough-job-atapple/ (accessed 13 June 2012). 69 Based on an interview with Tim Cook conducted by The Wall Street Journal’s Walt Mossberg and Kara Swisher (4 June 2012), http://online.wsj.com/article/SB100014240527023035521045 77436952829794614.html?KEYWORDS=steve+jobs+apple+culture (accessed 16 June 2012). 70 Yeung, A. (Summer 2006). Setting People up for Success: How the Portman Ritz-Carlton Hotel Gets the Best from Its People. Human Resource Management 45:2, 267–75. 71 Jones, P. and Kahaner, L. (1995). Say It and Live It: 50 Corporate Mission Statements That Hit the Mark (New York: Currency Doubleday). 72 Trice, H. M. and Beyer, J. M. (1984). Studying Organizational Cultures through Rites and Ceremonials. Academy of Management Review, 9, 653–69. 73 Dryen, P. (3 April 2000). Personal communication with Dryen Australia managing director Peter Dryen. 140 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T 74 Chatman J. A. and Jehn, K. A. (1994). Assessing the Relationship Between Industry Characteristics and Organizational Culture: How Different Can You Be? Academy of Management Journal, 37:3, 522–53. 75 This discussion is based on P. McDonald and J. Gandz. (Winter 1992). Getting Value from Shared Values. Organizational Dynamics 21:3, 64–76; D. R. Denison and A. K. Mishra. (March–April 1995). Toward a Theory of Organizational Culture and Effectiveness. Organization Science 6:2, 204–23; and R. L. Daft (2005). The Leadership Experience, 3rd ed. (Cincinnati, OH: South-Western, 2005), pp. 570–3. 76 Conley, L. Rinse and Repeat. Fast Company, 76–7. 77 Hooijberg, R. and Petrock, F. (1993). On Cultural Change: Using the Competing Values Framework to Help Leaders Execute a Transformational Strategy. Human Resource Management, 32:1, 29–50. 78 Kesmodel, D. and Vranica, S. (23 April 2009). Unease Brewing at Anheuser as New Owners Slash Costs. The Wall Street Journal Online, http://online.wsj.com/article/ SB124096182942565947.html (accessed 22 June 2012). 79 Balu, R. (October 2000). Pacific Edge Projects Itself. Fast Company, 371–81. 80 Pfeffer, J. (1998). The Human Equation: Building Profits by Putting People First (Boston, MA: Harvard Business School Press). 81 Kahn, J. (26 October 1998). What Makes a Company Great? Fortune, 218; J. C. Collins and J. I. Porras. (1994). Built to Last: Successful Habits of Visionary Companies (New York: HarperCollins); and J. C. Collins. (29 May 1995). Change Is Good – But First Know What Should Never Change. Fortune, 141. 82 Wahl, A. Culture Shock. (10–23 October 2005). Canadian Business, 115–116. 83 Based on information in A. Beard and R. Hornik. (November 2011). It’s Hard to Be Good. Harvard Business Review, 88–96. 84 Chatman, J. A. and Cha, S. E. (Summer 2003). Leading by Leveraging Culture. California Management Review, 45:4, 20–34. 85 This section is based on J. Rosenthal and M. A. Masarech. (Spring 2003). High-Performance Cultures: How Values Can Drive Business Results. Journal of Organizational Excellence, 3–18. 86 Schwartz, N. D. (12 June 2006). One Brick at a Time. Fortune, 45–6; and N. D. Schwartz. Lego’s Rebuilds Legacy. (5 September 2009). International Herald Tribune. 87 This example is based on D. Ulrich, S. Kerr and R. Ashkenas. (2002). The GE Work-Out (New York: McGraw-Hill), pp. 238–40. 88 From Ulrich et al., GE Values. In The GE Work-Out, Figure 11-2. 89 Rosenthal and Masarech. High-Performance Cultures. 90 Kotter, J. P. and Heskett, J. L. (1992). Corporate Culture and Performance (New York: The Free Press); E. Flamholtz and R. Kannan-Narasimhan. Differential Impact of Cultural Elements on Financial Performance. (2005). European Management Journal, 23:1, 50–64. Also see J. M. Kouzes and B. Z. Posner. (2002). The Leadership Challenge: How to Keep Getting Extraordinary Things Done in Organizations, 3rd ed. (San Francisco: Jossey-Bass). 91 Southwest Airlines Reports Record Fourth Quarter and Full Year Profit; 41st Consecutive Year of Profitability, http://southwest.investorroom.com/2014-01-23-Southwest-AirlinesReports-Record-Fourth-Quarter-And-Full-Year-Profit-41st-Consecutive-Year-OfProfitability. 92 Long, S. (24 November 2001). On Virgin Ground. Australian Financial Review, 24–5. 93 Rosenthal and Masarech. (July 2002). High-Performance Cultures; P. Lencioni. Make Your Values Mean Something. Harvard Business Review, 113–17; and T. J. Peters and R. H. Waterman, Jr. (1988). In Search of Excellence (New York: Warner). 94 Jarnagin and Slocum. Creating Corporate Cultures through Mythopoeic Leadership. 95 Kilmann, R. (April 1985). Corporate Culture. Psychology Today, 62–8. 96 Lefkoe, M. (20 June 1987). Why So Many Mergers Fail. Fortune, 113–14. 97 Nahavandi, A. and Malekzadeh, A. R. (1988). Acculturation in Mergers and Acquisitions. Academy of Management Review, 13, 79–90; Lefkoe, M. Why So Many Mergers Fail. CHAPTER 4 M A N AGING IN A GL OB A L E N V I RON M E N T L E A R N I NG OBJ E C T I V E S AFTER STU DYI N G T H I S C H A P T E R , YO U S H O U L D B E A B L E TO : 1 define globalisation and explain how it is creating a borderless world for today’s managers 2 describe a global mindset and why it has become imperative for companies operating internationally 3 describe the characteristics of a multinational corporation and explain the ‘bottom of the pyramid’ concept 4 define international management and explain how it differs from the management of domestic business operations 5 indicate how dissimilarities in the economic, legal–political and sociocultural environments throughout the world can affect business operations 6 discuss how the international landscape is changing, including the growing power of China, India and Brazil 7 describe how regional trading alliances are reshaping the international business environment. Express Throughout this chapter, the CourseMate Express icons indicate an opportunity for online selfstudy, linking you to activities and other online resources. 142 MANAGEMENT CHALLENGE ACHIEVING INTERNATIONAL COMPETITIVENESS Today, managers all over Australia are faced with the challenges and opportunities of global competitors and markets. In Toyota’s Australian operations, based in an assembly facility in Melbourne, Camrys are assembled for the local market and also for export to Middle East countries. Historically, this has been a major export earner for both the company and the Australian economy, providing local employment not just for Toyota staff, but for the whole local automotive components industry that supplies Toyota. With help and financial support from the Australian and Victorian state governments, Toyota has introduced stateof-the-art technology, manufacturing its advanced hybrid system engines in Australia. However, the challenge from the parent company is its global facility location decisions. Sitting in the company’s global head office in Toyota City in Japan, executives are continually reconsidering where in the world is the best place to produce its cars. And despite the high quality of the Camrys produced in Melbourne, it may be possible for a facility in Japan, Thailand or China that is operated by Toyota to build these vehicles at lower cost. This makes it always tempting to close the Australian facility and send cars from Thailand to the Middle East and to Australia. The challenge for the managers in Toyota’s Australian plant is to keep their costs and quality at levels of global competitiveness with other Toyota plants, as much as with Nissan, Honda, GM, Ford and other brands. In February 2014, the global president of Toyota announced that the challenges of continuing to assemble cars in Australia had caused the company to reluctantly take the decision to close the local plant (effective in late 2017). Similarly, at GPC Electronics factory in Penrith, New South Wales, Managing Director, Christopher Janssen, is trying to compete with the larger global players with a strategy based on supply chain innovation – providing not just electronic products but improved supply chain solutions to his customers. In order to be competitive and indeed be seen as competitive, GPC Electronics has established a facility and supply chain in China, from which it can organise supply of components too. Many Australian companies have adopted a strategy much like ‘If you can’t beat them, join them’, establishing supply lines from China, partnerships in China, or even their own factories in China, in order to take advantage of the competitive results from those factories, particularly the lower costs. Ignoring these global opportunities and challenges is not an option for any company. QU E S T I O N What are the challenges facing executives in Australian manufacturing businesses? Similarly, for a company such as GPC Electronics, how can it maintain its competitive position with its global customers? 143 144 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T NEW MANAGER SELF-ASSESSMENT ARE YOU READY TO WORK INTERNATIONALLY? Are you ready to negotiate a sales contract with someone from another country? Companies large and small deal on a global basis. To what extent are you guilty of the behaviour below? Please answer each item as Mostly true or Mostly false for you. ARE YOU TYPICALLY... MOSTLY TRUE MOSTLY FALSE 1 Impatient? Do you have a short attention span? Do you want to keep moving to the next topic? 2 A poor listener? Are you uncomfortable with silence? Does your mind think about what you want to say next? 3 Argumentative? Do you enjoy arguing for its own sake? 4 Unfamiliar with cultural specifics in other countries? Do you have limited experience in other countries? 5 Short-term oriented? Do you place more emphasis on the short term than on the long term in your thinking and planning? 6 ‘All business’? Do you think that it is a waste of time getting to know someone personally before discussing business? 7 Legalistic to win your point? Do you hold others to an agreement regardless of changing circumstances? 8 Thinking ‘win/lose’ when negotiating? Do you usually try to win a negotiation at the other’s expense? Scoring and Interpretation: Western managers often display cross-cultural ignorance during business negotiations compared to counterparts in other countries. Western habits can be disturbing, such as emphasising areas of disagreement rather than agreement, spending little time understanding the views and interests of the other side, and adopting an adversarial attitude. Westerners often like to leave a negotiation thinking they won, which can be embarrassing to the other side. For this quiz, a low score shows better international presence. If you answered Mostly true to three or fewer questions, then consider yourself ready to assist with an international negotiation. If you scored six or more Mostly true responses, it is time to learn more about other national cultures before participating in international business deals. Try to develop greater focus on other people’s needs and an appreciation for different viewpoints. Be open to compromise and develop empathy for people who are different from you. Source: Adapted from Cynthia Barnum and Natasha Wolniansky. (October 1989). Why Americans Fail at Overseas Negotiations. Management Review, 54–7. See Chapter 3 for a more detailed discussion of the external environment. Do you think if you stay in your hometown as a manager, you won’t have to interact with people from other cultures? Think again. Many people who grew up in small towns with little diversity fail to appreciate the importance of cross-cultural skills. Yet in today’s world, every manager needs to think globally. Rapid advances in technology and communications have made the international dimension an increasingly important part of the external environment, discussed in Chapter 3. The future of our businesses and our societies is being shaped by global rather than local relationships. A global mindset and international experience are fast becoming prerequisites for managerial success. Many organisations based in Australia, including the four big banks and BHP Billiton, have learned that the greatest potential for growth lies overseas. In addition, the demand for raw materials such as steel, aluminium, cement, and copper has slowed in Australia but is booming in countries such as China, India and Brazil. For online companies, too, going global is a key to growth. The number of residential Internet subscribers in China is growing significantly faster than in Australia. Western Europe and Japan together account for a huge share of the world’s e-commerce revenue. Less-developed countries are challenging mature countries in a number of industries. China is the world’s largest maker of consumer electronics and is rapidly and expertly moving into biotechnology, computer manufacturing, and semiconductors. The pace of innovation in India is startling in industries as diverse as precision manufacturing, health care, and pharmaceuticals, and some observers see the beginnings of hypercompetitive multinationals in that country.1 In 2013, Apple executives offered an apology to the Chinese government and consumers – an action they initially resisted. Apple has experienced tremendous growth in China, which accounts for GPC Electronics Managing a growing percentage of the company’s sales and profits, but the company has also been the target Director Christopher Janssen controls a company that of increasing criticism from Chinese government-run media and consumer-rights groups. When a manufactures electronic components and circuit Chinese prime-time television broadcast accused Apple of fudging warranty periods and adopting boards in Australia. This can weaker customer service policies in China, managers issued a statement saying that the company be done at lower cost in other countries, so he has to offers comparable after-sales practices in China as in the rest of the world and that Apple provides an be particularly innovative to keep his company profitable. ‘incomparable user experience’. The statement provoked a blistering attack, including references to Apple’s ‘arrogance’ and hollow promises. Apple managers realised a little late that what Chinese officials and customers wanted was an apology. The company said that it would change its customer service policies, replacing defective iPhones with entirely new ones rather than repairing them or replacing components, and offering a one-year warranty on any phone that had been replaced. In contrast, the company gives only a 90-day warranty in the United States on a repaired or replaced phone. The apology ‘should have come earlier’, said the official Xinhua news agency, ‘but it is not too late for [Apple] to rebuild Chinese consumers’ trust’.2 Apple managers certainly hope not. China is the company’s second-largest market, after the United States. Marketing and selling goods internationally is a challenge, and managers in most companies believe that winning in China is a new imperative. The country is already a crucial market for many industries, and the potential for growth is huge. In 2012, China accounted for 30 per cent of all vehicles sold by General Motors (GM) and 28 per cent of those sold by Volkswagen.3 Brazil, Russia, India and China (often referred to as BRIC), as well as other emerging economies, are becoming major markets for the products and services of North American companies. At the same time, these regions are growing rapidly as providers of both products and services to the United States, Canada, Europe and other developed nations. Finding managers with the mindset needed to succeed in these countries is proving difficult for multinational firms. China, India and Brazil are expected to see the greatest shortage of executive talent for the next few years.4 Every manager today needs to think globally because the whole world is a source of business threats and opportunities. Even managers who spend their entire careers working in their hometowns have to be aware of the international environment and probably interact with people from other cultures. This chapter introduces basic concepts about the global environment and international management. First, we provide an overview of today’s borderless world and the global mindset needed to be effective. Next, we look more closely at the changing international landscape and the growing importance of China, India and Brazil. Then the chapter discusses multinational corporations (MNCs), considers the globalisation backlash, and describes the ‘bottom of the pyramid’ (BOP) concept. We then touch on various strategies and techniques for entering the global arena and take a look at the economic, legal–political, and sociocultural challenges that companies encounter within the global business environment. The chapter also describes how regional trade agreements are reshaping the international business landscape. 145 Source: Fairfax Syndication/Andrew Quilty 4: MANAGING IN A GLOBAL ENVIRONMENT 146 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T A BORDERLESS WORLD: GLOBALISATION, MULTINATIONAL CORPORATIONS AND THE INTERNATIONAL LANDSCAPE Source: Alamy Stock Photo/dpa picture alliance 4.1 The reality facing most managers is that isolation from international forces is no longer possible. Organisations in all fields are being reordered around the goal of addressing needs and desires that transcend national boundaries. Consider that the Federal Bureau of Investigation (FBI) now ranks international cybercrime as one of its top priorities because electronic boundaries between countries are virtually non-existent.5 ‘The whole boundary mindset has been John Hering, co-founder and Executive Chairman of Lookout, Inc. obliterated,’ says John Hering, the executive chairman of Lookout, Inc., a mobile security company with customers in 170 countries using 400 mobile networks around the world. ‘For many people, this is the only computer they have,’ he says. ‘The thought of something bad happening to your phone is untenable.’6 G L O B A L I S AT I O N The reality of today’s borderless companies also means consumers can no longer tell which country they are buying from. Your BMW may have come from Europe, while a neighbour’s Nissan may have been built in any of a number of places where Nissan has plants. A polo shirt may be made from cloth cut in Australia but sewn in Hong Kong. Eat an Aussie pie at the local cricket ground and you may have just purchased from a foreign company. Organisations can participate in the international arena on a variety of levels, and the process of globalisation typically passes through four distinct stages, as illustrated in EXHIBIT 4.1. 1 In the domestic stage, market potential is limited to the home country, with all production and marketing facilities located at home. Managers may be aware of the global environment and may want to consider foreign involvement. 2 In the international stage, exports increase, and the organisation usually adopts a multidomestic approach, probably using an international division to deal with the marketing of products in several countries individually. 3 In the multinational stage, the organisation has marketing and production facilities located in many countries, with more than one-third of its sales outside the home country. Organisations typically have a single home country, although they may opt for a bi-national approach, whereby two parent organisations in separate countries maintain ownership and control. Examples are Unilever (manufacturer of household products, from detergents to ice cream) and the Royal Dutch Shell Group (petroleum and related products), both of which are based in the United Kingdom and the Netherlands. 4 Finally, the global stage (or stateless stage) of international development transcends any single home country. These organisations operate in true global fashion, making sales and acquiring resources in 4: MANAGING IN A GLOBAL ENVIRONMENT 147 whatever country offers the best opportunities and lowest cost. At this stage, ownership, control and top management tend to be dispersed among several nationalities.7 1. DOMESTIC 2. INTERNATIONAL 3. MULTINATIONAL 4. GLOBAL Strategic orientation Domestically oriented Export-oriented, multidomestic Multinational Global Stage of development Initial foreign involvement Competitive positioning Explosion of international operations Global Cultural sensitivity Of little importance Very important Very important Critically important Manager assumptions ‘One best way’ ‘Many good ways’ ‘The least-cost way’ ‘Many good ways’ Source: Based on Nancy J. Adler, International Dimensions of Organizational Behavior, 4th edn (Cincinnati, OH: South-Western, 2002), pp. 8–9. TAKE A MOMENT As a new manager, learn to ‘think globally’. Take an interest in international people and issues. Don’t hinder your own or your company’s success by thinking only in terms of domestic issues, competitors and markets. Expand your thinking by reading and networking broadly. As the number of ‘stateless’ organisations increases, so too the awareness of national borders decreases, as reflected by the frequency of foreign participation at the management level. Rising managers are expected to know a second or third language and to have international experience. The need for global managers is intense. Organisations around the world want the brightest and best candidates for global management. Young managers who want their careers to move forward recognise the importance of global experience. According to Harvard Business School professor Christopher Bartlett, author of Managing Across Borders, people should try to get global exposure when they are young in order to start building skills and networks that will grow throughout their careers.8 Consider the makeup of global organisations in today’s environment. Food processor Nestlé (Switzerland) typifies the stateless company, with 98 per cent of its sales and 96 per cent of its employees outside the home country. Nestlé’s chief executive officer (CEO) has great faith in regional managers who are native to the region and know the local culture. The combination of strong brands and autonomous regional managers has made Nestlé the largest branded food company in Mexico, Brazil, Chile and Thailand, and the company is on its way to becoming the leader in Vietnam and China as well. The global media giant News Corporation, owner of Fox Broadcasting Company, is run by Rupert Murdoch, who was born in Australia, partly educated in Britain and is now an American citizen. Australians have been the global heads of Coca-Cola, McDonald’s and Ford. At British firm ICI, 40 per cent of the top 170 executives are not British. Meanwhile, German companies such as Hoechst and BASF rely on local managers to run foreign operations.9 Both Ford Motor Company and IBM are globalising their management structures. To aid its efforts, IBM has studied power equipment giant, Asea Brown Boveri Ltd (ABB), a major player in the global game. EXHIBIT 4.1 Four stages of globalisation 148 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T CASE STUDY Source: Getty Images/The India Today Group THE AXIS OF INDIA Shikha Sharma Shikha Sharma is a leader with a difference. She has not worried at all about being a woman in what was traditionally a man’s world: high finance. As Managing Director and CEO of one of Mumbai’s major banks, Axis Bank, she has taken her 50 135 employees on a journey of 90 per cent profit growth since she took over in 2009, with the bank’s compounded annual net profit growth rate above 20 per cent over the three years (2012–2016). Sharma has focused on sensible growth and risk management. With degrees from the Indian Institute of Management and a background in insurance and finance, she has transferred her skills to retail banking with relish. Sharma’s style reflects the non-traditional new competency, rarely seen in businesses where control is paramount: she chooses good people and delegates to them. Through trust and honesty, this strategy has worked very well. She restructured the bank to put staff closer to their customers, clearly a good idea. She has instigated regular senior team meetings and strategy retreats, facilitating relationship building and teamwork. The delegation has worked to bring out her colleagues’ and staff’s best efforts. And the operating and business performance of the bank has shot up as a result. By 2016, Axis had increased its number of domestic branches to 2904 and ATMs to 12 743 and has begun to expand internationally, with nine overseas branches now fully established. To put this into perspective, Australia’s largest bank, the Commonwealth Bank, has a total of 1150 branches in Australia, more than 4300 ATMs, and 13 branches overseas. From 2010 to 2013, Axis’ gross profit has risen over 60 per cent and it is now the third-largest private bank in India (ninth among all Indian scheduled banks). Axis has added nearly 28 000 employees since 2010, with an average employee age of 30 years. Under Sharma’s leadership, employee empowerment is viewed as a means to enhance customer experience and deliver excellent customer service. Axis uses the HR function to focus on developing and training employees to meet the bank’s vision of being the preferred financial service provider. Axis founded the Axis Bank Foundation in 2006 to contribute to its three chosen corporate social responsibility (CSR) initiatives of education, health and sustainability. The bank has committed to spend two per cent of its average annual net profit to support this foundation. In 2016, Axis dispersed over AU$2.69 million to various education programs. The foundation looks to support non-government organisations (NGOs) in providing care and assistance to those in need. Axis encourages employees to nurture their social obligation through participating in activities such as charity marathons, and even holds a very popular Blood Donation Drive at Axis House. In 2014, the foundation was the recipient of the Outstanding Corporate Foundation award at the Forbes India Philanthropy Awards. Sources: Commonwealth Bank of Australia (2016). International branches. https://www.commbank.com.au/about-us/our-company/internationalbranches.html (accessed 3 November 2016); Yeates, C. (15 May 2016). Banks cull branches but resist deep cuts in bid to reinvent retail experience. The Sydney Morning Herald, http://www.smh.com.au/business/banking-and-finance/banks-cull-branches-but-resist-deep-cuts-in-bid-to-reinventretail-experience-20160513-gouqxt.html (accessed 3 November 2016); Anand, N. (7 January 2016). Shikha Sharma: A brilliant banker who scripted Axis Bank’s success story. Rediff Business, http://www.rediff.com/business/report/pix-special-shikha-sharma-a-brilliant-banker-who-scriptedaxis-banks-success-story/20160107.htm (accessed 3 November 2016); Axis Bank Limited (2016). Annual report. https://www.axisbank.com/docs/ default-source/annual-reports/for-axis-bank/annual-report-2015-2016.pdf?sfvrsn=6 (accessed 3 November 2016); Palande, P. (2 January 2015). Fixing the big picture: Axis Bank Foundation. Forbes India, http://www.forbesindia.com/article/philanthropy-awards-2014/fixing-the-big-pictureaxis-bank-foundation/39287/0 (accessed 3 November 2016) D E V E L O P I NG A G L O B A L M I N D S E T Succeeding on a global level requires more than a desire to go global and a new set of skills and techniques; it requires that managers develop a global mindset. As more managers find themselves working in foreign countries or working with foreign firms within their own countries, they need to 4: MANAGING IN A GLOBAL ENVIRONMENT be able to navigate through ambiguities and complexities that far exceed anything they encounter within their traditional management responsibilities.10 A global mindset can be defined as the ability of managers to appreciate and influence individuals, groups, organisations and systems that represent different social, cultural, political, institutional, intellectual and psychological characteristics.11 A manager with a global mindset can perceive and respond to many different perspectives at the same time rather than being stuck in a domestic mindset that sees everything from one’s own perspective. Reliance Industries, the largest private sector company in India, specifically lists ‘global mindset’ as one of the core competencies for its managers.12 A global mindset requires skills, understanding and competencies in three dimensions. The cognitive dimension means knowing about the global environment and global business, mentally understanding how cultures differ, and having the ability to interpret complex global changes. The psychological dimension is the emotional and affective aspect. This includes a liking for diverse ways of thinking and acting, a willingness to take risks, and the energy and self-confidence to deal with the unpredictable and uncertain. The social dimension concerns the ability to behave in ways that build trusting relationships with people who are different from oneself.13 People who have had exposure to different cultures and speak different languages develop a global mindset more easily. Global leaders often speak multiple languages and have extensive experience interacting with people different from themselves. People in Australia who have grown up without language and cultural diversity typically have more difficulties with foreign assignments, but willing managers from any country can cultivate a global mindset. How do people expand their global mindset? Managers expand globally in two ways – by both thinking and doing.14 Learning by thinking requires a genuine curiosity about other people and cultures, an interest in and study of world affairs and international business, and the ability to open your mind and appreciate different viewpoints. Learning by doing means cultivating relationships with people across cultural and national boundaries. The rise of social media has opened new opportunities for students as well as managers to create networks of relationships that cross cultural divides. In addition, international travel, foreign study, and learning a foreign language are key activities for developing a global mindset. T H E C H A NG I NG I N T E R NAT I O NA L L A N D S C A P E Many companies today are going straight to China or India as a first step into international business. China and India have been the world’s fastest-growing economies in recent years. In addition, Brazil is becoming a major player in the international business landscape. CH INA, INC . For the past several years, foreign companies have invested more in business in China than they spent anywhere else in the world. A market that was of little interest a decade ago has become the one place that nearly every manager is thinking about. China is German car maker, BMW’s biggest market for its largest and most profitable sedans.15 That might be one reason Alay Mulally, CEO of US-based Ford Motor Company, spends about a third of his time on matters related to China. Ford was late getting into China and, in 2013, had only about three per cent of the Chinese auto market. Mulally planned to build five additional plants in that country, double the number of dealerships, bring 15 new vehicles to China, and launch the Lincoln brand there in 2014. Ford and the Lincoln brand have grown strongly in China global mindset The ability to appreciate and influence individuals, groups, organisations and systems that represent different social, cultural, political, institutional, intellectual and psychological characteristics. 149 150 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T through 2017. ‘Clearly this is going to continue to be the highest rate [of] growth for us,’ Mulally said. The shift towards putting China at the center of decision making is reflected in a change in meeting times at the United States headquarters. ‘We get up really early, we stay really late,’ said Mark Fields, Ford’s chief operating officer, referring to the practice of holding meetings early in the morning or late in the evening to accommodate managers in China, who are 12 hours ahead.16 China, with the fastest-growing middle class in history, is the largest or second-largest market for a variety of products and services, including mobile phones, automobiles, consumer electronics, luxury goods and Internet use.17 INDIA , THE SERV IC E G I A NT India, second only to China in population, has taken a different path towards economic development. While China is strong in manufacturing, India is a rising power in software design, services, and precision engineering. Numerous companies see India as a major source of technological and scientific brainpower, and the country’s large English-speaking population makes it a natural for United States companies wanting to outsource services. One index lists more than 900 business services companies in India, which employ around 575 000 people.18 Some of the fastest-growing industries in India are pharmaceuticals, medical devices and diagnostics. The country has a large number of highly trained scientists, doctors, and researchers, and United States firms Abbott Laboratories and Covidien have both opened research and development centres there. India is also a growing manufacturer of pharmaceuticals and is the world’s largest exporter of generic drugs. By 2020, India’s pharmaceuticals industry will likely be a global leader, according to a report by PricewaterhouseCoopers (PwC).19 M U LT I NAT I O NA L CO R P O R AT I O N S multinational corporation (MNC) An organisation that receives more than 25 per cent of its total sales revenues from operations outside the parent company’s home country; also called a global company or transnational company. The size and volume of international businesses are so large that it is hard to comprehend. For example, if revenues were valued at the equivalent of a country’s gross domestic product (GDP), the revenue of ExxonMobil is comparable in size to the GDP of Egypt. The revenue of Walmart is comparable to Greece’s GDP, Toyota’s to Algeria’s GDP and GE’s to Kazakhstan’s GDP.20 A large volume of international business is being carried out by big international businesses that can be thought of as global corporations, stateless corporations or transnational corporations. In the business world, these large international firms typically are called multinational corporations (MNCs), which have been the subject of enormous attention. MNCs can move a wealth of assets from country to country and influence national economies, politics and cultures. Although the term has no precise definition, a multinational corporation (MNC) typically receives more than 25 per cent of its total sales revenues from operations outside the parent’s home country. During the recent economic slump, the percentage of revenue from foreign operations increased for many multinationals because of stronger sales in developing markets such as China and India. In the third quarter of 2010, revenues for Yum! Brands (including restaurants such as KFC and Pizza Hut) in China surpassed those in the United States for the first time, and the company’s China business may become twice as large as that in the United States.21 MNCs also have the following distinctive managerial characteristics: 4: MANAGING IN A GLOBAL ENVIRONMENT 1 An MNC is managed as an integrated worldwide business system in which foreign affiliates act in close alliance and cooperation with one another. Capital, technology and people are transferred among country affiliates. The MNC can acquire materials and manufacture parts wherever in the world it is most advantageous to do so. 2 An MNC is ultimately controlled by a single management authority that makes key strategic decisions relating to the parent and all affiliates. Although some headquarters are binational, such as the Royal Dutch/Shell Group, some centralisation of management is required to maintain worldwide integration and profit maximisation for the enterprise as a whole. 3 MNC top managers are presumed to exercise a global perspective. They regard the entire world as one market for strategic decisions, resource acquisition and location of production, advertising and marketing efficiency. In a few cases, the MNC management philosophy may differ from that just described. For example, some researchers have distinguished among ethnocentric companies, which place emphasis on their home countries; polycentric companies, which are oriented towards the markets of individual foreign host countries; and geocentric companies, which are truly world oriented and favour no specific country.22 The truly global companies that transcend national boundaries are growing in number. These companies no longer see themselves as American, Chinese or German; they operate globally and serve a global market. Apple provides a good example. The company gets most of its sales (67 per cent, or US$33.9 billion, of the second quarter of 2016) outside the ‘home’ country of the United States, and its 115 000 employees are spread all over the world. CEO Tim Cook is American, chief design officer Jonathan Ive is British, and chief financial officer (CFO) Luca Maestri is Italian. Apple has numerous products including Mac computers (MacBook, MacBook Air, MacBook Pro, Mac Mini, iMac, and Mac Pro), iPods, iPhones, iPads, Apple Watch, Apple TV, software (including macOS, iOS, and iTunes) and Apple Energy. Almost all of Apple’s manufacturing is now handled abroad.23 National Australia Bank purchased the Bank of New Zealand as an effective way of achieving a major market share and position in that market. BHP Billiton continually looks to globalise and expand through acquisitions of assets that are related to, and add value to, its existing large set of mining operations. It has entered the potash business in North America through a major acquisition, which would both broaden its industry basis and further diversify its international operations. When BHP, which was founded in Broken Hill and known as ‘The Big Australian’ company, merged with South African mining company Billiton, many stakeholders were concerned about whether and how their entrenched cultures would mix. The merged entity, BHP Billiton, brought together a traditional Australian company – described as being open, emphasising ‘mateship’ and allowing the questioning of authority – with a company that has been characterised as involving strict hierarchy, authority and focus on results. While business strategies, systems and operations can be merged relatively quickly and easily, the challenge of merging cultures is much more problematic for managers. These businesses continue to evolve, including further acquisition and sale of businesses, on a global basis. 151 152 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T G L O B A L I S AT I O N B AC K L A S H Many people are concerned about seemingly negative impacts of globalisation. In Western countries, the primary concern has been the loss of jobs as companies expanded their offshoring activities by exporting more and more work overseas. The transfer of jobs such as making shoes, clothing and toys began decades ago, and in recent years, services and knowledge work have also been outsourced to developing countries. Many Australian shoppers say they’d be willing to pay higher prices for locally made products to keep jobs from going overseas.24 Business leaders, meanwhile, insist that economic benefits of globalisation flow back to the Australian economy in the form of lower prices, expanded markets and increased profits that can fund innovation.25 A troubling issue for some people has been how overseas contractors and suppliers treat their employees. In the United States, for example, in the first few months of 2010, 10 employees at Foxconn Technologies, a Chinese contract manufacturer that makes electronic products for Apple, Dell and other United States companies, committed suicide. After a coalition of advocacy groups sent an open letter to Apple calling for an investigation to ensure safe and decent working conditions at all its suppliers, managers asked the Fair Labor Association to investigate Foxconn. The group found widespread problems, including excessively long work hours, low pay, and unsafe working conditions. In a symbolic gesture to emphasise the company’s commitment, Apple’s new CEO, Tim Cook, visited Foxconn’s manufacturing plant where the iPhone is made and met with both company and government leaders in China. 26 In June 2012, Apple announced it would bring some of its Mac manufacturing back to the United States. Apple also negotiated a new partnership with a Taipei-based supplier named Pegatron Corp. to manufacture some of its iPhones and iPads. This strategic change seeks to minimise Apple’s heavy reliance on Foxconn and reduces its exposure to risk associated with the company. 27 With concerns over jobs and labour practices, the anti-globalisation fervour is just getting hotter – and is not likely to dissipate any time soon. In the end, the question is not whether globalisation is good or bad, but how business and government managers can work together to ensure that the advantages of a global world are fully and fairly shared. S E R V I NG T H E BO T T O M O F T H E P Y R A M I D Although large multinational organisations are accused of many negative contributions to society, they also have the resources needed to do good things in the world. One approach that combines business with social responsibility is referred to as serving the bottom of the pyramid (BOP). This concept proposes that corporations can alleviate poverty and other social ills, as well as make significant profits, by selling to the world’s poorest people. The term bottom of the pyramid refers to the more than 4 billion people who make up the lowest level of the world’s economic ‘pyramid’ as defined by percapita income. These people earn less than US$1500 a year, with about one-fourth of them earning less than a dollar a day.28 Traditionally, these people haven’t been served by most large businesses because products and services are too expensive, inaccessible and not suited to their needs. Therefore, in many countries, the poor end up paying significantly more than their wealthier counterparts for some basic needs. A number of leading companies are changing that by adopting BOP business models geared to serving the poorest of the world’s consumers. 4: MANAGING IN A GLOBAL ENVIRONMENT 1 Understand and nurture your own growth and wellbeing: ✚✚ keep your body and mind in good condition – you will need to call on substantial pools of strength and stamina if you are to succeed ✚✚ have a great support team (family, friends and mentors) to share with, and who will both keep you going and help keep your feet on the ground; reciprocate their support and extend this to others ✚✚ have a clear view of what you believe in, be true to this and draw strength from it ✚✚ have a stretching plan for personal growth and development. 2 Know who you are, what you stand for and be consistent: ✚✚ share your value set, and be clear on what you expect of your own and your teams’ behaviours ✚✚ be authentic ✚✚ maintain and protect your integrity. 3 Seek to understand before being understood: ✚✚ be a good listener ... champion best ideas ... not your own. 4 Understand and practise team leadership: ✚✚ regularly and clearly articulate the challenges – being respectful of the past, realistic about the present and optimistic about the future ✚✚ all individuals should feel accountable to the team (as well as you) ✚✚ support the team in achieving their tasks and challenges ✚✚ encourage innovation and stretch goals ✚✚ explore failures for what can be learned ... don’t punish reasonable risk taking ✚✚ reward and celebrate successes ✚✚ invest in capability building of individuals and the team ... do not ‘carry’ the unwilling or unable. 5 Continually challenge, improve or reinvent the business proposition you are promoting: ✚✚ developing and defending competitive advantage is always challenging and usually rewarding AUSTRALIAN MANAGER PROFILE Source: Courtesy Glenn Barnes After Glenn completed his studies in the biological sciences he began his career in the fast-moving consumer-branded goods category with Unilever (Australia) Ltd. During his time at Unilever, Glenn held various positions of responsibility, including executive roles in production management, product and process development and methods engineering. Glenn credits his most significant achievement at Unilever as being part of a team at Streets Ice Cream who regained, and then held, the leadership-in-value share of the Australian ice cream market through their product and brand innovation. From Unilever, Glenn joined Mars Inc. where he again covered various executive roles in product and process development, brand management, marketing and sales strategy, and sales and marketing leadership. Glenn’s roles at Mars ranged from individual country, to regional, to global responsibilities and his successes with the company included developing a strategy for establishing businesses in China and being part of the team that developed Snickers into a leading global brand. Glenn’s career successes did not end there as he moved from consumer goods to the banking, insurance and financial services sectors with the National Australia Bank (NAB) Ltd. His achievements at the NAB were extraordinary. In the ten years from 1990, when Glenn first joined, the group’s net income grew from AU$4 billion to AU$12.3 billion and net profit grew from AU$8 million to AU$3.4 billion. Share prices rose from AU$6 to a rewarding AU$26. The NAB went from being the number three player in Australia to becoming the clear market leader in the country. During this time Glenn held individual country, regional and global roles and was part of the team that developed a clear and profitable customer-focused strategy for the group. With 20 years in governance experience in banking and financial services, and over 30 years in executive, business leadership and directorship roles as well as regional and global leadership roles, what has his journey taught him? GLEN N BA R NES, CHAIRMA N, A NSELL LTD A ND AUSTR A LIA N UNIT Y LTD 153 154 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T ✚✚ continually reinvest in improving and or ✚✚ good people are the life blood of any superseding your business model and proposition ... you need to keep ahead of the competition and the game changers ✚✚ know your brand, profit and loss, balance sheet and cash position and dynamics... continually probe and model the impact of positive and negative possibilities. business ... they will push you and your business to new heights ✚✚ invest in their becoming the best that they can be ... don’t worry about losing some to better opportunities ... view this as good PR ✚✚ when you have found and/or developed someone who has the potential to do your job better than you ... get out of the way and do something else! 6 Recruit and develop the best people you can afford: SOURCE: Contributed by Glenn Barnes. R EMEMBE R THIS ◗◗ Today’s companies and managers operate in a borderless world that provides both risks and opportunities. ◗◗ Globalisation refers to the extent to which trade and investments, information, ideas and political cooperation flow between countries. ◗◗ To succeed on a global level requires managers at all levels to have a global mindset, which is the ability to appreciate and influence individuals, groups, organisations and systems that represent different social, cultural, political, institutional, intellectual and psychological characteristics. ◗◗ Many companies are going straight to China or India as a first step into international business. China is strong in manufacturing, whereas India is a major provider of services. ◗◗ The Chinese company Lenovo has emerged as the country’s first global corporation, with managers coming from 14 different nations, living and working in six cities on three continents. ◗◗ ◗◗ Managers look to China and India as sources of lower-cost technological and scientific brainpower. ◗◗ Some researchers distinguish among ethnocentric companies, which place emphasis on their home countries, polycentric companies, which are oriented towards the markets of individual host countries and geocentric companies, which are truly world oriented. ◗◗ ◗◗ The increasing size and power of MNCs has sparked a globalisation backlash. ◗◗ The bottom of the pyramid (BOP) concept proposes that corporations can alleviate poverty and other social ills, as well as make significant profits, by selling to the world’s poor. A multinational corporation (MNC) is an organisation that receives more than 25 per cent of its total sales revenues from operations outside the parent company’s home country and has a number of distinctive managerial characteristics. MNCs have the resources to reach and serve the world’s poorest people, who cannot afford the typical products and services offered by big companies. 4: MANAGING IN A GLOBAL ENVIRONMENT 4.2 155 GETTING STARTED INTERNATIONALLY Organisations have a couple of ways to become involved internationally. One is to seek cheaper resources, such as materials or labour, offshore, which is called offshoring or global outsourcing. Another is to develop markets for finished products or services outside their home countries, which may include exporting, licensing and direct investing. Exporting, licensing and direct investing are called market entry strategies because they represent alternative ways to sell products and services in foreign markets. EXHIBIT 4.2 shows the strategies that companies can use to engage in the international arena, either to acquire resources or to enter new markets. market entry strategies The various tactics that managers use to enter foreign markets. High EXHIBIT 4.2 Strategies for entering the international arena Greenfield venture Ownership of foreign operations Acquisition Joint venture Franchising Licensing Global outsourcing Exporting Low Low Cost to enter foreign operations High E X P O RT I NG With exporting, the company maintains its production facilities within the home nation and transfers its products for sale in foreign countries.29 Exporting enables a company to market its products in other countries at modest resource cost and with limited risk. Exporting does entail numerous problems based on physical distances, government regulations, foreign currencies and cultural differences, but it is less expensive than committing the firm’s own capital to build plants in host countries. Hollywood movie studios have long exported films to foreign countries, but they’re taking a different approach than in the past. exporting An entry strategy, in which the organisation maintains its production facilities within its home country and transfers its products for sale in foreign markets. 156 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T INNOVATIVE WAY HOLLYWOOD STUDIOS Hollywood films have long been quintessentially American products, and years ago, audiences in Japan, Brazil or South Korea would faithfully watch movies that were written for and primarily marketed to Western audiences. No longer. Local films are giving Hollywood a run for its money. At the same time, audiences are declining in the United States but growing overseas. Hollywood movies now get about 73 per cent of their revenue from abroad, up from 66 per cent in 2010. In recent times, a few Hollywood studios have gone as far as making movies specifically for certain foreign markets, and almost all of them are reframing their films to suit foreign tastes. Here are some examples of some of their tactics: ✚✚ Use foreign actors. The Chinese cut of Marvel’s Iron Man 3 features additional scenes set in China, which star some of the most famous Chinese actors, including Fan Bingbing as one of the doctors who operates on Tony Stark. ✚✚ Set the movie in a growing market – or in no man’s land. Several recent films, such as The Hundred-Foot Journey (India), and Captain Phillips (Kenya), have been set in developing countries, which are rapidly growing entertainment markets for movies. Others, like Star Wars: The Force Awakens and The Hobbit films, are set in fantasy worlds that are home to no one nationality. ✚✚ Stuff the film with foreign brands. In Transformers: Age of Extinction, Paramount Studios had a character gulping Shuhua low-lactose milk from China’s Yili dairy company as well as shots of ducks’ necks from a Chinese takeaway chain (Zhouheiya Food Co Ltd) and a Beijing luxury hotel (Pangu Plaza). However, some Chinese advertisers were unhappy with how they were portrayed in the film. ✚✚ Shoot in foreign cities. The 2015 film, Furious 7, was partially shot in Abu Dhabi and Tokyo with the James Bond film, Spectre, being shot in Mexico City, Rome, Morocco and Austria. These and other techniques represent a whole new approach to making movies. Rather than trying to lure audiences to their films, studios are targeting their films to the audiences. In addition, managers are increasingly looking for films with global appeal. ‘I can tell you that no studio is going to make a big expensive movie that costs US$150 million or $200 million unless it has worldwide appeal,’ said Mark Zoradi, former president of Walt Disney Company’s Motion Pictures Group. ‘You can’t pay back that production cost on the domestic model alone.’ Sources: Loffhagen, M. (13 May 2016). 15 movies that made drastic changes for a Chinese audience. Screen Rant, http://screenrant.com/movies-changedfor-china/?view=all (accessed 3 November 2016); Brook, T. (21 October 2014). How the global box office is changing Hollywood. http://www.bbc.com/ culture/story/20130620-is-china-hollywoods-future (accessed 3 November 2016); Kud, L. (10 July 2014). Transformers 4 and the perils of backfiring product placement. The Atlantic, http://www.theatlantic.com/entertainment/archive/2014/07/how-chinese-product-placement-blew-up-in-the-face-oftransformers/374236/ (accessed 3 November 2016); China Daily (2015). Zhouheiya Food Co Ltd. http://www.chinadaily.com.cn/regional/2015-12/07/ content_22651269.htm (accessed 3 November 2016); Faughnder, R. (30 December 2015). $40 billion in global box office? Thank China and ‘Star Wars’. http://www.latimes.com/entertainment/envelope/cotown/la-et-ct-global-box-office-20151231-story.html (accessed 3 November 2016); Schuker, L. A. E. (2 August 2010). Plot change: foreign forces transform Hollywood films. The Wall Street Journal, http://www.wsj.com/articles/SB10001424052748704913304 575371394036766312 (accessed 3 November 2016); Olson, M-L. (13 August 2013). Fast & Furious 7 will be filmed in UAE confirms twofour54.The National, http://www.thenational.ae/arts-culture/film/fast-furious-7-will-be-filmed-in-uae-confirms-twofour54 (accessed 3 November 2016); Miller, R. (4 December 2014). The next James Bond film is called Spectre: new car, poster, and full cast confirmed. The Verge, http://www.theverge.com/2014/12/4/7327013/jamesbond-24-full-cast-title-car-release-date (accessed 3 November 2016). OU T S OU R C I NG global outsourcing Engaging in the international division of labour so as to obtain the cheapest sources of labour and supplies regardless of country; also called global offshoring. Global outsourcing, also called offshoring, means engaging in the international division of labour so that work activities can be done in countries with the cheapest sources of labour and supplies. Millions of low-level jobs such as textile manufacturing, call centre operations, and credit card processing have been outsourced to low-wage countries in recent years. The growth of the Internet and plunging telecommunications costs have enabled companies to outsource more and higher-level work as well, such as software development, accounting or medical services. A patient might have a magnetic resonance imaging (MRI) test performed in Brisbane and 4: MANAGING IN A GLOBAL ENVIRONMENT 157 read by doctors in India. Large pharmaceutical companies farm out much of their early-stage chemistry research to cheaper labs in China and India.30 L I C E N S I NG With licensing, a corporation (the licensor) in one country makes certain resources available to companies in another country (the licensee). These resources include technology, managerial skills, and patent or trademark rights. They enable the licensee to produce and market a product or service similar to what the licensor has been producing. Heineken, which has been called the world’s first truly global brand of beer, usually begins by exporting to help boost familiarity with its products; if the market looks enticing enough, Heineken then licenses its brands to a local brewer. Licensing offers a business firm relatively easy access to international markets at low cost, but it limits the company’s participation in, and control over, the development of those markets. One special form of licensing is franchising, which occurs when a franchisee buys a complete package of materials and services, including equipment, products, product ingredients, trademark and trade name rights, managerial advice and a standardised operating system. With licensing, a licensee generally keeps its own company name, autonomy, and operating systems, but a franchise takes the name and systems of the franchisor. The fast-food chains are some of the best-known franchisors. The story is often told of the Japanese child visiting Los Angeles who excitedly pointed out to his parents, ‘They have McDonald’s in America.’ licensing An entry strategy in which an organisation in one country makes certain resources available to organisations in another in order to participate in the production and sale of its products abroad. D I R E CT I N V E ST I NG A higher level of involvement in international trade is direct investment in facilities in a foreign country. Direct investing means that the company is involved in managing the productive assets, which distinguishes it from other entry strategies that permit less managerial control. Currently, the most popular type of direct investment is to engage in strategic alliances and partnerships. In a joint venture, a company shares costs and risks with another firm, typically in the host country, to develop new products, build a manufacturing facility, or set up a sales and distribution network.31 A partnership is often the fastest, cheapest and least risky way to get into the global game. For example, Abbott Laboratories has teamed up with an Indian drug firm, Biocon Ltd, to develop nutritional supplements and generic drugs tailored to the local market.32 A Chinese firm has formed a joint venture with an American partner to refurbish New York City’s Alexander Hamilton Bridge and work on other construction projects in the United States.33 In addition to joint ventures, the complexity of today’s global business environment is causing managers at many companies to develop alliance networks, which are collections of partnerships with various other firms, often across international boundaries.34 The other choice is to have a wholly owned foreign affiliate, over which the company has complete control. Direct acquisition of an affiliate may provide cost savings over exporting by shortening distribution channels and reducing storage and transportation costs. Local managers also have a better understanding of economic, cultural and political conditions. Kraft Foods bought Cadbury PLC in large part because the firm had established local contacts and distribution networks in emerging markets. The most costly and risky direct investment is called a greenfield venture, which means a company builds a subsidiary from scratch in a foreign country. The advantage is that the subsidiary is exactly what the company wants and has the potential to be highly profitable. For example, in 2012, Airbus announced direct investing An entry strategy in which the organisation is involved in managing its production facilities in a foreign country. wholly owned foreign affiliate A foreign subsidiary over which an organisation has complete control. greenfield venture The most risky type of direct investment, in which a company builds a subsidiary from scratch in a foreign country. 158 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T plans to build jetliners in its first assembly plant in the United States. By building a huge plant in Alabama and employing American workers, Airbus managers expect to become part of United States culture, thereby reducing political opposition to the purchase of the company’s airplanes.35 The disadvantage is that the company has to acquire all market knowledge, materials, people and know-how in a different culture, and mistakes are possible. R EMEMBE R THIS ◗◗ Two major alternatives for engaging in the international arena are to seek cheaper resources via outsourcing and to develop markets outside the home country. ◗◗ Global outsourcing, sometimes called offshoring, means engaging in the international division of labour so as to obtain the cheapest sources of labour and supplies, regardless of country. ◗◗ ◗◗ Market entry strategies are various tactics that managers use to enter foreign markets. ◗◗ With a market entry strategy of licensing, a company in one country makes certain resources available to companies in other countries to participate in the production and sale of its products abroad. ◗◗ Franchising is a form of licensing in which a company provides its foreign franchisees with a complete package of materials and services. ◗◗ ◗◗ McDonald’s and other fast-food companies have franchises all over the world. ◗◗ Alternatives for direct investing include engaging in joint ventures, acquiring foreign affiliates and initiating a greenfield venture. ◗◗ With a joint venture, an organisation shares costs and risks with another firm in a foreign country to build a facility, develop new products or set up a sales and distribution network. ◗◗ A wholly owned foreign affiliate is a foreign subsidiary over which an organisation has complete control. ◗◗ The most risky type of direct investment is the greenfield venture, in which a company builds a subsidiary from scratch in a foreign country. Exporting is a market entry strategy in which a company maintains production facilities within its home country and transfers products for sale in foreign countries. Direct investing is a market entry strategy in which the organisation is directly involved in managing its production facilities in a foreign country. 4.3 international management The management of business operations conducted in more than one country. THE INTERNATIONAL BUSINESS ENVIRONMENT International management is the management of business operations conducted in more than one country. The fundamental tasks of business management – including the financing, production and distribution of products and services – do not change in any substantive way when a firm is transacting business across international borders. The basic management functions of planning, organising, leading and controlling are the same whether a company operates domestically or internationally. However, managers will experience greater difficulties and risks when performing these management functions on an international scale. 4: MANAGING IN A GLOBAL ENVIRONMENT Consider the following blunders: ◗◗ It took McDonald’s more than a year to figure out that Hindus in India do not eat beef because they consider the cow to be sacred. The company’s sales took off only after McDonald’s started making burgers sold in India out of lamb.36 ◗◗ When IKEA launched a superstore in Bangkok, managers learned that some of its Swedish product names sound like crude terms for sex when pronounced in Thai.37 ◗◗ In Africa, the labels on bottles show pictures of what is inside so illiterate shoppers can know what they’re buying. When a baby-food company showed a picture of an infant on its label, the product didn’t sell very well.38 Economic ◗◗ United Airlines discovered that even colours can doom a product. The airline handed out white carnations when it started flying from Hong Kong, only to discover that, to many Asians, such flowers represent death and bad luck.39 Some of these examples might seem humorous, but there’s nothing funny about them to managers trying to operate in a highly competitive global environment. What should managers of emerging global companies look for to avoid making obvious international mistakes? When they are comparing one country with another, the economic, legal–political and sociocultural sectors present the greatest difficulties. Key factors to understand in the international environment are summarised in EXHIBIT 4.3.40 Economic development Infrastructure Resource and product markets Per capita income Exchange rates Economic conditions Legal–political Political risk Government intervention Tariffs, quotas, taxes Terrorism, political instability Laws, regulations Organisation Sociocultural Social values, beliefs Language Religion (objects, taboos, holidays) Demographic profile Formal education, literacy Time orientation EXHIBIT 4.3 Key factors in the international environment R EMEMBE R THIS ◗◗ The basic management functions are the same in either a domestic or an international subsidiary, but managers will experience greater difficulties and risks when performing these functions internationally. ◗◗ ◗◗ International management means managing business operations in more than one country. When operating on an international basis, it is important for managers to give considerable thought to economic, legal–political and sociocultural factors. 159 160 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T 4.4 THE ECONOMIC ENVIRONMENT The economic environment represents the economic conditions in the country where the international organisation operates. This part of the environment includes factors such as economic development and resource and product markets. In addition, factors such as inflation, interest rates and economic growth are also part of the international economic environment. E CO NO M I C D E V E L O P M E N T Economic development differs widely among the countries and regions of the world. Countries can be categorised as either ‘developing’ or ‘developed’. The developing countries are sometimes referred to as emerging or less-developed countries (LDCs). The criterion usually used to classify countries as developed or developing is per capita income, which is the income generated by the nation’s production of goods and services divided by total population. The developing countries have low per-capita incomes. LDCs are generally in the southern hemisphere, and include parts of Africa, Asia and South America, whereas developed countries (apart from Australia, New Zealand and South Africa) tend to be in the northern hemisphere; for example, the United States, United Kingdom and Japan.41 Most international business firms are headquartered in the wealthier, economically advanced countries. However, based on the number of prospective customers, developing countries constitute an immense market that many organisations are beginning to tap. Major Australian organisations are moving across borders to take advantage of the burgeoning demand for goods and services in countries such as China and Indonesia. Large companies, such as Uncle Ben’s of Australia or Foster’s Group, ship many container loads of pet food and beer, respectively, to developing nations. Although these companies may face risks and challenges, they are positioning themselves for the future in emerging economies where most of the population are still at least 10 years away from their peak buying years.42 Juliana Chugg moved from Australia to Minneapolis, United States to head up the baking division of General Mills Corporation.43 She was CEO of the Australian division of the company, during which time she almost doubled sales revenue to AU$208 million. Still in her early 40s, Ms Chugg became a Senior Vice President of General Mills, a business that includes powerful billion-dollar brands such as Pillsbury. She is an example of a successful executive in the global market for such talent, who thrives on the principle of delegation, giving others around her the chance to make good, well-informed decisions. She is also an active proponent of achieving work–life balance, having made the unprecedented move to regularly close the Australian business on Friday afternoons, to give her colleagues an early start on weekends, an initiative that clearly did not hurt sales or productivity. I N F R A ST R U C T U R E infrastructure A country’s physical facilities that support economic activities. A country’s physical facilities that support economic activities make up its infrastructure, which includes transportation facilities such as airports, highways and railways; energy-producing facilities such as utilities and power stations; and communication facilities such as telephone lines and radio stations. Organisations operating in LDCs must contend with lower levels of technology and perplexing logistical, distribution and communication problems. Mike Mazzola, an executive for Reuters Ltd, a major information services provider, found that getting a telephone installed in Mexico could take up to a year. Even after he got one, 4: MANAGING IN A GLOBAL ENVIRONMENT 161 he often had to dial several times before the call would go through. Mobile telephone companies have found tremendous opportunities in LDCs, where land lines are still limited. China has the world’s biggest base of mobile phone subscribers at over 800 million, and the number is expected to continue growing. E CO NO M I C I N T E R D E P E N D E N C E One thing the recent global financial crisis made abundantly clear is how economically interconnected the world is. Although the crisis might seem atypical, savvy international managers realise that their companies will probably be buffeted by similar crises fairly regularly. For example, most students are probably familiar with the bursting of the dot-com bubble in the early part of this century, which caused a severe drop in the stock market and affected companies around the globe. The Asian financial crisis of 1997–98 similarly affected firms in North America, Europe, and other parts of the world. More recently, Greece’s inability to make payments on its debt sparked a panic that devalued the euro and threatened the stability of financial markets worldwide.44 Recent financial woes have left a number of countries reeling, as reflected in a ‘misery index’ created by a Moody’s economist and illustrated in EXHIBIT 4.4. The misery index adds together a country’s unemployment rate and the budget deficit as a percentage of GDP. The 2010 figures suggest significantly greater misery for almost every country compared to the beginning of this century. Iceland and Ireland, two countries hit particularly hard by the recent economic crisis, had a negative misery index in 2000 but registered high scores for misery in 2010. The United States went from a misery score of less than five in 2000, to about 21 in 2010.45 Greater misery EXHIBIT 4.4 How countries are bearing the economic crisis: Misery Index, 2010, compared to 2000 +30 +25 +20 2000 2000 0 Iceland Ireland 2000 2000 2000 2010 2010 2010 2010 2000 +5 2010 +10 2010 +15 −5 Lesser misery Greece Portugal Spain United States Source: Based on ‘A New Definition of Misery,’ The New York Times (18 December 2009), based on data from Moody’s; www.nytimes. com/imagepages/2009/12/18/business/economy/20091219_CHARTS_GRAPHIC.html (accessed on 19 December 2009). 162 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T Another reflection of economic interdependence is the fact that parts and supplies for many companies come from around the world, which presents managers with new complexities. For example, a recent challenge for Honda and Toyota auto plants in the United States, Canada and Asia was getting the electronics and other parts they needed from suppliers in Thailand, where flooding had swamped huge industrial sections of the country. Walmart, the world’s largest retailer, with stores around the world, has been under pressure to evaluate and disclose how suppliers treat workers. At a recent shareholder meeting, a Bangladeshi labour organiser complained that many factories that produce goods for the giant US-based chain mistreat workers, and he presented a proposal that the company require suppliers to describe working conditions in detail.46 R E S OU R C E A N D P ROD U CT M A R K E T S exchange rate The rate at which one country’s currency is exchanged for that of another country. When operating in another country, managers must evaluate the market demand for their products. If market demand is high, managers may choose to export products to that country. To develop plants, however, resource markets for providing needed raw materials and labour also must be available. For example, the greatest challenge for McDonald’s, which now sells Big Macs on every continent except Antarctica, is to obtain supplies of everything from potatoes to hamburger buns to plastic straws. At McDonald’s in Krakow, the burgers come from a Polish plant partly owned by Chicago-based OSI Industries; the onions come from Fresno, California; the buns come from a production and distribution centre near Moscow; and the potatoes come from a plant in Aldrup, Germany. McDonald’s tries to contract with local suppliers when possible. In Thailand, McDonald’s actually helped farmers cultivate Idaho russet potatoes of sufficient quality to produce their golden French fries.47 E X C H A NG E R AT E S Source: Getty Images/Danita Delimont The exchange rate is the rate at which one country’s currency is exchanged for that of another country. Changes in the exchange rate can have major implications for the profitability of international operations that exchange millions of dollars into other currencies every day.48 For example, assume that the Australian dollar is exchanged for 90 US cents. If the Australian dollar increases in value to over US$1.10, Australian goods will be more expensive in the United States because it will take more of the that currency to buy a dollar’s worth of Australian goods. It will be more difficult to export Australian goods to the United States, and profits will be slim. On the other hand, if the Australian dollar drops to a value of 75 US cents, Australian goods could be cheaper in the United States and can be exported at a profit. But at that lower rate, foreign goods would be more expensive to import. Projects such as Beijing’s fourth ring road, Shenzhen’s subway, the incredibly fast Maglev train system (430 km/hour) and the Three Gorges dam project, are examples of ongoing mega-projects in China. Analysts expect the Chinese government to boost its spending by 20 per cent on public works and other projects to improve the infrastructure in China. I N F L AT I O N, I N T E R E ST R AT E S A N D E CO NO M I C G ROW T H Inflation rates measure the annual rate of growth of prices in the economy, and interest rates measure the cost of borrowing money. Australia’s inflation rate has fluctuated substantially over the past 30 years – more than 10 per cent in some years – and so have its prevailing interest rates. Australia’s economy surpassed all expectations of its strength 4: MANAGING IN A GLOBAL ENVIRONMENT 163 and robustness when it did not fall prey to reverberations from the Asian economic crisis of the 1990s, and rode out the more recent GFC relatively well. The medium-term outlook for the Australian economy is for more stability, with low inflation and interest rates, and solid economic growth, predicted to continue at approximately 1.5 to 3 per cent per year. This means that the Australian economy will be an attractive place to do business, since stability and a solid, growing economy are two key factors that major companies look for in their global search for countries in which to locate their businesses. R EMEMBE R THIS ◗◗ Countries vary widely in terms of economic development and are classified as either developed countries or less-developed countries (LDCs). ◗◗ Infrastructure refers to a country’s physical facilities, such as highways, utilities and airports, that support economic activities. ◗◗ As recent financial crises in the United States and Europe show, countries are economically interconnected, and financial problems in one area of the world can spread rapidly around the globe. ◗◗ International business managers can expect their companies to be affected periodically by economic problems that cross geographical boundaries. THE LEGAL–POLITICAL ENVIRONMENT Businesses must deal with unfamiliar political systems when they go international, as well as with higher levels of government supervision and regulation. Government officials and the general public often view foreign organisations as outsiders, or even intruders, and are suspicious of their impact on economic independence and political sovereignty. Some of the major legal–political concerns affecting international business are political risk, political instability, and laws and regulations. Sometimes it becomes difficult to separate the arguments made in the national interest from the commercial interests of profit-seeking companies. In countries such as Singapore and Australia, where important industries such as media and telecommunications are very concentrated in ownership and control, governments must work with these businesses to regulate their affairs and ensure a reasonable balance between national interests and corporate profit motives.49 Governments closely control many industries in Australia, often preserving monopolies (such as casinos) or duopolies (such as commercial TV broadcasting). The taxi industry is one in which governments have controlled standards and restricted supply of taxi licences, and as a result these licences were worth as much as AU$300 000 each. International company Uber has severely challenged the taxi industry in cities around the world and fully disrupted these taxi licence values. The taxi industry is regulated in terms both of prices and number of taxi licences. Consumers and taxi owners are the main stakeholders who attempt to influence regulations and policies. Source: Fairfax Syndication/Penny Stephens 4.5 164 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T POL ITICA L R ISK political risk An organisation’s risk of loss of assets, earning power or managerial control due to politically based events or actions by host governments. An organisation’s political risk is defined as its risk of loss of assets, earning power or managerial control due to politically based events or actions by host governments.50 Political risk includes government takeovers of property and acts of violence directed against a firm’s properties or employees. Because such acts are not uncommon, organisations must formulate special plans and programs to guard against unexpected losses. For example, Hercules Inc., a large US-based chemical company, has increased the number of security guards at several of its European plants. Difficulties in mining operations in Bougainville, Papua New Guinea, have been very costly to some major Australian mining companies. Some companies actually buy political risk insurance, especially as they move into high-risk areas such as Eastern Europe, China and Brazil. Political risk analysis has emerged as a critical component of environmental assessment for multinational organisations.51 P O L I T I C A L I N STA B I L I T Y political instability Events such as riots, revolutions, or government upheavals that can affect the operations of an international company. Another frequently cited problem for international organisations is political instability, which includes riots, revolutions, civil disorder and frequent changes in government. Political instability increases uncertainty. Civil wars and large-scale violence have occurred in Indonesia, Iran, Iraq, Afghanistan, Libya, Tunisia, Egypt, Syria, Malaysia, Thailand, Sri Lanka, Greece and Myanmar in recent decades. Although most organisations would prefer to do business in stable countries, some of the greatest growth opportunities lie in areas characterised by instability. The greatest threat of violence is in countries experiencing political, ethnic or religious upheaval. In China, for example, political winds have shifted rapidly and often dangerously. Yet it is the largest potential market in the world for the goods and services of developed countries, and Foster’s, Xerox, Ford, Volkswagen, Motorola and Kodak are busy making deals there. Foreign managers are often subject to major threats in countries characterised by political instability. In countries as different as Russia, France, Yemen and Brazil, business leaders have been kidnapped, sometimes by professional criminals who hold them for ransom, and sometimes by employees wanting better working conditions. In recent years many ships have been seized by pirates off the coast of Africa and in parts of Asia. Recent political instability in certain regions has put the investments and staff of foreign companies at risk, sometimes grave risk. Another frequently cited problem for international companies is political instability, which includes riots, revolutions, civil disorders and frequent changes in government. Political turmoil in Syria, for example, which has occurred off and on ever since the country came into existence following its independence from France in 1946, reignited in mid-2011 as part of the Arab Spring, a revolutionary wave of protests in the Arab world that began in late 2010. By 2013, Syria was embroiled in a bloody civil war, with the United States threatening military action after allegations that the regime of President Bashar al-Assad used chemical weapons against civilians, killing nearly 1500 people, including 426 children. The wave of protests in the Arab region, affecting not only Syria, but also Tunisia, Egypt, Libya, Yemen and Bahrain, has created a tumultuous environment for businesses operating in the region. ‘No president, no government, no police,’ said Jalilia Mezni, owner of Société d’Articles Hygiéniques in Tunisia, ‘Only complete disorder’.52 Political risk and political instability remain elevated throughout the Arab world, causing problems for both local and foreign organisations. In August 2013, for example, the Syrian 4: MANAGING IN A GLOBAL ENVIRONMENT Electronic Army (SEA), a group of pro-government computer hackers, disrupted several Western websites, including Twitter, The Washington Post, and The New York Times, which went down twice within a period of two weeks.53 Zaid Qadoumi, the CEO of Canada’s BroadGrain, which has been delivering agricultural commodities to emerging markets and political hot spots since the company was founded, offered extra pay for a crew to deliver a load of wheat to Libya, but advised workers to ‘cut the ropes and leave’ if they believed the situation was too dangerous.54 L AW S A N D R E G U L AT I O N S Government laws and regulations differ from country to country and make manufacturing and sales a true challenge for international firms. Host governments have many laws concerning libel, consumer protection, information and labelling, employment and safety, and wages. International organisations must learn these rules and regulations, and abide by them. For example, French law forbids the use of children in advertising, and Germany prohibits the use of competitive claims, both of which are allowable and widely used in New Zealand and Australia.55 China is an interesting example of the way government laws and regulations can present a challenge for international organisations. China has become not only one of the world’s most important economies, but also one in which the private and government sectors are learning to work together in new ways. The Chinese government conducted virtually all activities in past decades, but the private sector now accounts for 50 per cent of China’s GDP. This number is increasing as enterprises from all over the world seek to work with Chinese government agencies to secure their position in both investing and producing in China’s low-cost environment, and also to gain access to what will one day be the world’s largest market.56 The most visible changes in legal–political factors grow out of international trade agreements and the emerging international trade alliance system. Consider, for example, the impact of the General Agreement on Tariffs and Trade (GATT), the European Union (EU), the North American Free Trade Agreement (NAFTA) and the Association of South East Asian Nations (ASEAN). R EMEMBE R THIS ◗◗ Complicated legal and political forces can create huge risks for international managers and organisations. ◗◗ Political risk refers to a company’s risk of loss of assets, earning power or managerial control due to politically based events or actions by host governments. ◗◗ Political instability includes events such as riots, revolutions or government upheavals that can affect the operations of an international company. ◗◗ A revolutionary wave of protests in the Arab world that began in late 2010, known as the Arab Spring, has created a tumultuous environment for businesses operating in the region. ◗◗ Managers must understand and follow the differing laws and regulations in the various countries where they do business. 165 166 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T 4.6 THE SOCIOCULTURAL ENVIRONMENT A nation’s culture includes the shared knowledge, beliefs and values, as well as the common modes of behaviour and ways of thinking, among members of the society. Cultural factors are more perplexing than political and economic factors in foreign countries. Culture is intangible, pervasive and difficult to learn. It is imperative for international businesses to comprehend the significance of local cultures and deal with them effectively. S O C I A L VA L U E S ethnocentrism A cultural attitude marked by the tendency to regard one’s own culture as superior to others. power distance The degree to which people accept inequality in power among institutions, organisations and people. uncertainty avoidance A value characterised by people’s intolerance for uncertainty and ambiguity, resulting in support for beliefs that promise certainty and conformity. individualism A preference for a loosely knit social framework in which individuals are expected to take care of themselves. collectivism A preference for a tightly knit social framework in which individuals look after one another and organisations protect their members’ interests. masculinity A cultural preference for achievement, heroism, assertiveness, work centrality and material success. femininity A cultural preference for cooperation, group decisionmaking and quality of life. Many managers fail to realise that the values and behaviour that typically govern how business is done in their own country don’t always translate to the rest of the world. Western managers in particular are regularly accused of an ethnocentric attitude that assumes their way is the best way. Ethnocentrism refers to a natural tendency of people to regard their own culture as superior and to downgrade or dismiss other cultural values. Ethnocentrism can be found in all countries, and strong ethnocentric attitudes within a country make it difficult for foreign firms to operate there. One way that managers can fight their own ethnocentric tendencies is to understand and appreciate differences in social values. Research done by Geert Hofstede on 116 000 IBM employees in 40 countries identified four dimensions of national value systems that influence organisational and employee working relationships.57 Examples of how countries rate on the four dimensions are shown in EXHIBIT 4.5. 1 Power distance. High power distance means that people accept inequality in power among institutions, organisations and people. Low power distance means that people expect equality in power. Countries that value high power distance include Malaysia, India and the Philippines. Countries that value low power distance include Denmark, Austria and New Zealand. 2 Uncertainty avoidance. High uncertainty avoidance means that members of a society feel uncomfortable with uncertainty and ambiguity, and thus support beliefs that promise certainty and conformity. Low uncertainty avoidance means that people have high tolerance for the unstructured, the unclear and the unpredictable. High uncertainty avoidance countries include Greece, Portugal and Uruguay. Countries with low uncertainty avoidance values are Sweden, Singapore and Jamaica. 3 Individualism and collectivism. Individualism reflects a value for a loosely knit social framework in which individuals are expected to take care of themselves. Collectivism means a preference for a tightly knit social framework in which individuals look after one another and organisations protect their members’ interests. Countries with individualist values include the United States, Canada, Great Britain and Australia. Countries with collectivist values include China, Mexico and Brazil. 4 Masculinity/femininity. In this formulation, ‘masculinity’ stands for a preference for achievement, heroism, assertiveness, work centrality (with resultant high stress) and material success. ‘Femininity’, on the other hand, reflects the values of relationships, cooperation, group decision making and quality of life. Societies with strong masculine values include Japan, Thailand, Austria, Mexico and Germany. Countries with feminine values include Sweden, Norway, Denmark and France. Men and women alike subscribe to the dominant values in masculine and feminine cultures. Hofstede and his colleagues later identified a fifth dimension, long-term orientation versus shortterm orientation. The long-term orientation, found in China and other Asian countries, includes a greater concern for the future and highly values thrift and perseverance. A short-term orientation, found in Russia 4: MANAGING IN A GLOBAL ENVIRONMENT and West Africa, is more concerned with the past and the present and places a high value on tradition and meeting social obligations.58 Researchers continue to explore and expand on Hofstede’s findings. For example, in just 25 years, more than 1400 articles and numerous books were published on individualism and collectivism alone.59 Social values influence organisational functioning and management styles. For example, organisations in France and the Latin and Mediterranean countries tend to be hierarchical bureaucracies. Germany and other central European countries have organisations that strive to be impersonal, well-oiled machines. In India, Asia and Africa, organisations are viewed as large families. Effective management styles differ in each country, depending on cultural characteristics.60 COUNTRY POWER DISTANCE Australia a b c d UNCERTAINTY AVOIDANCE INDIVIDUALISM MASCULINITY 7 7 2 5 Costa Rica 8 (tie) 2 (tie) 10 9 France 3 2 (tie) 4 7 West Germany 8 (tie) 5 5 3 India 2 9 6 6 Japan 5 1 7 1 Mexico 1 4 8 2 Sweden 10 10 3 10 Thailand 4 6 9 8 United States 6 8 1 4 a 1 5 Highest power distance, 10 5 Lowest power distance b 1 5 Highest uncertainty avoidance, 10 5 Lowest uncertainty avoidance c 1 5 Highest individualism, 10 5 Lowest individualism d 1 5 Highest masculinity, 10 5 Lowest masculinity Sources: Dorothy Marcic, Organizational Behavior and Cases, 4th edn (St Paul, MN: West, 1995). Based on two books by Geert Hofstede: Culture’s Consequences (London: Sage Publications, 1984) and Cultures and Organizations: Software of the Mind (New York: McGraw-Hill, 1991). GLOBE PRO JEC T VA LUE DIMENS I O NS Research by the Global Leadership and Organizational Behavior Effectiveness (GLOBE) Project extends Hofstede’s assessment and offers a broader understanding for today’s managers. The GLOBE Project used data collected from 18 000 managers in 62 countries to identify nine dimensions that explain cultural differences. In addition to the dimensions identified by Hofstede, the GLOBE project identifies the following characteristics:61 1 Assertiveness. A high value on assertiveness means a society encourages toughness, assertiveness and competitiveness. Low assertiveness means that people value tenderness and concern for others over being competitive. 2 Future orientation. Similar to Hofstede’s time orientation, this dimension refers to the extent to which a society encourages and rewards planning for the future over short-term results and quick gratification. 3 Gender differentiation. This dimension refers to the extent to which a society maximises gender role differences. In countries with low gender differentiation, such as Denmark, women typically have a EXHIBIT 4.5 Rank orderings of 10 countries along four dimensions of national value systems 167 168 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T higher status and play a stronger role in decision making. Countries with high gender differentiation accord men higher social, political and economic status. 4 Performance orientation. A society with a high performance orientation places high emphasis on performance and rewards people for performance improvements and excellence. A low performance orientation means people pay less attention to performance and more attention to loyalty, belonging and background. 5 Humane orientation. The final dimension refers to the degree to which a society encourages and rewards people for being fair, altruistic, generous and caring. A country high on humane orientation places a great value on helping others and being kind. A country low on this orientation expects people to take care of themselves. Self-enhancement and gratification are of high importance. EXHIBIT 4.6 gives examples of how some countries rank on these GLOBE dimensions. These dimensions give managers an added tool for identifying and managing cultural differences. Social values greatly influence organisational functioning and management styles. Consider the difficulty that Emerson Electric managers had when Emerson opened a new manufacturing facility in Suzhou, China. One area in which the American view and the Chinese view differed widely was in terms of time orientation. The American managers favoured a short time horizon and quick results, and they viewed their assignments as stepping stones to future career advancement. The Chinese managers, on the other hand, favoured a long-term approach, building a system and setting a proper course of action to enable long-term success.62 Other companies have encountered similar cultural differences. Consider the Australian concept of self-directed teams, which emphasises shared power and authority, with team members working on a variety of problems without formal guidelines, rules and structure. Managers trying to implement teams have had trouble in areas where cultural values support high power distance and a low tolerance for uncertainty, such as Mexico. Many workers in Mexico, as well EXHIBIT 4.6 Examples of country rankings on selected GLOBE value DIMENSION LOW MEDIUM HIGH Assertiveness Sweden Egypt Spain Switzerland Iceland United States Japan France Germany Russia Slovenia Denmark Italy Australia Canada Kuwait India Singapore Sweden Italy South Korea Denmark Brazil Egypt Poland Netherlands China Russia Israel United States Greece England Taiwan Venezuela Japan Hong Kong Germany New Zealand Indonesia France Sweden Egypt Singapore United States Iceland Future orientation Gender differentiation Performance orientation Humane orientation Source: Mansour Javidan and Robert J. House. (2001). Cultural Acumen for the Global Manager: Lessons from Project GLOBE. Organizational Dynamics, 29:4, 289–305, with permission from Elsevier 4: MANAGING IN A GLOBAL ENVIRONMENT 169 as in France and Mediterranean countries, expect organisations to be hierarchical. In Russia, people are good at working in groups and like competing as a team rather than on an individual basis. Organisations in Germany and other central European countries typically strive to be impersonal, well-oiled machines.63 CO M M U N I C AT I O N D I F F E R E N C E S People from some cultures tend to pay more attention to the social context (social setting, non-verbal behaviour, social status, etc.) of their verbal communication than Australians do. For example, Australian managers working in China have discovered that social context is considerably more important in that culture, and they need to learn to suppress their impatience and devote the time necessary to establish personal and social relationships. EXHIBIT 4.7 indicates how the emphasis on social context varies among countries. In a high-context culture, people are sensitive to circumstances surrounding social exchanges. People use communication primarily to build personal social relationships; meaning is derived from context – setting, status and nonverbal behaviour – more than from explicit words; relationships and trust are more important than business; and the welfare and harmony of the group are valued. In a low-context culture, people use communication primarily to exchange facts and information; meaning is derived primarily from words; business transactions are more important than building relationships and trust; and individual welfare and achievement are more important than the group.64 To understand how differences in cultural context affect High Chinese communications, consider the Australian expression, ‘The squeaky context Korean wheel gets the oil’. It means that the loudest person will get Japanese Vietnamese the most attention, and attention is assumed to be favourable. Arab Equivalent sayings in China and Japan are ‘Quacking ducks Greek Spanish get shot’ and ‘The nail that sticks up gets hammered down’, Italian respectively. In these latter two cultures, standing out as an English North American individual merits unfavourable attention. Consider the culture Scandinavian gap when China’s Lenovo Group acquired IBM’s PC business. In Swiss Low German meetings and conference calls, Western executives were frustrated context by their Chinese counterparts’ reluctance to speak up, while the Sources: Edward T. Hall, Beyond Culture (Garden City, NY: Anchor Press/Doubleday, Chinese managers were irritated by the Americans’ propensity to 1976); and J. Kennedy and A. Everest. (September 1991). Put Diversity in Context. ‘just talk and talk’, as one vice president of human resources put it.65 Personnel Journal, 50–4. High-context cultures include Asian and Arab countries. Low-context cultures tend to be American and Northern European. Even within these countries, cultural subgroups vary in the extent to which context counts, explaining why differences among groups can hinder successful communication. White females, and indigenous people all tend to prefer higher context communication than do white males. A high-context interaction requires more time because a relationship has to be developed, and trust and friendship must be established. Furthermore, most male managers and most people doing the hiring in organisations are from low context cultures, which conflicts with people entering the organisation from a background in a higher-context culture. Understanding the subtle contextual differences among cultures requires cultural intelligence (CQ), a person’s ability to use reasoning and observation skills to interpret unfamiliar gestures and situations and devise appropriate behavioural responses.66 high-context culture A culture in which people use communication to build personal relationships. low-context culture A culture where people use communication primarily to exchange facts and information. EXHIBIT 4.7 Highcontext and low-context cultures cultural intelligence (CQ) The ability to use reasoning and observation skills to interpret unfamiliar gestures and situations, and devise appropriate behavioural responses. 170 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T TAKE A MOMENT As a new manager, remember that understanding national culture is as important as paying attention to economic and political matters when working in or with a foreign country. Prepare yourself by studying how the foreign country’s social and cultural values compare with your own country. Avoid an ethnocentric attitude and recognise how the ethnocentrism of others may affect your perspective or work attitudes. R EMEMBE R THIS ◗◗ Managers working internationally should guard against ethnocentrism, which is the natural tendency among people to regard their own culture as superior to others. ◗◗ Hofstede’s sociocultural value dimensions measure power distance, uncertainty avoidance, individualism-collectivism and masculinity-femininity. ◗◗ Power distance is the degree to which people accept inequality in power among institutions, organisations and people. ◗◗ Uncertainty avoidance is characterised by people’s intolerance for uncertainty and ambiguity and resulting support for beliefs that promise certainty and conformity. ◗◗ Individualism refers to a preference for a loosely knit social framework in which individuals are expected to take care of themselves. ◗◗ Collectivism refers to a preference for a tightly knit social framework in which individuals look after one another and organisations protect their members’ interests. ◗◗ Masculinity is a cultural preference for achievement, heroism, assertiveness, work centrality and material success. ◗◗ Femininity is a cultural preference for relationships, cooperation, group decision making and quality of life. ◗◗ Hofstede later identified another dimension, long-term orientation, which reflects a greater concern for the future and a high value on thrift and perseverance, versus short-term orientation, which reflects a concern with the past and present and a high value on meeting current obligations. ◗◗ Additional value dimensions identified by Project GLOBE are assertiveness, future orientation, gender differentiation, performance orientation and humane orientation. 4.7 INTERNATIONAL TRADE ALLIANCES Many countries have entered into a variety of international trade alliances, and we describe some of the most important of these below. Some of these have been in place for decades, and some are new, and change is always on the cards for them, as evidenced by the BREXIT vote in Britain, in which British people voted to leave much of its connection to Europe’s economy and free trade conditions. Similarly, it appears that the election of Donald Trump to the presidency of USA as of 2017 heralds a new era of such alliances, being a ‘backing off’ by the USA from some such existing and prospective agreements. This is just another key example of the changing and turbulent nature of the environment in which managers must make decisions. 4: MANAGING IN A GLOBAL ENVIRONMENT 171 GAT T A N D T H E WO R L D T R A D E O R GA N I Z AT I O N The General Agreement on Tariffs and Trade (GATT), signed by 23 nations in 1947, started as a set of rules to ensure non-discrimination, clear procedures, the negotiation of disputes and the participation of less developed countries in international trade. GATT sponsored eight rounds of international trade negotiations aimed at reducing trade restrictions. The 1986 to 1994 Uruguay Round (the first to be named for a developing country) involved 125 countries and cut more tariffs than ever before. In addition to lowering tariffs 30 per cent from the previous level, it boldly moved the world closer to global free trade by calling for the establishment of the World Trade Organization (WTO). The WTO represents the maturation of GATT into a permanent global institution that can monitor international trade and has legal authority to arbitrate disputes on some 400 trade issues.67 As China increasingly becomes ‘the world’s factory’, and India becomes a major global player in information technology, call centres and servicing industries, the globalisation of business networks is expected to roll on rapidly. The WTO, with 153 member countries, seeks to increase the welfare of people in member nations, through improving trade, but also through improving the environment, contributing to anti-dumping, intellectual property management, transparency in government and other desirable international standards. See http://www.wto.org for more details of this interesting organisation. China has benefited substantially since joining the WTO in 2001. Further, India and China are developing into becoming massive consumer markets in their own right. E U RO P E A N U N I O N Formed as the European Economic Community in 1958 to improve economic and social conditions among its members, the European Union (EU) today is a 28-nation alliance, as illustrated in EXHIBIT 4.8. The biggest expansion came in 2004 when the EU welcomed 10 new members from Southern and Eastern Europe. The goal of the EU is to create a powerful single market system for Europe’s millions of consumers, allowing people, goods and services to move freely. The increased competition and economies of scale within Europe will enable organisations to grow large and efficient, becoming more competitive in the United States and other world markets. Some observers fear that the EU will become a trade barrier, creating a ‘fortress Europe’ that will be difficult to penetrate by organisations in other nations. Another aspect of European unification is the introduction of the euro. Several member states of the EU have adopted the euro, a single European currency that replaced national currencies in Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.68 However, not all has gone smoothly for the integration, particularly since the global recession began. Small but vocal factions in several countries, including the United Kingdom, have been arguing that companies and citizens would be better off withdrawing from the Eurozone. In 2016, a historic vote in Britain led to ‘Brexit’ (‘Britain exit’), which was a decision to leave the Eurozone. As economic stability varied from country to country, pitting winners against losers, the economic crisis revived national loyalties and cross-border resentments, slowing the move toward a unified and cohesive ‘European identity’. Spain, Ireland, Portugal and particularly Greece all have had trouble paying their debts, putting the entire Eurozone at risk and leading to a possible breakup of the euro system. In 2016, this instability, in part, led to the United Kingdom voting to leave the EU. Initially economists feared the euro The single European currency that has replaced 17 national currencies in the European Union. The eight coins have one side common to all countries and a reverse side specific to each country. The seven different banknotes look the same in each country. 172 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T EXHIBIT 4.8 The 28 nations within the European Union SWEDEN FINLAND ESTONIA LATVIA DENMARK LITHUANIA NETHERLANDS IRELAND UNITED BELGIUM KINGDOM POLAND GERMANY LUXEMBOURG FRANCE CZECH REPUBLIC AUSTRIA SLOVAKIA HUNGARY ROMANIA CROATIA SLOVENIA BULGARIA ITALY SPAIN GREECE PORTUGAL MALTA CYPRUS Eurozone would suffer a damaging blow from the Brexit vote as exports to the United Kingdom would become more expensive, with business confidence in the market waning. However, initial reports have been positive with the Eurozone being described as ‘resilient’ with both output and GDP increasing.69 Even though government and industries in most of these countries have reversed the downward slide and renewed their competitiveness by cutting spending, raising taxes, and laying off millions of employees, economic uncertainties remain, with some suggestion that Greece might need another bailout. In addition, even though debt is declining in many countries, the numbers of the unemployed are soaring. Moreover, citizens are questioning whether government leaders are telling the truth about the extent of the crisis.70 Some analysts think a broad breakup of the Eurozone is unlikely, but Eurozone economies are at a crossroads. Smart managers are rethinking what they would do in the event that a return to national currencies required a rethinking of everything from how to expand operations to how to pick suppliers and pay employees.71 4: MANAGING IN A GLOBAL ENVIRONMENT NO RT H A M E R I C A N F R E E T R A D E AG R E E M E N T ( NA F TA) NAFTA, which came into effect on 1 January 1994, merged the US, Canada and Mexico into a megamarket with more than 421 million consumers. The agreement broke down tariffs and trade restrictions on most agricultural and manufactured products over a 15-year period. Thus, virtually all United States industrial exports into Canada and Mexico are duty free. NAFTA builds upon the 1989 US–Canada agreement and is aimed at spurring growth and investment, increasing exports and expanding jobs in all three nations.72 Although NAFTA has not lived up to its grand expectations, experts stress that it increased trade, investment and income and continues to enable companies in all three countries to compete more effectively with rival Asian and European firms.73 A S S O C I AT I O N O F S OU T H E A ST A S I A N NAT I O N S (A S E A N ) ASEAN was founded in 1967 when the governments of five countries – Indonesia, Malaysia, the Philippines, Singapore and Thailand – joined together to pursue three mutual purposes: ◗◗ jointly accelerating economic growth, social progress and cultural development ◗◗ promoting regional peace and stability ◗◗ actively collaborating on technical, scientific and economic matters. In the past 46 years, ASEAN has become a significant force in the fastest-growing region in the world, and has grown to a membership of 10 countries, having admitted Brunei Darussalam, Laos, Vietnam, Cambodia and Myanmar. ASEAN member countries established the AFTA arrangement (ASEAN Free Trade Area) in 1993, with a market of half a billion people, aimed at attracting investment, providing large companies with a large integrated market, and driving competitiveness and productivity forward. In 1994, the AFTA arrangements were brought forward to be fully implemented within a decade of that time, comprising the elimination of trade barriers between the member countries. Some arrangements came into place immediately to free up trade and promote business efficiency. In 1977, Australia was recognised as one of the ASEAN group’s important trading partners and was given ‘dialogue partner’ status. ASEAN keeps a committee and office in Canberra, and similar offices in other of its key trading partners, to coordinate business and other relationships. Along with Japan and China, ASEAN countries represent critically important trade partners for Australia, in terms both of imports and of exports. ASEAN countries have recently continued to expand their trading arrangements, moving forward with new agreements with Australia and New Zealand, China, India, Korea and Japan. For Australia and New Zealand, the AANZFTA (ASEAN–Australia and New Zealand Free Trade Area) agreement came into existence in 2010. It aims to make trading more efficient across these regions and countries by reducing tariffs, freeing up investment rules and making the transfer of goods, services, people and money more efficient and effective across the signatory countries. 173 174 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T SUSTAINABLE DEVELOPMENT SUSTAINABLE DEVELOPMENT: A GLOBAL ISSUE AND OPPORTUNITY Slavery still exists in some countries that use organised child labour. This would be unacceptable in first-world countries such as Australia and New Zealand. A category of product that most of us enjoy is chocolate, most of which comes from the cocoa industry of West Africa, where slavery, including that of very young children, has been widely observed and reported. As a result of pressure from consumers, special interest groups and human rights advocates, major chocolate-producing companies are increasingly pressuring their suppliers in Africa to stop such inhumane practices. And while the major global chocolate producers, such as Nestlé, Cadbury, Mars, Lindt and Hershey, have worked with their suppliers to achieve improvements and certifications that the cocoa beans that they buy are ‘slavery free’, this is easier said than done. Without major resourcing by these companies, it is all too easy for suppliers to revert to bad practices once the company buyers and inspectors have left. Nike was famously exposed in the 1990s for selling highly priced shoes that were made in Asian sweatshops, and its reputation suffered significantly. While it was Nike that became infamous for being caught allowing these things to happen and indirectly profiting from the lower costs that come from these suppliers’ factories, it is still the case that despite improvements, sweatshops are a major global problem. One issue is safety standards, which are high in first-world countries such as Australia and New Zealand, and much lower in many operations in thirdworld countries. So what should managers in Australia do, when with just a little investigation they can and do know of the much lower standards being applied in these sweatshops? Whose job is it to ‘police’ labour and safety standards in the over 100 000 factories in low-wage countries, particularly in Asia, Africa and Central and South America, that are supplying almost everything for sale in our shops? These are challenging problems to solve, with massively widespread improvements needed. Yet those local factories that run substandard operations by our Western standards are doing so to prosper, and have continuing strong incentives to shave costs by cutting all sorts of corners. This is indeed a global problem. The most progressive companies have worked hard to influence their suppliers to bring in high standards of work safety and other aspects of work. They do so from a belief that even if there are extra costs of doing so, there will be a reputational and efficiency benefit in the longer term. This will bring them a market edge, as consumers increasingly want to buy from companies that promote ‘doing good’ policies, and avoid companies that allow or turn a blind eye to substandard approaches in their supply chains. What will your stance be when you are a manager buying goods or components from relatively poor countries which do not have national workplace standards as high as yours? Nike has certainly lifted its standards of monitoring and control of these matters in its supplier companies from a low base, as has the chocolate industry. Unscrupulous employers who do not understand or cannot afford to invest in sustainable practices do the wrong thing by their workers. 175 STUDY TOOLS ONLINE STUDY RESOURCES Visit http://login.cengagebrain.com and use the access code that comes with this book for 12 months access to the resources and study tools for this chapter. Express CO UR SEM AT E EX PR ES S FO R MANAG E M E N T S E A R C H M E ! M A NAG E M E N T The CourseMate Express website contains: Explore Search Me! Management for articles relevant to this chapter. Fast and convenient, Search Me! Management is updated daily and provides you with 24-hour access to full text articles from hundreds of scholarly and popular journals, e-books and newspapers, including The Australian and The New York Times. Log in to the Search Me! Management database via http://login.cengagebrain.com and try searching for the following key words: • revision quizzes • video cases • self-assessments • audio summaries • and more! • International management • Trade alliances • Globalisation • Political risk Search tip: Search Me! Management contains information from both local and international sources. To get the greatest number of search results, try using both Australian and American spellings in your searches, e.g. ‘globalisation’ and ‘globalization’; ‘organisation’ and ‘organization’. RESPONSE TO THE MANAGEMENT CHALLENGE ACHIEVING INTERNATIONAL COMPETITIVENESS For managers at Toyota in Australia and GPC Electronics, the never-ending challenge is to justify the existence of their operations in a borderless world. Learning across borders is critical, where competitiveness has to be established and sustained on a global basis. GPC and Toyota recognise that they cannot be competitive on cost with low wage country operations, and because all manufacturers are achieving high quality these days they are turning to innovation as a differentiator. This means creating new services, product features and process improvements including new ways of doing business, that add value to customer outcomes. For large companies such as Toyota, and smaller firms such as GPC Electronics, innovation is a strategy for survival and a means towards prosperity. However, it brings challenges for managers. These include how to stimulate creativity across the workforce and how to commercialise new ideas once they are invented and validated. (See also the Capstone chapter.) With the high Australian dollar, companies such as GPC and Toyota find it increasingly difficult to justify the existence of their manufacturing operations in Australia; indeed, Toyota was forced to reduce its staff headcount in 2013–14 and announced its complete closure of Australian manufacturing as of 2017. On the other hand, GPC Electronics has found that through continuous and radical innovation it is possible to survive and prosper in the electronics industry in Australia. 176 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T DISCUSSION QUESTIONS 1 What specifically would the experience of living and working in another country contribute to your skills and effectiveness as a manager in your own country? 2 Do you think it is realistic that bottom of the pyramid (BOP) business practices can have a positive effect on poverty and other social problems in developing countries? Discuss. 3 What policies or actions would you recommend to an entrepreneurial Australian business wanting to do business in Asia, Europe or the US? 4 What steps could a company take to avoid making product design and marketing mistakes when introducing new products into a foreign country? 5 6 Compare the advantages associated with the foreign-market entry strategies of exporting, licensing and establishing wholly owned subsidiaries. Should a multinational company operate as an integrated, worldwide business system or would it be more effective to let each subsidiary operate autonomously? ETHICAL CHALLENGE 7 What does it mean to say that the world is becoming ‘borderless’ or that large organisations are ‘stateless’? 8 Do you think it’s possible for someone to develop a global mindset if they never live outside their native country? How might they do that? 9 What is meant by the cultural values of individualism and masculinity or femininity? How might these values affect organisation design and management processes? 10 How do you think trade alliances such as the EU and ASEAN may affect you as a future manager? 11 Do you expect the trends of moving manufacturing operations to China will continue unabated? Will there be any factories left in New Zealand or Australia in the year 2030? 12 Why do you think many people are so frightened by globalisation? Based on what is occurring in the world today, do you expect the globalisation backlash to grow stronger or weaker over the next decade? QUALITY OR CLOSING On the way home from the launch party celebrating Plaxcor Metals’ entrance into the international arena, Donald Fields should have been smiling. He was part of the team that had closed the deal to sell component parts to Asian Business Machine, after his company had spent millions trying to break into this lucrative market. Several more deals were riding on the successful outcome of the first international venture. The expansion into new markets was critical to Plaxcor’s survival. As CEO Leslie Hanson had put it: ‘If we aren’t global within five years, we may as well close up shop.’ Fields was tense because of news he learned tonight: intense bidding for the first sale and several last-minute changes requested by the customer had forced Plaxcor to heavily modify its production process. The production manager had confided that ‘The product is a mess but still better than most of the competition’. He went on to assure him that, although well below normal standards, the variability would ‘probably not cause any problems’ and could be worked out after a few more orders. Fields had spent the last few months selling Plaxcor on its quality reputation. He knew they could probably get by with the first runs and meet the opening deadline. He was afraid that telling the customer of the potential problems or extending the deadline would risk not only this deal but pending projects as well. But he knew if problems arose with the products, Plaxcor’s future in the Asian market would be bleak. Donald Fields was not sure Plaxcor could afford to gamble its entrance in the international market on a substandard product. W H AT D O YO U D O ? 1 Ask the customer for an extension of the deadline, and bring the products up to standard. 2 Gamble on the first runs, and hope the products do not fail. 3 Inform the customer of the problem, and let the customer make the decision. 4: MANAGING IN A GLOBAL ENVIRONMENT GROUP CHALLENGE CONSIDERATIONS FOR OVERSEAS EXPANSION While at university, a friend of yours who is studying information systems developed a computer program that can predict stock price fluctuations faster than existing products. You and he have built a solid, growing business in Australia, selling and servicing this software package to stockbroking firms and in a cut down version, to professional private investors and ‘day traders’. Sales have recently slowed in Australia because the local market is quite saturated and mature; however upgrades and servicing of existing clients continues to be profitable. As the business owners and founders, you have decided to expand overseas and are considering the following questions, being discussed at your strategy meeting. 1 177 Which countries will be most attractive to go to in the first instance, and what are the criteria for choosing these? CASE FOR CRITICAL ANALYSIS 2 Should your firm go it alone or seek to partner with firms in those countries, or acquire businesses there as a platform? 3 What staffing capability will be required to expand outside Australia? 4 Should you expect that the product will need no adaptation or some changes for foreign markets? 5 Will economic and business conditions, cultures, costs, wages and prices be the same overseas? 6 What are the key risks of overseas expansion and how will you manage them? 7 How can you best plan, organise, lead and control your overseas expansion? SHUI FABRICS Ray Betzell, general manager for the past five years of a joint venture between Rocky River Industries and Shanghai Fabric Ltd, was feeling caught in the middle. As he looked out over Shanghai’s modern gleaming skyline from his corner office, Ray knew his Chinese deputy general manager, Chiu Wai, couldn’t be more pleased with the way things were going. Ten years ago, Rocky River had launched Shui Fabrics, a 50-50 joint venture between the domestic textile manufacturer and the Chinese company, to produce, dye and coat fabric for sale to both Chinese and international sportswear manufacturers. After many obstacles, considerable red tape and several money-losing years, the joint venture was fulfilling Chiu Wai’s expectations – and those of the local government and party officials who were keeping careful tabs on the enterprise – much more quickly than he’d anticipated. By providing jobs to close to 3000 people, Shui was making a real contribution to the local economy. Job creation was no small accomplishment in a country where outside experts estimated that the actual (as opposed to the official) unemployment rate routinely hovered at 20 per cent. From Chiu Wai’s point of view, Shui was generating just the right level of profit – not too little and, just as importantly, not too much. With so many Western–Chinese joint ventures still operating in the red, Chiu Wai saw no reason Ray’s Western bosses shouldn’t be more than satisfied with their 5 per cent annual return on investment. Those earnings weren’t going to land him in hot water with local authorities, many of whom still viewed profits made by Western companies on Chinese soil as just one more instance of exploitation in a long history of foreign attempts at domination. If Chiu Wai had been eavesdropping on the conversation Ray had just had with Rocky River president Paul Danvers, the Chinese manager would have certainly been dismayed. Ray, who’d thoroughly enjoyed his time in China, was painfully aware of the quiet frustration in his boss’s voice from the other side of the world. To be sure, Paul conceded, Shui had cut Rocky River’s labour costs, given the company access to the potentially huge Chinese market, and helped inoculate the firm against the uncertainty surrounding the periodic, often contentious Western–Chinese textile trade negotiations. Current import tariffs and quotas could change at any time. ‘But a 5 per cent ROI is just pathetic,’ Paul complained. ‘And we’ve been stuck there for three years now. At this point, I’d expected to be looking at something more in the order of 20 per cent.’ He pointed out that greater efficiency plus incorporating more sophisticated technology would allow Shui to reduce its workforce substantially and put it on the road to a more acceptable ROI. ‘I’m well aware of the fact that the Chinese work for a fraction of what we’d have to pay American 178 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T workers, and I do appreciate the pressure the government is putting on you guys. But still, it doesn’t make any sense for us to hire more workers than we would in a comparable domestic plant.’ After an uncomfortable silence, during which Ray tried and failed to picture broaching the subject of possible layoffs to his Chinese counterparts, he heard Paul ask the question he’d been dreading: ‘I’m beginning to think it’s time to pull the plug on Shui. Is there any way you can see to turn this around, Ray, or should we start thinking about other options? Staying in China is a given, but there has to be a better way to do it.’ the partners in Shui Fabrics? What GLOBE Project dimensions would help you understand the differences in Chinese and Western perspectives illustrated in the case? 2 How would you define Shui’s core problem? Are sociocultural differences the main underlying cause of this problem? Why or why not? How would you handle the conflict with your boss back in Australia, New Zealand or the United States? 3 If you were Ray Betzell, what other options to the 50–50 joint venture would you consider for manufacturing textiles in China? Make the argument that one of these options is more likely to meet Rocky River’s expectations than the partnership already in place. QUE S TI ONS 1 How would you characterise the main economic, legal–political and sociocultural differences influencing the relationship between SOURCES: Based on Katherine Xin and Vladimir Pucik. (August 2003). Trouble in Paradise. Harvard Business Review, 27–35; Lillian McClanaghan and Rosalie Tung. (21 March 1991). Summary of ‘Negotiating and Building Effective Working Relationships with People in China’. Presentation by Sidney Rittenberg, Pacific Region Forum on Business and Management Communication, Simon Fraser University, Harbour Centre, Vancouver, BC, http://www.cic.sfu.ca/forum/rittenbe.html; and Charles Wolfe Jr. China’s Rising Unemployment Challenge. Rand Corporation web page, http://www.rand.org/. ON THE JOB VIDEO CASE BLACK DIAMOND EQUIPMENT: MANAGING IN A GLOBAL ENVIRONMENT Watch the following video to see how Black Diamond approaches its management functions. QUE S TI ONS 1 What evidence do you see of a global mind-set in these managers? List at least three examples of global thinking provided in the video. 2 Referencing the common traits of an MNC as described in the text, explain why you think Black Diamond is or is not a multinational corporation. 3 Describe at least two environmental factors that affect this business, and summarise how the managers are responding to these factors. ENDNOTES 1 Engardio, P. (22–29 August 2005). A New World Economy. BusinessWeek, 52–8. 2 Burkitt, L. and Mozur, P. (5 April 2013). China Squeezes Western Firms. The Wall Street Journal, B1. 3 Ibid. 4 Lublin, J. S. (11 April 2011). Hunt Is on for Fresh Executive Talent—Cultural Flexibility in Demand. The Wall Street Journal, B1. 5 Shield U.S. from Cybercrime; Foreign Hackers Stepping up Their Attacks. (10 December 2009). South Florida Sun-Sentinel; Bryan-Low, C. (21 November 2006). Criminal Network: To Catch Crooks in Cyberspace, FBI Goes Global. The Wall Street Journal. 6 Quoted in Ryan Underwood, ‘Going Global,’ Inc. (March 2011): 96–98. 7 Daft, R. (1992). Organization Theory and Design. St Paul: West; Adler, N. J. (1991). International Dimensions of Organizational Behavior. Boston: PWS-Kent, 7–8; Holstein, W., Reed, S., Kapstein, J., Vogel, T. and Weber, J. (14 May 1990). The Stateless Corporation. BusinessWeek, 98–105. 8 Beeth, G. (May 1997). Multicultural Managers Wanted. Management Review, 17–21; Matson, E. (April–May 1997). How to Globalise Yourself. Fast Company, 133–9. 9 Holstein, W., Byrne, J. A. and Kerwin, K., with Cortese, A. and Dwyer, P. (23 May 1994). Borderless Management. BusinessWeek, 24–6; Landler, M., Barnathan, J., Smith, G. and Edmondson, G. (18 November 1994). Think Globally, Program Locally. BusinessWeek/21st Century Capitalism, 186–9. 10 This section is based on S. Beechler and D. Baltzley. (29 May 2008). Creating a Global Mindset. Chief Learning Officer, http://clomedia.com/articles/view/creating_a_global_mindset/1 (accessed 26 June 2012); J. S. P. Story and J. E. Barbuto, Jr. (2011). Global Mindset: A Construct Clarification and Framework. Journal of Leadership and Organizational Studies, 18:3, 377–384; 4: MANAGING IN A GLOBAL ENVIRONMENT 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 and S. L. Cohen. (2010). Effective Global Leadership Requires a Global Mindset. Industrial and Commercial Training, 42:1, 3–10. Definition based on M. Javidan and M. B. Teagarden. (2011). Conceptualizing and Measuring Global Mindset. Advances in Global Leadership, 6, 13–39; and Beechler and Baltzley. Creating a Global Mindset. Titus, A. Competency of Intercultural Management. (11 March 2009). The Jakarta Post, http://www.thejakartapost.com/news/2009/03/11/competency-intercultural- management. html (accessed 30 June 2012). Based on Javidan, M. and Walker, J.L. (2012). ‘A Whole New Global Mindset for Leadership’, People & Strategy 35:2, 36–41. This is based on Gregory C. Unruh and Ángel Cabrera, ‘Join the Global Elite’, Harvard Business Review (May 2013): 135–139. Bob Davis, ‘As Global Economy Shifts, Companies Rethink, Retool’, The Wall Street Journal, 7 November 2010, http://online.wsj.com/article/SB10001424052748704049904575554290932 153112.html (accessed 29 June 2012). Ramsey, M. (16 April 2013). Ford’s CEO Revs up Auto Maker’s China Role. The Wall Street Journal, B7. George Stalk and David Michael, ‘What the West Doesn’t Get About China’, Harvard Business Review (June 2011): 25–27; Zoe McKay, ‘Consumer Spending in China: To Buy or Not to Buy’, Forbes.com, 15 June 2012, www.forbes.com/sites/insead/2012/06/15/consumerspending-in-china-to-buy-or-not-to-buy/ (accessed 29 June 2012); and Adam Davidson, ‘Come On, China, Buy Our Stuff!’ The New York Times, 25 January 2012, www.nytimes. com/2012/01/29/magazine/come-on-china-buy-our-stuff.html?pagewanted=all (accessed 29 June 2012). W. Michael Cox and Richard Alm, ‘China and India: Two Paths to Economic Power’, Economic Letter, Federal Reserve Bank of Dallas, August 2008, www.dallasfed.org/research/ eclett/2008/el0808.html (accessed 14 July 2010). ‘Pharmaceuticals’, India Brand Equity Foundation, IBEF.org, May 2012, www.ibef.org/ industry/pharmaceuticals.aspx (accessed 29 June 2012); and Sushmi Dey, ‘Indian Pharma Eyes US Generic Gold Rush’, Business Standard, 27 June 2012, www.business-standard.com/ india/news/indian-pharma-eyes-us-generic-gold-rush/478593/ (accessed 29 June 2012). Count: Really Big Business. (December 2008–January 2009). Fast Company, 46. Bell, D. E. and Shelman, M. L. (November 2011). KFC’s Radical Approach to China. Harvard Business Review, 137–42. Perlmutter, H. V. (January–February 1969). The Tortuous Evolution of the Multinational Corporation. Columbia Journal of World Business, 9–18; and Y. Wind, S. P. Douglas and H. V. Perlmutter. (April 1973). Guidelines for Developing International Marketing Strategies. Journal of Marketing, 14–23. Apple Inc. (2016). Apple reports second quarter results. http://www.apple.com/au/pr/ library/2016/04/26Apple-Reports-Second-Quarter-Results.html (accessed 3 November 2016); Yu, Hui-yong (20 July 2015). Apple said to lease office space in Seattle Tower. Bloomberg, https://www.bloomberg.com/news/articles/2015-07-20/apple-said-to-leaseoffice-space-in-seattle-tower (accessed 3 November 2016); Apple Inc. (2016). Apple website. Available: http://www.apple.com/au/ (accessed 3 November 2016). Easton, N. (4 February 2008). Make the World Go Away. Fortune, 105–8. Schroeder, M. and Aeppel, T. (10 December 2003). Skilled Workers Sway Politicians with Fervor Against Free Trade. The Wall Street Journal. Wong, S., Liu J. and Culpan, T. (7–13 June 2010). Life and Death at the iPad Factory. Bloomberg BusinessWeek, 35–6; C. Duhigg and S. Greenhouse. (29 March 2012). Apple Supplier in China Pledges Big Labor Changes. The New York Times, http://www.nytimes. com/2012/03/30/business/apple-supplier-in-china-pledges-changes-in-workingconditions.html?pagewanted=all (accessed 30 June 2012); and K. Drew. (29 March 2012). Apple’s Chief Visits iPhone Factory in China. The New York Times, http://www.nytimes. com/2012/03/30/technology/apples-chief-timothy-cook-visits-foxconn-factory.html (accessed 30 June 2012). McQuaid, J. (12 June 2012). Why Apple Is Bringing Manufacturing Back To The United States. Forbes, http://www.forbes.com/sites/johnmcquaid/2012/12/06/why-apple-isbringing-manufacturing-back-to-the-united-states (accessed August 2013); E. Dou. (29 May 2013). Apple Shifts Supply Chain Away From Foxconn to Pegatron. The Wall Street Journal, http://online.wsj.com/article/SB10001424127887323855804578511122734340726. html (accessed August 2013). Prahalad, C. K. (13 April 2011). The Fortune at the Bottom of the Pyramid. Fast Company, http:// www.fastcompany.com/1746818/fortune-at-the-bottom-of-the-pyramid-ck-prahalad (accessed 30 June 2012); C. K. Prahalad and S. L. Hart. (2002). The Fortune at the Bottom of the Pyramid. 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 179 Strategy + Business, 26, 54–67; and S. Johnson. (September–October 2007). SC Johnson Builds Business at the Base of the Pyramid. Global Business and Organizational Excellence, 6–17. Kerr, J. (May 1989). Export Strategies. Small Business Reports, 20–5. Wellner, A. S. (May 2006). Turning the Tables. Inc., 55–9. Harrigan, K. R. (February 1987). Managing Joint Ventures. Management Review, 24–41; and T. R. Revesz and M. C. de la Sierra. (March 1987). Competitive Alliances: Forging Ties Abroad. Management Review, 57–9. Weaver, C. (2 May 2012). Abbott Looks to Consumer for Growth. The Wall Street Journal, http://online.wsj.com/article/SB10001424052702303990604577367760661436198.html (accessed 28 June 2012). Areddy, J. T. (4 June 2012). European Project Trips China Builder. The Wall Street Journal, A1; and K. Semple. (10 August 2011). Bridge Repairs by a Company Tied to Beijing. The New York Times, http://www.nytimes.com/2011/08/11/nyregion/china-construction-co-involvedin-new-yorks-public-works.html (accessed 27 June 2012). Goerzen, A. (2005). Managing Alliance Networks: Emerging Practices of Multinational Corporations. Academy of Management Executive, 19:2, 94–107. Michaels, D., Ostrower, J. and Pearson, D. (2 July 2012). Airbus’s New Push: Made in the U.S.A. The Wall Street Journal. Holt, J. Gone Global? Management Review (March 2000): 13. Hookway, J. (5 June 2012). IKEA’s Products Make Shoppers Blush in Thailand. The Wall Street Journal, A1. Holt. Gone Global? Slogans Often Lose Something in Translation. The New Mexican. 3 July 1994. For a recent overview of various environmental factors influencing firms that operate internationally, see D. Conklin. (July–August 2011). The Global Environment of Business: New Paradigms for International Management. Ivey Business Journal, http://www. iveybusinessjournal.com/topics/global-business/the-global-environment-of-business-newparadigms-for-international-management (accessed 27 June 2012). Richman, L. S. (1997). Global Growth is on a Tear, in F. Maidment (ed.) International Business 1997/98, Annual Editions, Guilford Publishing Group, 6–11. Henkoff, R. (27 October 1997). Asia: Why Business is Still Bullish. Fortune, 139–42. Hall, J. (August 2004). Our Top Leaders. BOSS Magazine, 58–63. Walker, M., Forelle, C. and Gauthier-Villars, D. (11 May 2010). Europe Bailout Lifts Gloom. The Wall Street Journal; and G. Bowley and C. Hauser. (21 May 2010). Stocks Plunge on Fears of a Spreading European Crisis. The New York Times. A New Definition of Misery. (18 December 2009). The New York Times (based on data from Moody’s), http://www.nytimes.com/imagepages/2009/12/18/business/economy/20091219_ CHARTS_GRAPHIC.html (accessed 27 September 2012). Ramsey, M. and Takahashi, Y. (1 November 2011). Car Wreck: Honda and Toyota. The Wall Street Journal Online, http://online.wsj.com/article/SB100014240529702045282045770090 44170787650.html (accessed 29 June 2012); S. Clifford. (1 November 2011). Rattling WalMart’s Supply Chain. International Herald Tribune, 17. Serwer, A. E. (17 October 1994). McDonald’s Conquers the World. Fortune, 103–16; Deveny, K. (13 October 1986). McWorld? BusinessWeek, 78–86. Kogut, B. (Fall 1985). Designing Global Strategies: Profiting from Operational Flexibility. Sloan Management Review, 27, 27–38. Ferguson, A. (23 August 2001). Strategy: Sovereign Stuff. Business Review Weekly, 38. Fitzpatrick, M. (1983). The Definition and Assessment of Political Risk in International Business: A Review of the Literature. Academy of Management Review, 8, 249–54. Bowman, R. J. (March 1995). Are You Covered? World Trade, 100–4; Stapenhurst, F. (March– April 1995). Political Risk Analysis in North American Multinationals: An Empirical Review and Assessment. International Executive, 127–45; (29 April 1986). Multinational Firms Act to Protect Overseas Workers from Terrorism, The Wall Street Journal, 31. Alisa Wiersema, ‘Everything You Need to Know About the Syrian Civil War’, ABC News, 31 August 2013, http://abcnews.go.com/Politics/syrian-civil-war/story?id=20112311 (accessed 2 September 2013); and quote from Peter Wonacott, ‘An Entrepreneur Weathers a Tumultuous Arab Spring’, The Wall Street Journal, 17 January 2012, http:// online.wsj.com/article/SB10001424052970203436904577150690233235850.html (accessed 27 June 2012). Suzanne Choney, ‘New York Times Hacked, Syrian Electronic Army Suspected’, NBC News, 28 August 2013, http://www.nbcnews.com/technology/new-york-times-hacked-syrianelectronic-army-suspected-8C11016739 (accessed 2 September 2013). Gooderham, M. (21 June 2012). Companies That Go Where Others Fear to Tread. The Globe and Mail, B7. 180 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T 55 Borelli, R. (October 1997). A Worldwide Language TRAP. Management Review, 52–4; Pincus, L. B. and Belohlav, J. A. (1996). Legal Issues in Multinational Business: To Play the Game, You Have to Know the Rules. Academy of Management Executive, 10:3, 52–61. 56 Gilley, B. (30 August 2001). Jiang’s Turn Tempts Fate. Far Eastern Economic Review, 30. 57 Hofstede, G. (1984). Culture’s Consequences. London: Sage Publications; Hofstede, G. (1985). The Interaction between National and Organizational Value Systems. Journal of Management Studies, 22, 347–57. 58 Hofstede, G. (1993). Cultural Constraints in Management Theory. Academy of Management Executive, 7, 81–94. Hofstede, G. and Bond, M. H. (1988). The Confucian Connection: From Cultural Roots to Economic Growth. Organizational Dynamics, 16, 4–21. 59 Bing, J. W. (1 February 2004). Hofstede’s Consequences: The impact of his work on consulting and business practices. Academy of Management Executive, 18:1, http:// eds.b.ebscohost.com.ezp.lib.unimelb.edu.au/eds/pdfviewer/pdfviewer?sid=b4c29876ba30-4c03-8aec-ff27318534ac%40sessionmgr112&vid=35&hid=105; Gelfand, M. J., Bhawuk, D. P. S., Nishii, L. H. and Bechtold, D. J. (2004). Individualism and Collectivism, in House, et al. (eds). Culture, Leadership and Organizations: The Globe Study of 62 Societies (Thousand Oaks, CA: Sage). 60 Jackofsky, E. F., Slocum, J. W. Jr. and McQuaid, S. J. (1988). Cultural Values and the CEO: Alluring Companions? Academy of Management Executive, 2, 39–49. 61 Javidan M. et al. (February 2006). In the Eye of the Beholder: Cross-Cultural Lessons from Project GLOBE. Academy of Management Perspectives: 67–90; R. J. House et al. eds (2004). Culture, Leadership, and Organizations: The GLOBE Study of 62 Societies (Thousand Oaks, CA: Sage Publications); M. Javidan and R. J. House. (2001). Cultural Acumen for the Global Manager: Lessons from Project GLOBE. Organizational Dynamics, 29:4: 289–305; and R. J. House et al. (2002). Understanding Cultures and Implicit Leadership Theories Across the Globe: An Introduction to Project GLOBE. Journal of World Business, 37, 3–10. 62 Sanchez-Runde, C. et al. (2011). Looking Beyond Western Leadership Models: Implications for Global Managers. Organizational Dynamics 40, 207–13. 63 Nicholls, C. E., Lane, H. W. and Brehm Brechu, B. (1999). Taking Self-Managed Teams to Mexico. Academy of Management Executive 13:2: 15–27; C. F. Fey and D. R. Denison. (November–December 2003). Organizational Culture and Effectiveness: Can American Theory Be Applied in Russia? Organization Science, 14:6, 686–706; E. F. Jackofsky, J. W. Slocum, Jr. and S. J. McQuaid. (1988). Cultural Values and the CEO: Alluring Companions? Academy of Management Executive, 2: 39–49. 64 Kennedy, J. and Everest, A. (September 1991). Put Diversity in Context. Personnel Journal, 50–4. 65 Spencer, J. (4 November 2008). Lenovo Goes Global, But Not Without Strife. The Wall Street Journal. 66 Earley, C. P. and Mosakowski, E. (October 2004) Cultural Intelligence. Harvard Business Review: 139. 67 Holt, D. H. (1998). International Management: Text and Cases. Fort Worth: The Dryden Press; Harmsen, R. (March 1995). The Uruguay Round: A Boon for the World Economy. Finance & Development, 24–6; Pitroda, S. S. (Spring 1995). From ATT to WTO: The Institutionalization of World Trade. Harvard International Review, 46–7, 66–7; The Economist (19 December 1998). Chinese Toy Making: Where the Furbies Come From, 95. 68 European Commission Economic and Financial Affairs website, http://ec.europa.eu/ economy_finance/euro/index_en.htm (accessed 18 March 2010). 69 Inman, P. (24 August 2016). Eurozone resilient after Brexit vote as output increases. The Guardian, https://www.theguardian.com/business/2016/aug/23/eurozone-brexit-ihsmarkit-gdp-growth (accessed 3 November 2016). 70 Jonathan Buck, ‘Europe’s Economy Will Rebound’, Barron’s, 22 July 2013, http://online. barrons.com/article/SB50001424052748704093404578613863100842212.html#articleTabs_ article%3D1 (accessed 2 September 2013); Clive Crook, ‘Opening Remarks: Who Lost the Euro?’ part of a ‘Special Euro Crisis’ section, Bloomberg BusinessWeek (May 28–June 3, 2012): 10–12; Dalibor Rohac, ‘The Never-Ending Greek Tragedy’, U.S. News and World Report (30 August 2013), http://www.usnews.com/opinion/articles/2013/08/30/greeceshows-the-eurozone-crisis-is-far-from-over (accessed 2 September 2013); Rebecca Clancy, ‘Rehn: Too Early to Say Eurozone Crisis Is Over’, The Telegraph, 29 August 2013, http://www.telegraph.co.uk/finance/economics/10273514/Rehn-Too-early-tosay-eurozone-crisis-is-over.html (accessed 2 September 2013); Thomas, ‘In Europe, a Risk-Filled Choice for Britain’; and Todd Buell, ‘Germans Believe Politicians Are Lying about Crisis, Says Study’, The Wall Street Journal, 15 August 2013, http://blogs.wsj.com/ eurocrisis/2013/08/15/germans-believe-politicians-are-lying-about-crisis-says-study/ (accessed 2 September 2013). 71 Vanessa Fuhrmans and Dana Cimilluca, ‘Business Braces for Europe’s Worst— Multinationals Scramble to Protect Cash, Revise Contracts, Tighten Payment Terms’, The Wall Street Journal, 1 June 2012, B1. 72 Rudolph, B. (10 August 1992). Megamarket. Time, 43–4. 73 Munroe, T. (9 January 2004). NAFTA Still a Work in Progress. Knight Ridder/Tribune News Service; J. Sparshott. (18 December 2003). NAFTA Gets Mixed Reviews. The Washington Times; and A. Borrus. (24 August 1992). A Free-Trade Milestone, with Many More Miles to Go. BusinessWeek, 30–31. CHAPTER 5 E THICS, SOCIAL RESPONSIBIL IT Y AND SUS TAINABL E DE VELOPMENT L E A R N I NG OBJ E C T I V E S AFTER STU DYI N G T H I S C H A P T E R , YO U S H O U L D B E A B L E TO : 1 define ethics and explain how ethical behaviour relates to behaviour governed by law and free choice 2 discuss why ethics is important for managers and identify recent events that call for a renewed commitment to ethical management 3 explain the utilitarian, individualism, moral rights, justice and practical approaches for making ethical decisions 4 describe the factors that shape a manager’s ethical decision making, including levels of moral development 5 define corporate social responsibility and how to evaluate it along economic, legal, ethical and discretionary criteria 6 identify important stakeholders for an organisation and discuss how managers balance the interests of various stakeholders 7 explain the philosophy of sustainability and why organisations are embracing it 8 describe what is meant by ‘the triple bottom line’. Discuss how ethical organisations are created through ethical leadership and organisational structures and systems 9 explain particular issues of ethical behaviour and sustainable development applicable in Australia. Express Throughout this chapter, the CourseMate Express icons indicate an opportunity for online selfstudy, linking you to activities and other online resources. 182 MANAGEMENT CHALLENGE MONSANTO’S ETHICAL CHALLENGES Over the past decade or so, Monsanto has been transformed from a chemicals firm into a biotechnology company. The organisation’s vast array of stakeholders around the world includes customers, investors, suppliers, partners, health and agricultural organisations, regulatory agencies, research institutes and governments. Monsanto experienced some big problems in recent years because of its failure to satisfy various stakeholder groups. For example, the company’s genetic seed business has been the target of controversy and protest. Small farmers were concerned about new dependencies that might arise for them when using the new seeds. European consumers rebelled against a perceived imposition of unlabelled, genetically modified food ingredients. Research institutes and other organisations took offence at what they perceived as Monsanto’s arrogant approach to the new business. Activist groups accused the company of creating ‘Frankenstein foods’. To make matters even worse, in seeking to sell genetically modified seeds in Indonesia, managers allegedly bribed government officials, which got Monsanto into trouble with the regulatory authorities. QU E S T I O N When and how does a company manage the tradeoffs and conflicts between the requirements and desires of its different stakeholder groups, which are often pulling it in different and sometimes opposite directions? How can Monsanto best manage its stakeholder relationships and perceived problems? 183 184 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T NEW MANAGER SELF-ASSESSMENT WHAT IS YOUR LEVEL OF ETHICAL MATURITY? Instructions – it probably won’t happen right away, but soon enough in your duties as a new manager, you will be confronted with a situation that will test the strength of your moral beliefs or your sense of justice. Are you ready? To find out, think about times when you were part of a student or work group. To what extent does each of the following statements characterise your behaviour when working with others in a group? Please answer each of the following items as mostly true or mostly false for you. MOSTLY TRUE MOSTLY FALSE 1 I can clearly state the principles and values that guide my actions. 2 I quickly acknowledge my mistakes and take responsibility for them. 3 I am able to quickly ‘forgive and forget’ when someone has made a serious mistake that affected me. 4 When making a difficult decision, I take time to assess my principles and values. 5 I have a reputation among my friends and co-workers for keeping my word. 6 I am completely honest and can be trusted to tell the truth. 7 When someone asks me to keep a confidence, I always do so completely. 8 I hold others accountable for using ethical practices in their work. 9 I insist on doing what is fair and ethical even when it is not easy. 10 My coworkers would say that my behaviour is very consistent with my values. Scoring and Interpretation: Each of these questions pertains to some aspect of ethical maturity in a group situation, which also reflects a person’s level of moral development. Count the number of checks for mostly true. If you scored 7 or more, congratulations! That behaviour suggests you would be near Level 3 in EXHIBIT 5.3 of the levels of moral development. The postconventional level of development means that you consider principles and values, take personal responsibility, and do not blame others. You may have a highly developed ethical sense. A lower score suggests that you may be at the conventional or even preconventional level. A score below 5 indicates that you may avoid difficult issues or have not been in situations that challenged your ethical values. Study the specific questions for which you scored mostly true and mostly false to learn more about your specific strengths and weaknesses. Think about what influences your ethical behaviour and decisions, such as a need for success or approval. The situation at Monsanto illustrates how difficult ethical issues can be and symbolises the growing importance of discussing ethics and social responsibility. Organisations around the world are rushing to adopt codes of ethics and develop socially responsible policies. Ethics consultants are doing huge amounts of business; unfortunately, the trend is necessary. In this chapter, we will examine the challenging issues of the ethical dilemmas that all managers will face during their careers, and the core ideas of the role and relationship of organisations and their 185 stakeholders. We will particularly examine the three major outputs of organisations, namely the ‘triple bottom line’ of financial/economic outcomes, environmental (green) outcomes and the social/societal outcomes of organisations. An example of the environmental outcome of an organisation is its carbon footprint, and the social outcome can refer to the quantity and quality of jobs created in a community. The key point is that it is not enough for an organisation and its managers to simply be financially successful if it is not successful in satisfying the other two domains of environment and societal outcomes. Such a position is not ‘sustainable’ in the longer term. The term ‘sustainable development’ is introduced and discussed later in this chapter, and in the other chapters of this book. It relates to every aspect of management. It provides new opportunities and challenges for managers. ‘Stakeholder engagement’ must also be considered on a broader basis than past common practice has achieved. Every decade sees its share of corporate, political and social villains, but the pervasiveness of ethical lapses in the 2000s was astounding. Once-respected firms such as Enron, HIH, Arthur Andersen, Lehman Brothers, AWB, WorldCom, Tyco and HealthSouth became synonymous with greed, deceit and financial chicanery. No wonder a public poll found that 79 per cent of respondents believe questionable business practices are widespread. Fewer than one-third said they think most CEOs are honest.1 Moreover, more than 20 per cent of US-based employees surveyed report having first-hand knowledge of managers making false or misleading promises to customers, discriminating in hiring or promotions and violating employees’ rights.2 In China, fraud and corruption are reported to be widespread and to consume 15 per cent of the country’s GDP. The underground economy is reported to be worth another 20 per cent of GDP. Despite a variety of measures taken by authorities and international pressure, counterfeiting and piracy is widespread in China. Australia is not immune to such problems and practices, although they are not considered to be as widespread as in China and in countries such as Thailand, where rapidly developing See Chapters 3 and 4 for a discussion on environment, 3 economies seem to attract and even allow these unlawful practices to exist and flourish. corporate culture and the On the other hand, there also is positive news to report. The international pharmaceutical company, international environment. GlaxoSmithKline, slashed the price of the AIDS drug AZT in developing nations by as much as 75 per cent. Many major manufacturers, including DuPont, Electrolux and Shell are embracing environmental goals and developing eco-friendly products. Several years ago, Eastman Kodak Company took an unprecedented step by tying a percentage of managers’ pay to factors such as how well they treat their employees.4 A host of companies gave large amounts of their goods as well as cash to help victims of the Queensland floods and the Christchurch earthquake in 2011. Many of these companies did not seek publicity for these good deeds, they just gave in the same way that many individuals gave, taking a discretionary response to the situation. This chapter expands on the ideas about environment, corporate culture Goldman Sachs CEO Lloyd Blankfein was in the hot and the international environment discussed in Chapters 3 and 4. We first seat as he defended the firm’s role in creating Abacus, focus on specific ethical values that build on the idea of corporate culture. Then a mortgage-backed investment fund allegedly designed to fail. While Goldman bet against the fund as a way to we examine corporate relationships to the external environment as reflected in hedge against a weakening housing market, its trading side facilitated sales of Abacus to institutional customers. corporate social responsibility and sustainable development. We also discuss The manoeuvre helped Goldman weather the financial crisis but raised serious questions about its managerial fundamental approaches that help managers think through ethical issues. ethics. Blankfein said that the firm’s trading side is simply Ethics and sustainable development are hot topics in corporate Australia, New ‘a machine that lets people buy and sell what they want to buy and sell’. Despite this defence, Goldman agreed in Zealand and elsewhere. Understanding ethical approaches helps managers 2010 to pay US$550 million to settle federal claims that it misled investors. build a solid foundation on which to base future decision making. Source: AAP Image/Ramin Talie 5 : E T H I C S , S O C I A L R E S P O N S I B I L I T Y A N D S U S TA I N A B L E D E V E L O P M E N T 186 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T 5.1 ethics The code of moral principles and values that governs the behaviour of a person or a group with respect to what is right or wrong. WHAT IS MANAGERIAL ETHICS? Ethics is difficult to define in a precise way. In a general sense, ethics is the code of moral principles and values that governs the behaviours of a person or group with respect to what is right or wrong. Ethics sets standards as to what is good or bad in conduct and decision making.5 An ethical issue is present in a situation when the actions of a person or organisation may harm or benefit others.6 Yet ethical issues sometimes can be exceedingly complex. People may hold widely divergent views about the most ethically appropriate or inappropriate actions related to a situation.7 Consider the issue of competitive intelligence. Companies are increasingly using social media sites to learn more about their competition, some even going so far as to ‘friend’ customers or employees of rivals and post seemingly innocuous questions to gather information that can provide them with a competitive advantage.8 The laws regarding information gathering aren’t clear-cut, and neither are opinions regarding the ethics of such tactics. What do you think? Whereas some people think any form of corporate spying is wrong, others think it is an acceptable way of learning about the competition.9 Managers frequently face situations in which it is difficult to determine what is right. In addition, they might be torn between their misgivings and their sense of duty to their bosses and the organisation. Ethics can be more clearly understood when compared with behaviours governed by law and by free choice. EXHIBIT 5.1 illustrates that human behaviour falls into three categories. The first is codified law, in which values and standards are written into the legal system and enforceable in the courts. In this area, lawmakers set rules that people and corporations must follow in a certain way, such as obtaining licences for cars, paying corporate taxes or following other local, state and national laws. For example, former vice chairman of Walmart, Thomas Coughlin, pleaded guilty to fraud and tax evasion charges. Coughlin resigned in 2005 amid allegations that he defrauded the giant retailer out of hundreds of thousands of dollars, and the investigation was turned over to federal prosecutors.10 Behaviours such as fraud and tax evasion are clearly against the law. The domain of free choice is at the opposite end of the scale and pertains to behaviour about which the law has no say and for which an individual or organisation enjoys complete freedom. An example is a manager’s choice of where to buy a new suit, or an organisation’s choice of which of two well-qualified candidates to hire for an open position. Between these domains lies the area of ethics. This domain has no specific laws, yet it does have standards of conduct based on shared principles and values about moral conduct that guide an individual or company. For example, it is not illegal for a manager like Harry Stonecipher, former CEO of Boeing, to have an extramarital affair with a female executive, but his behaviour violated Boeing’s code of ethical conduct, and Stonecipher was replaced. However, a manager who commits sexual harassment is not just being unethical but is breaking the law. Steven J. Heyer was fired as CEO of Starwood Hotels & Resorts Worldwide Inc. after the board received an anonymous letter that accused Heyer of inappropriately touching female employees and creating a hostile work environment.11 Many companies and individuals get into trouble with the simplified view that decisions are governed by either law or free choice. This view leads people to mistakenly assume that if it’s not illegal, it must be ethical, as if there were no third domain.12 A better option is to recognise the domain of ethics and accept moral values as a powerful force for good that can regulate behaviours both inside and outside organisations. 5 : E T H I C S , S O C I A L R E S P O N S I B I L I T Y A N D S U S TA I N A B L E D E V E L O P M E N T Domain of Domain Domain of codified law of ethics (legal standard) (social standard) free choice (personal standard) Amount of High explicit control Low E T H I C A L M A NAG E M E N T T ODAY Every decade seems to experience its share of scoundrels, but the pervasiveness of ethical lapses during the early twenty-first century has been astounding. In a recent Gallup poll conducted in the United States regarding the perception of business leaders, just 15 per cent of respondents rated leaders’ honesty and ethical standards as ‘high’ or ‘very high’.13 More than 75 per cent of people surveyed agree with the statement that the corporate moral compass is ‘pointing in the wrong direction’; 69 per cent say that executives rarely consider the public good in making decisions; and a whopping 94 per cent say that executives make decisions based primarily on advancing their own careers.14 Another recent survey of Wall Street workers by the law firm Labaton Sucharow shows that those opinions might not be far off the mark. Almost 25 per cent of finance professionals say that they would cheat to make US$10 million if they could get away with it. Moreover, 52 per cent believe that it is likely that their competitors have engaged in illegal or unethical activity.15 Managers and organisations engage in unethical behaviour for any number of reasons, such as personal ego, greed, or pressures to increase profits or appear successful. Yet managers carry a tremendous responsibility for setting the ethical climate in an organisation and can act as role models for ethical behaviour.16 EXHIBIT 5.2 details the findings from one study that narrowed the range of ethical behaviours down to four primary ways in which managers can act to promote a climate in which everyone behaves in an ethical and socially responsible way. Ethical managers display honesty and integrity, communicate and enforce ethical standards through their behaviour are fair in their decisions and the distribution of rewards, and show kindness and concern for others.17 In Australia, 2013 brought a Royal Commission into child (sexual) abuse, focusing on institutions such as religious organisations, in which children should have been safe from harm, but as it turns out, were often not. In the business world, a series of corporate scandals have destroyed the reputations of a number of large companies including AIG, Lehman Brothers, Enron, Bear Stearns, Countrywide and WorldCom. Managers carry a tremendous responsibility for setting the ethical climate in an organisation and can act as role models for others.18 Managers are responsible for seeing that resources are used to serve the interests of stakeholders, including shareholders, employees, customers and society. EXHIBIT 5.2 details various ways that organisations sometimes behave unethically towards customers, employees and other stakeholders.19 Unfortunately, in today’s environment, an overemphasis on pleasing shareholders may cause some managers to behave unethically towards customers, employees and the broader society. Managers are under enormous pressure to meet short-term earnings goals, and some even use accounting gimmicks or other techniques to show returns that meet market expectations rather than ones that reflect true performance. EXHIBIT 5.1 Three domains of human action 187 188 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T Moreover, most executive compensation plans include hefty stock-based incentives, a practice that encourages managers to do whatever will increase the share price, even if it hurts the company in the long run. When managers ‘fall prey to the siren call of shareholder value’, all other stakeholders may suffer.20 Executive compensation has become a hot-button issue, particularly in the United States.21 In 2011, the average pay of CEOs at large US-based corporations was 380 times what the average employee was paid. A study by the Economic Policy Institute found that between 1978 and 2011, the average worker’s annual pay grew 5.7 per cent, while average CEO pay increased a whopping 726.7 per cent in the United States, and ratios similar to these occur in most developed Western nations.22 The question of whether it is ethical for managers to rake in huge sums of money compared to other employees is of growing concern, and in general, the widespread ethical lapses of the past decade have put managers under increasing scrutiny. Towards customers EXHIBIT 5.2 Examples of unethical and illegal organisational behaviour False or deceptive sales practices Submitting misleading invoices Fabricating product quality data Towards employees Towards financiers Discriminating against employees Creating a hostile work environment Violating health and safety rules Towards suppliers Accepting favours or kickbacks Violating contract terms Paying without accurate records or invoices Falsifying financial reports Breaching database controls Using confidential information Towards society Violating environmental standards Exposing public to safety risks Violating international human rights Source: Based on Muel Kaptein. (October 2008). Developing a Measure of Unethical Behavior in the Workplace: A Stakeholder Perspective. Journal of Management, 34:5, 978–1008. THE BUSI NE SS CASE FOR ETH ICS A ND SOCI AL RE SPONSI BI LIT Y Naturally, the relationship of ethics and social responsibility to an organisation’s financial performance concerns both managers and management scholars and has generated a lively debate.23 Hundreds of studies have been undertaken to determine whether heightened ethical and social responsiveness increases or decreases a 5 : E T H I C S , S O C I A L R E S P O N S I B I L I T Y A N D S U S TA I N A B L E D E V E L O P M E N T 189 company’s financial performance. Studies have provided varying results, but they have generally found a positive relationship between ethical and socially responsible behaviour and a firm’s financial performance.24 For example, a recent study of the top 100 global corporations that have made a commitment to sustainability, weaving environmental and social concerns into all their decisions, had significantly higher sales growth, return on assets, profits, and cash flow from operations in at least some areas of the business.25 The philosophy of sustainability will be discussed later in this chapter. Another review of the financial performance of large US-based corporations considered ‘best corporate citizens’ found that they enjoy both superior reputations and superior financial performance.26 Although results from these studies are not proof, they do provide an indication that using resources for ethics and social responsibility does not hurt companies.27 Companies are also making an effort to measure the nonfinancial factors that create value. For example, researchers find that people prefer to work for companies that demonstrate a high level of ethics and social responsibility; thus, these organisations can attract and retain high-quality employees.28 Customers pay attention too. A study by Walker Research indicates that, price and quality being equal, two-thirds of customers say that they would switch brands to do business with a company that is ethical and socially responsible.29 Another series of experiments by Remi Trudel and June Cotte of the University of Western Ontario’s Ivey School of Business found that consumers were willing to pay slightly more for products they were told had been made using high ethical standards.30 R EMEMBE R THIS ◗◗ ◗◗ Managers face many pressures that can sometimes tempt them to engage in unethical behaviour. ◗◗ People may hold widely divergent views about the most ethically appropriate or inappropriate actions related to a situation. ◗◗ ◗◗ Just because managers aren’t breaking the law doesn’t necessarily mean they are being ethical. ◗◗ ◗◗ Managers sometimes need courage to stand up and do the right thing. ◗◗ ◗◗ ◗◗ Unethical managers seek to serve their own needs and interests at the expense of stakeholders. Ethics is the code of moral principles and values that governs the behaviours of a person or group with respect to what is right or wrong. An ethical issue is present in any situation when the actions of an individual or organisation may harm or benefit others. Managers are ethically responsible for seeing that organisational resources are used to serve the interests of stakeholders, including shareholders, employees, customers and the broader society. Confidence in business managers and leaders in all walks of life is at an all-time low. One hot-button ethical issue concerns excessive executive compensation. 5.2 ETHICAL DILEMMAS – WHAT WOULD YOU DO? Being ethical is always about making decisions, and some issues are difficult to resolve. Because ethical standards are often not codified, disagreements and dilemmas about proper behaviour often occur. An ethical dilemma arises in a situation in which each alternative choice or behaviour is undesirable because of potentially harmful ethical consequences and right and wrong cannot always be clearly or crisply identified.31 ethical dilemma A situation that arises when all alternative choices or behaviours have been deemed undesirable because of potentially negative ethical consequences, making it difficult to distinguish right from wrong. 190 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T The individual who must make an ethical choice in an organisation could be termed the moral agent.32 Here are some dilemmas that a manager in an organisation might face. Think about how you would handle each one. 1 Your small company has clear procedures for providing supplies to employees who choose to work from home, as well as a strict code of conduct specifying that any employee caught taking supplies without authorisation will be fired. At the end of a long, hard day, you notice Sarah, one of your best employees, putting printer paper, highlighters and notepads in her laptop bag. According to company policy, you are required to report her immediately to your superior, who is the only one who can authorise employees taking supplies. But your boss has gone for the day, and you know Sarah often works from home.33 2 As a sales manager for a major pharmaceuticals company, you’ve been asked to promote a new drug that costs $2500 per dose. You’ve read reports that say the drug is only one per cent more effective than an alternative drug that costs less than $625 per dose. The vice president of sales wants you to promote the $2500-per-dose drug aggressively. He reminds you that if you don’t, lives could be lost that might have been saved with that one per cent increase in the drug’s effectiveness. 3 You work at a large corporation that requires a criminal background check for all new customers, which takes approximately 24 hours from the time an order is placed. You have the opportunity to close a lucrative deal with a potential long-term customer if you agree to ship the products overnight, even though that means the required check will have to be done after the fact.34 4 On the train ride from your home in Geelong to your office in Melbourne, your peaceful morning routine is disturbed by neighbouring passengers carrying on a loud mobile business meeting. After trying to quiet them with cold stares, you eventually decide to just listen in. Within minutes, you realise they are discussing a client that your own firm has been courting. Furthermore, you soon have the time, phone number and pass code for a conference call the consultants are having with the client later that day. It isn’t your fault that they gave out that information in a public place, but you wonder what you should do with it.35 These kinds of dilemmas and issues fall squarely in the domain of ethics. How would you handle each of the above situations? Now consider the following hypothetical dilemma, which scientists have used to study human morality:36 ◗◗ A runaway trolley is heading down the tracks towards five unsuspecting people. You’re standing near a switch that will divert the trolley onto a siding, but there is a single workman on the siding who cannot be warned in time to escape and almost certainly will be killed. Would you throw the switch? ◗◗ Now, what if the workman is standing on a bridge over the tracks and you have to push him off the bridge to stop the trolley with his body in order to save the five unsuspecting people? (Assume that his body is large enough to stop the trolley, and yours is not.) Would you push the man, even though he almost certainly will be killed? These dilemmas show how complex questions of ethics and morality can sometimes be. In Time magazine’s readers’ poll, 97 per cent of respondents said they could throw the switch (which would almost certainly lead to the death of the workman), but only 42 per cent said they could actually push the man to his death.37 5 : E T H I C S , S O C I A L R E S P O N S I B I L I T Y A N D S U S TA I N A B L E D E V E L O P M E N T 191 R EMEMBE R THIS ◗◗ ◗◗ ◗◗ Ethics is about making choices. Most managers encounter ethical dilemmas that are tough to resolve. An ethical dilemma is a situation in which all alternative choices or behaviours have potentially negative consequences. Right and wrong cannot be clearly distinguished. 5.3 CRITERIA FOR ETHICAL DECISION MAKING Most ethical dilemmas involve a conflict between the needs of the part and the needs of the whole – the individual against the organisation or the organisation against society as a whole. For example, should a company install mandatory alcohol and drug testing for employees, which may benefit the organisation as a whole but reduce the individual freedom of employees? Or should products that fail to meet tough safety standards be exported to other countries where government standards are lower, benefiting the company but being potentially harmful to world citizens? Sometimes ethical decisions entail a conflict between two groups; for example, should the potential for local health problems resulting from a company’s effluent take precedence over the jobs it creates as the town’s leading employer? Managers faced with these kinds of tough ethical choices often benefit from a normative strategy – one based on norms and values – to guide their decision making. Normative ethics uses several approaches to describe values for guiding ethical decision making. Five approaches that are relevant to managers are the utilitarian approach, individualism approach, moral-rights approach, justice approach and practical approach.38 U T I L I TA R I A N A P P ROA C H The utilitarian approach, espoused by the nineteenth-century philosophers Jeremy Bentham and John Stuart Mill, holds that moral behaviour produces the greatest good for the greatest number. Under this approach, a decision maker is expected to consider the effect of each decision alternative on all parties and select the one that optimises the benefits for the greatest number of people. In the ‘trolley dilemma’ described earlier in this chapter, for instance, the utilitarian approach would hold that it would be moral to push one person to his death in order to save five. The utilitarian ethic is cited as the basis for the recent trend among companies to monitor employee use of the Internet and police personal habits such as alcohol and tobacco consumption, because such behaviour affects the entire workplace.39 utilitarian approach The ethical concept that moral behaviour produces the greatest good for the greatest number. I N D I V I D UA L I S M A P P ROA C H The individualism approach contends that acts are moral when they promote the individual’s best long-term interests.40 In theory, with everyone pursuing self-direction, the greater good is ultimately served because people learn to accommodate each other in their own long-term interest. Individualism is believed to lead to honesty and integrity because that works best in the long run. Lying and cheating for immediate self-interest just causes business associates to lie and cheat in return. Thus, proponents say, individualism ultimately leads to behaviour towards others that fits standards of behaviour that people individualism approach The ethical concept that acts are moral when they promote the individual’s best long-term interests, which ultimately leads to the greater good. 192 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T want towards themselves.41 However, because individualism is easily misinterpreted to support immediate self-gain, it is not popular in the highly organised and group-oriented society of today. M O R A L R I G H T S A P P ROA C H justice approach The ethical concept that moral decisions must be based on standards of equity, fairness and impartiality. distributive justice The concept that different treatment of people should not be based on arbitrary characteristics. In the case of substantive differences, people should be treated differently in proportion to the differences among them. procedural justice The concept that rules should be clearly stated, and consistently and impartially enforced. compensatory justice The concept that individuals should be compensated for the cost of their injuries by the party responsible and also that individuals should not be held responsible for matters over which they have no control. practical approach Bases decisions on prevailing standards of the profession and larger society, taking the interests of all stakeholders into account. Source: Shutterstock.com/Vasin Lee moral rights approach The ethical concept that moral decisions are those that best maintain the rights of those people affected by them. The moral rights approach asserts that human beings have fundamental rights and liberties that cannot be taken away by an individual’s decision. Thus, an ethically correct decision is one that best maintains the rights of those affected by it. To make ethical decisions, managers need to avoid interfering with the fundamental rights of others, such as the right to privacy, the right of free consent or the right to freedom of speech. Performing experimental treatments on unconscious trauma patients, for example, might be construed to violate the right to free consent. A decision to monitor employees’ non-work activities violates the right to privacy. The right of free speech would support whistleblowers who call attention to illegal or inappropriate actions within a company. J U ST I C E A P P ROA C H The justice approach holds that moral decisions must be based on standards of equity, fairness and impartiality. Three types of justice are of concern to managers. Distributive justice requires that different treatment of people not be based on arbitrary characteristics. For example, men and women should not receive different salaries if they have the same qualifications and are performing the same job. Procedural justice requires that rules be administered fairly. Rules should be clearly stated and consistently and impartially enforced. Compensatory justice argues that individuals should be compensated for the cost of their injuries by the party responsible. The justice approach is closest to the thinking underlying the domain of law in EXHIBIT 5.1 because it assumes that justice is applied through rules and regulations. Managers are expected to define attributes on which different treatment of employees is acceptable. P R AC T I C A L A P P ROA C H The approaches discussed so far presume to determine what is ‘right’ or good in a moral sense. However, as has been mentioned, ethical issues are frequently not clear-cut and there are disagreements over what is the ethical choice. The practical approach sidesteps debates about what is right, good or just, and instead bases decisions on prevailing standards of the profession and the larger society, taking the interests of all stakeholders into account.42 With the practical approach, a decision would be considered ethical if it is one that would be considered acceptable by the professional community, one that the manager would not hesitate to publicise on the evening news, and one that a person would typically feel comfortable explaining to family and friends. One American Secret Service agency director offered this practical advice to his staff in a recent memo: ‘You should always assume you are being watched when on an official assignment. Do not put yourself in a situation in your personal or professional life that would cause embarrassment to you, your family, 5 : E T H I C S , S O C I A L R E S P O N S I B I L I T Y A N D S U S TA I N A B L E D E V E L O P M E N T or the Secret Service.’43 Using the practical approach, managers may combine elements of the utilitarian, moral rights and justice approaches in their thinking and decision making. For example, one expert on business ethics suggests managers can ask themselves the following five questions to help resolve ethical dilemmas.44 Note that these questions cover a variety of the approaches discussed above. 1 2 3 4 5 What’s in it for me? What decision would lead to the greatest good for the greatest number? What rules, policies or social norms apply? What are my obligations to others? What will be the long-term impact for myself and important stakeholders? R EMEMBE R THIS ◗◗ Most ethical dilemmas involve a conflict between the interests of different groups or between the needs of the individual versus the needs of the organisation. ◗◗ ◗◗ Managers can use various approaches based on norms and values to help them make ethical decisions. ◗◗ The individualism approach suggests that actions are ethical when they promote the individual’s best long-term interests, because with everyone pursuing self-interest, the greater good is ultimately served. ◗◗ The individualism approach is not considered appropriate today because it is easily misused to support one’s personal gain at the expense of others. ◗◗ Some managers rely on a moral-rights approach, which holds that ethical decisions are those that best maintain the fundamental rights of the people affected by them. ◗◗ The justice approach says that ethical decisions must be based on standards of equity, fairness and impartiality. ◗◗ ◗◗ ◗◗ Distributive justice requires that different treatment of individuals not be based on arbitrary characteristics. ◗◗ Many managers also use the practical approach, which sidesteps debates about what is right, good or just, and bases decisions on prevailing standards of the profession and the larger society, taking the interests of all stakeholders into account. The utilitarian approach to ethical decision making says that the ethical choice is the one that produces the greatest good for the greatest number. Procedural justice holds that rules should be clearly stated and consistently and impartially enforced. Compensatory justice argues that individuals should be compensated for the cost of their injuries by the party responsible, and individuals should not be held responsible for matters over which they have no control. 5.4 THE INDIVIDUAL MANAGER AND ETHICAL CHOICES A recent study found that organisational factors such as an unethical corporate culture and pressure from superiors and colleagues can induce employees to behave unethically. Moreover, when people experience organisational pressure to go against their sense of what is right, they typically become frustrated and emotionally exhausted.45 Yet there are also personal factors that influence a manager’s ability to make ethical decisions. Individuals bring specific personality and behavioural traits to the job. Personal needs, 193 194 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T family influence, and religious background all shape a manager’s value system. Specific personality characteristics, such as ego strength, self-confidence, and a strong sense of independence, may enable managers to make more ethical choices despite outside pressures and personal risks. One important personal trait is the stage of moral development.46 A simplified version of one model of personal moral development is shown in EXHIBIT 5.3. At the preconventional level, individuals are concerned with external rewards and punishments and obey authority to avoid detrimental personal consequences. In an organisational context, this level may be associated with managers who use an autocratic or coercive leadership style, with employees oriented towards dependable accomplishment of specific tasks. At level two, called the conventional level, people learn to conform to the expectations of good behaviour as defined by colleagues, family, friends and society. Meeting social and interpersonal obligations is important. Workgroup collaboration is the preferred manner of accomplishing organisational goals, and managers use a leadership style that encourages interpersonal relationships and cooperation. At the postconventional, or principled level, individuals are guided by an internal set of values based on universal principles of justice and right and will even disobey rules or laws that violate these principles. Internal values become more important than the expectations of significant others. One example of the postconventional or principled approach was the lifeguard working at Florida’s Hallandale Beach in the United States, who was fired for leaving his assigned zone to help a drowning man. Tomas Lopez rushed to offer assistance when he saw a man struggling, even though his supervisor ordered him not to leave his zone and to call Emergency instead. ‘What he did was his own decision,’ said manager Susan Ellis. ‘He knew the rules.’ The company cited liability issues as the reason for the rules, and later offered Lopez his job back (he refused).47 When managers operate from this highest level of development, they use transformative or servant leadership, focusing on the needs of followers and encouraging others to think for themselves and to engage in higher levels of moral reasoning. Employees are empowered and given opportunities for constructive participation in governance of the organisation. The great majority of managers operate at level two, meaning their ethical thought and behaviour is greatly influenced by their superiors, colleagues and other significant people in the organisation or industry. A few have not advanced beyond level one. Only about 20 per cent of adults reach the level-three postconventional stage of moral development. People at level three are able to act in an independent, ethical manner regardless of expectations from others inside or outside the organisation. Managers at level three of moral development will make ethical decisions whatever the organisational consequences are for them. MANAGEMENT IN PRACTICE CHALLENGING THE BOSS ON ETHICAL ISSUES Many of today’s top executives put emphasis on ethics in light of serious ethical lapses that tarnished the reputations and hurt the performance of previously respected and successful companies. Yet keeping an organisation in ethical line is an ongoing challenge, and it requires that people at all levels be willing to stand up for what they think is right. Challenging the boss or other senior leaders on potentially unethical behaviours is particularly unnerving for most people. Here are some tips for talking to the boss about an ethically questionable decision or action. Following these guidelines can increase the odds that you’ll be heard and your opinions will be seriously considered. 5 : E T H I C S , S O C I A L R E S P O N S I B I L I T Y A N D S U S TA I N A B L E D E V E L O P M E N T ✚✚ Do your research. Marshal any facts and figures that support ✚✚ Take care how you suggest your alternative solution. You your position on the issue at hand, and develop an alternative policy or course of action that you can suggest at the appropriate time. Prepare succinct answers to any questions you anticipate being asked about your plan. can introduce your plan with phrases such as ‘Here’s another way to look at this’ or ‘What would you think about … ?’ Check for your superior’s reactions both by explicitly asking for feedback and by being sensitive to body language clues. Point out the potential negative consequences of implementing decisions that might be construed as unethical by customers, shareholders, suppliers or the public. ✚✚ Begin the meeting by giving your boss the floor. Make sure you really do understand what the decision or policy is and the reasons behind it. Ask open-ended questions, and listen actively, showing through both your responses and your body language that you’re seriously listening and trying to understand the other person’s position. In particular, seek out information about what the senior manager sees as the decision or policy’s benefits as well as any potential downsides. It’ll give you information you can use later to highlight how your plan can produce similar benefits while avoiding the potential disadvantages. ✚✚ Pay attention to your word choice and demeanour. No matter how strongly you feel about the matter, don’t rant and rave about it. You’re more likely to be heard if you remain calm, objective and professional. Try to disagree without making it personal. Avoid phrases such as ‘You’re wrong’, ‘You can’t’, ‘You should’ or ‘How could you?’ to prevent triggering the other person’s automatic defence mechanisms. ✚✚ Be patient – don’t demand a resolution on the spot. During your conversation, you may realise that your plan needs some work, or your boss might just need time to digest the information and opinions you’ve presented. It’s often a good idea to ask for a follow-up meeting. If the decision or action being considered is clearly unethical or potentially illegal, and this meeting doesn’t provide a quick resolution, you might need to take your concerns to higher levels, or even blow the whistle to someone outside the organisation who can make sure the organisation stays in line. However, most managers don’t want to take actions that will harm the organisation, its people or the community. In many cases, questionable ethical issues can be resolved by open and honest communication. That, however, requires that people have the courage – and develop the skills – to confront their superiors in a calm and rational way. SOURCES: Daley, K. (April 2004). How to Disagree: Go Up Against Your Boss or a Senior Executive and Live to Tell the Tale. T&D; Moore, D. (12 November 2003). How to Disagree with Your Boss – and Keep Your Job. Toronto Star; How to Disagree with Your Boss. WikiHow, http://wiki.ehow.com/Disagree-With-Your-Boss; (23–29 October 1996). How to Confront Your Boss Constructively. The Buzz, http://www.hardatwork.com/Buzz/ten.html. Level 3: Postconventional Level 2: Conventional Lives up to expectations of others. Fulfils duties and obligations of social system. Upholds laws. Level 1: Preconventional Follows self-chosen principles of justice and right. Aware that people hold different values and seeks creative solutions to ethical dilemmas. Balances concern for individual with concern for common good. Follows rules to avoid punishment. Acts in own interest. Obedience for its own sake. Leadership style: Employee behaviour: Autocratic/coercive Guiding/encouraging, team oriented Transforming, or servant leadership Task accomplishment Work group collaboration Empowered employees, full participation Sources: Based on L. Kohlberg. Moral Stages and Moralization: The Cognitive-Developmental Approach. In Moral Development and Behavior: Theory, Research, and Social Issues, ed. T. Lickona (New York: Holt, Rinehart, and Winston, 1976), pp. 31–53; and Jill W. Graham. (January 1995). Leadership, Moral Development and Citizenship Behavior. Business Ethics Quarterly, 5:1, 43–54. EXHIBIT 5.3 Three levels of personal moral development 195 196 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T G I V E R S V E R S U S TA K E R S When managers operate from a higher level of development, they may use a form of servant leadership, focusing on the needs of followers and encouraging others to think for themselves. Research has shown that people will work harder and more effectively for people who put others’ interests and needs above their own.48 Adam Grant, an organisational psychologist at the Wharton School of the University of Pennsylvania in the United States, has been observing and studying the differences between ‘givers’ and ‘takers’ since he was an undergraduate student, and he says that changes in society and organisations make self-sacrifice for the sake of a larger purpose an increasingly beneficial characteristic. In one study, Grant found that the single biggest predictor of a team’s effectiveness was the amount of help and support that members gave to one another. Grant says that, in the past, takers (people who put their own interests first) could climb to the top over the backs of givers, but that is changing as the nature of work has shifted. For example, Howard Lee, who was heading the South China office for Groupon, received a flood of applications for sales jobs. By searching social media, he could identify that some candidates had a pattern of self-serving behaviour. He quickly weeded those out and focused on the applicants who demonstrated a track record as givers.49 The shift toward admiring and rewarding givers over takers can bring significant positive changes within organisations. The simple categories of giver and taker help people understand how they might contribute to or detract from an organisation’s ethical culture. MANAGEMENT IN PRACTICE GUIDELINES FOR ETHICAL DECISION MAKING If a 60 Minutes crew was waiting on your doorstep one morning, would you feel comfortable justifying your actions to the camera? One young manager, when confronted with ethical dilemmas, gives them the ‘60 Minutes test’. Others say they use such criteria as whether they would be proud to tell their parents or grandparents about their decision, or whether they could sleep well at night and face themselves in the mirror in the morning. Managers often rely on their own personal integrity in making ethical decisions. But knowing what to do is not always easy. As a future manager, you will surely face ethical dilemmas one day. The following guidelines will not tell you exactly what to do, but taken in the context of the text discussion, they will help you evaluate the situation more clearly by examining your own values and those of your organisation. The answers to these questions will force you to think hard about the social and ethical consequences of your behaviour. ✚✚ Is the problem or dilemma really what it appears to be? If you ✚✚ Is the action you are considering legal? Is it ethical? If you are not sure, find out. ✚✚ Do you understand the position of those who oppose the action you are considering? Is it reasonable? ✚✚ Who does the action benefit? Who does it harm? How much? For how long? ✚✚ Would you be willing to allow everyone to do what you are considering doing? ✚✚ Have you sought the opinion of others who are knowledgeable on the subject and who would be objective? ✚✚ Would your action be embarrassing to you if it were made known to your family, friends, co-workers or superiors? There are no correct answers to these questions in an absolute sense. Yet, if you determine that an action is potentially harmful to someone or would be embarrassing to you, or if you do not know the ethical or legal consequences, these guidelines will help you clarify whether the action is socially responsible. are not sure, find out. SOURCE: Pagano, A. M. and Verdin, J. A. (1988), The External Environment of Business, Chap. 5. New York: Wiley. 5 : E T H I C S , S O C I A L R E S P O N S I B I L I T Y A N D S U S TA I N A B L E D E V E L O P M E N T 197 Globalisation makes ethical issues even more complicated for today’s managers.50 For example, although tolerance for bribery is waning, bribes are still considered a normal part of doing business in many foreign countries. Transparency International, an international organisation that monitors corruption, publishes a report ranking leading export countries based on the propensity of international businesses to offer bribes. EXHIBIT 5.4 shows results of the organisation’s report. Country scores have improved from the 2006 data, when international businesses based in countries such as Russia and China were found to be using bribes ‘on an exceptional and intolerable scale’, with Russia scoring 5.2 and China 4.9 in the 2006 report.51 By 2011 Russia and China had maintained their improved scores but their ranking decreased (from 22 to 28 and 21 to 27 respectively) as other countries such as India, Brazil and South Korea made more significant improvements.52 It is not always easy to resolve international issues. There are, however, increasing calls for the development of global standards for ethical business conduct, which may help managers negotiate the difficult terrain of international ethics. Scores range from 0 to 10. The higher the score for the country, the lower the likelihood of companies from this country to engage in bribery when doing business abroad. RANK SCORE RANK SCORE 1 Netherlands 8.8 11 Spain 8.0 1 Switzerland 8.8 13 South Korea 7.9 3 Belgium 8.7 14 Brazil 7.7 4 Germany 8.6 15 Hong Kong 7.6 4 Japan 8.6 15 Italy 7.6 6 Australia 8.5 15 Malaysia 7.6 6 Canada 8.5 15 South Africa 7.6 8 Singapore 8.3 19 Taiwan 7.5 8 United Kingdom 8.3 19 India 7.5 10 United States 8.1 19 Turkey 7.5 11 France 8.0 22 Saudi Arabia 7.4 Source: Reprinted from Bribe Payers Index. Copyright 2011. Transparency International: the global coalition against corruption. Used with permission. For more information, visit http://www.transparency.org. R EMEMBE R THIS ◗◗ Organisational pressures can influence people to go against their own sense of right or wrong, and the resulting stress can lead to mental exhaustion and burnout. ◗◗ Personality characteristics, family influence, religious background and other factors influence a manager’s ability to make ethical choices. ◗◗ One important factor is whether a manager is at a preconventional, conventional or postconventional level of moral development. ◗◗ Most managers operate at a conventional level, conforming to standards of behaviour expected by society. ◗◗ Only about 20 per cent of adults reach the postconventional level and are able to act in an independent, ethical manner regardless of the expectations of others. EXHIBIT 5.4 The Transparency International Bribe Payers Index, 2011 198 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T 5.5 corporate social responsibility (CSR) The obligation of organisation management to make decisions and take actions that will enhance the welfare and interests of society as well as the organisation. See Chapter 3 to review how the organisation’s environment consists of several sectors in both the task and the general environment. stakeholder Any group within or outside the organisation that has a stake in the organisation’s performance. stakeholder mapping Provides a systematic way to identify the expectations, needs, importance and relative power of various stakeholders. WHAT IS CORPORATE SOCIAL RESPONSIBILITY? Now let us turn to the issue of social responsibility. In one sense, the concept of corporate social responsibility, like ethics, is easy to understand – it means distinguishing right from wrong, and doing right. It means being a good corporate citizen. The formal definition of corporate social responsibility (sometimes referred to as CSR) is management’s obligation to make choices and take actions that will contribute to the welfare and interests of society as well as the organisation.53 As straightforward as this definition seems, corporate social responsibility can be a difficult concept to grasp, because different people have different beliefs about which actions improve society’s welfare.54 To make matters worse, corporate social responsibility covers a range of issues, many of which are ambiguous with respect to right and wrong. For example, if a bank deposits the money from a trust fund into a low-interest account for 90 days, from which it makes a substantial profit, has it been unethical? How about rival companies engaging in intense competition, such as that between Telstra and Optus, or Qantas and Virgin Australia? Is it socially responsible for a stronger company to drive a weaker one into bankruptcy? Or consider US-based companies such as A. H. Robins, maker of the Dalkon shield; Manville Corporation, maker of asbestos; General Motors; or Texaco, the oil company. All declared bankruptcy – which is perfectly legal – to avoid mounting financial obligations to suppliers, unions or competitors. James Hardie is a long-standing Australian company that tried to use restructuring tactics to avoid, and then to severely limit, payouts to asbestos victims who contracted serious and often fatal diseases from James Hardie products. Most Australians would argue that these actions were unethical. These examples pose moral, legal and economic questions that make socially responsible behaviour hard to define. An organisation’s environmental impact also must be taken into consideration. Managers must ultimately decide, on behalf of their company, their position and actions in terms of sustainable development. They must consider their strategy, cultures, values and motivations for their actions on sustainable development issues that impact on the environment, society and the company’s bottom line. O RGA N I S AT I O NA L STA K E H O L D E R S One reason for the difficulty in understanding corporate social responsibility is that managers must confront the question, ‘responsibility to whom?’ Recall from Chapter 3 that the organisation’s environment consists of several sectors in both the task and the general environment. From a social responsibility perspective, enlightened organisations view the internal and external environment as a variety of stakeholders. A stakeholder is any group or person within or outside the organisation that has some type of investment or interest in the organisation’s performance and is affected by the organisation’s actions (employees, customers, shareholders and so forth). Each stakeholder has a different criterion of responsiveness because it has a different interest in the organisation.55 There is growing interest in a technique called stakeholder mapping, which basically provides a systematic way to identify the expectations, needs, importance and relative power of various stakeholders, which may change over time.56 Stakeholder mapping helps managers identify or prioritise the key stakeholders related to a specific issue or project. For instance, as outlined in the following case study, Gap Inc., struggling to cope with the turmoil created after the company was targeted by protesters for using contractors that polluted the environment and engaged in child labour practices, decided to use mapping to identify key stakeholders with which the firm could develop deeper, transparent relationships. 5 : E T H I C S , S O C I A L R E S P O N S I B I L I T Y A N D S U S TA I N A B L E D E V E L O P M E N T INNOVATIVE WAY GAP INC. In 2011, Bangladeshi and international labour groups put forth a detailed safety proposal, which entailed the establishment of independent inspections of garment factories. This plan, which was rejected by major European and North American-based companies, including Gap, called for inspectors to have the power to close unsafe factories. In 2013, an eight-storey commercial building named Rana Plaza, in the Savar Upazila of Dhaka in Bangladesh collapsed. The collapse is considered to be the deadliest garment-factory accident in history, as well as the deadliest accidental structural failure in modern human history, killing 1129 and injuring more than 2500 people. On 10 July 2013, a group of 17 major North Americanbased retailers, including Walmart, Gap, Target and Macy’s, announced a plan to improve factory safety in Bangladesh, drawing immediate criticism from labour groups who complained that it was less stringent than an accord reached among European companies. Unlike the accord joined mainly by European retailers, the plan lacks legally binding commitments to pay for those improvements. The Alliance for Bangladesh Worker Safety (ABWS) is a group of 28 major global retailers formed to develop and launch the Bangladesh Worker Safety Initiative, a binding, fiveyear undertaking with the intent of improving safety in Bangladeshi ready-made garment (RMG) factories following the Rana Plaza building collapse. One of the ABWS’s board of directors is Dana Veeder, Associate General Counsel, Legal, Gap. A similar crisis related to child labour and unsafe conditions ten years earlier had resulted in global protests that raged for months and tarnished Gap’s reputation, damaged employee morale, and devastated the firm’s performance. In contrast, the 2013 Rana Plaza building collapse story died down quickly, possibly because Gap wasn’t the sole company involved in the incident. What happened in those ten years to make a difference? It’s certainly not that the public was less outraged by the stories of poor children being harmed by dangerous chemicals while playing near the river or scavenging through refuse. The result was different this time, because Gap managers had carefully cultivated open relationships with labour groups, human rights organisations, trade unions, nongovernmental organisations and other stakeholders that enabled them to swing into action immediately and take specific steps to solve the problem. In the past, managers’ approach would have been to deny responsibility and blame the subcontractor. Because of the relationships Gap had developed with numerous stakeholder groups, the company had the support of labour and human rights organisations, which praised managers’ commitment and actions. Gap embarked on the process of engaging with key stakeholders because even though the company had made a strong commitment to social and environmental responsibility since 1992, the previous approach wasn’t working. Multimillion-dollar efforts at solving ethical problems in the supply chain had failed. So, managers started by drawing a stakeholder map that listed as many stakeholders as possible, then ranked them by their importance. Starting with mapping gave managers a way to focus their efforts and join with the most influential stakeholders to improve labour practices. It was a long and difficult journey, but the results have been well worth it. The company has received awards and public recognition as a leader in ethics and social responsibility. Sources: Butler, S. (23 June 2013). Bangladeshi factory deaths spark action among high-street clothing chains. The Guardian, https://www.theguardian. com/world/2013/jun/23/rana-plaza-factory-disaster-bangladesh-primark (accessed 3 November 2016). Greenhouse, S. and Clifford, S. (10 July 2013). U.S. retailers offer plan for safety at factories. The New York Times, http://www.nytimes.com/2013/07/11/business/global/us-retailers-offer-safety-planfor-bangladeshi-factories.html?_r=0 (accessed 3 November 2016). Mustafa, S. (10 May 2013). Bangladesh building collapse: How many still missing?, http://www.bbc.com/news/world-asia-22483914 (accessed 3 November 2016). Stangler, C. (10 March 2015). Bangladesh garment factories: Alliance For Bangladesh Worker Safety report claims ‘transformation’ in working conditions. International Business Times, http://www.ibtimes.com/bangladeshgarment-factories-alliance-bangladesh-worker-safety-report-claims-1842774 (accessed 3 November 2016). Alliance For Bangladesh Worker Safety (2016). Board of Directors. http://www.bangladeshworkersafety.org/en/who-we-are/leadership/board-of-directors (accessed 3 November 2016). Gap Inc. (2013). 2013 Annual Report. http://www.gapinc.com/content/attachments/gapinc/GPS_AR13.pdf (accessed 3 November 2016). Smith, N., Craig, A. S. and Erez, L. (22 June 2011). How Gap Inc. engaged with its stakeholders. MIT Sloan Management Rewiew, http://sloanreview.mit.edu/article/how-gap-inc-engagedwith-its-stakeholders/ (accessed 3 November 2016). 199 200 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T The global supply chain is a source of ongoing challenges for managers today. As Dan Rees, former director of the Ethical Trading Initiative (ETI) said, ‘It is not a crime to find child labour in your supply chain. What is important is what you do about it when you find out.’ By using stakeholder mapping and cultivating open, trust-based relationships with key stakeholders, Gap has ensured that managers are able to do the right thing swiftly, sometimes even turning crises into opportunities.57 EXHIBIT 5.5 illustrates important stakeholders for a large organisation such as Gap. Most organisations are influenced by a similar variety of stakeholder groups. Investors and shareholders, employees, customers and suppliers are considered primary stakeholders, without whom the organisation cannot survive. Investors, shareholders and suppliers’ interests are served by managerial efficiency – that is, use of resources to achieve profits. Employees expect work satisfaction, pay and good supervision. Customers are concerned with decisions about the quality, safety and availability of goods and services. When any primary stakeholder group becomes seriously dissatisfied, the organisation’s viability is threatened.58 Other important stakeholders are the government and the community, which have become increasingly important in recent years. Most corporations exist only under the proper charter and licences and operate within the limits of safety laws, environmental protection requirements, antitrust regulations, antibribery legislation, and other laws and regulations in the government sector. Government regulations EXHIBIT 5.5 Major stakeholders relevant to Gap Inc. Regulatory authorities Customers Communities Stockholders Non-governmental organisations (NGOs) Employees Gap Inc. Creditors Suppliers Trade unions Governments Human rights organisations Partners Special interest groups Sources: Based on information in D. Wheeler, B. Colbert and R. E. Freeman. (Spring 2003). Focusing on Value: Reconciling Corporate Social Responsibility, Sustainability, and a Stakeholder Approach in a Networked World. Journal of General Management, 28:3, 1–28; J. E. Post, L. E. Preston and S. Sachs. (Fall 2002). Managing the Extended Enterprise: The New Stakeholder View. California Management Review, 45:1, 6–28; and N. Craig Smith, Sean Ansett and Lior Erex. (Summer 2011). How Gap Inc. Engaged with Its Stakeholders. MIT Sloan Management Review, 52:4, 69–76. 5 : E T H I C S , S O C I A L R E S P O N S I B I L I T Y A N D S U S TA I N A B L E D E V E L O P M E N T affecting business are increasing because of recent events. The community includes local governments, the natural environment and the quality of life provided for residents. For many companies such as Gap, trade unions and human rights organisations are highly important stakeholders. Special interest groups may include trade associations, political action committees, professional associations and consumerists. One special interest group of particular importance today is the green movement. EXHIBIT 5.6 shows the stakeholders for an automobile manufacturer. In Australia, the United States and Asia, investment funds that limit themselves to investing in socially responsible companies have often done very well. Qualifying for such funds is becoming important for companies of all sizes so as not to reduce or restrict those who invest in them. In Australia, companies that are considered advanced in their corporate social responsibility include BHP Billiton, even though it mines uranium, and Southcorp (now part of Foster’s Group), a major supplier of alcoholic beverages. Socially responsible investing is not simply a matter of condemning companies as irresponsible because of the industry they participate in, but rather of measuring how they participate – their policies and practices within those industries.59 In the United States and Europe, screened investment funds, which avoid investing in companies that produce goods or services in tobacco, weaponry, gambling and similar industries, grew to have assets worth over US$4 trillion in 2011. By the end of 2012 the United States had US$13.6 trillion invested into environmental, social and governance considered funds, with 21.8 per cent of total assets invested responsibly. Europe is the largest region of screened investments with an incredible OPEC Community Trade associations Creditors Domestic customers International customers Environmentalists Specialinterest groups Domestic competition Major car manufacturer Courts Media Investors Shareholders Foreign governments Owners State/federal government International competitors Employees/ unions Foreign suppliers socially responsible investment Socially responsible investment involves investing in companies which, in the judgement of the investor, do not harm people or the environment through their activities. EXHIBIT 5.6 Stakeholders relevant to a car manufacturer Environment Domestic suppliers Source: Based on Organizational Dynamics by Nancy C. Roberts and Paula J. King. Copyright 1989 by Elsevier Science & Technology Journals. Reproduced with permission of Elsevier Science & Technology Journals in the format Textbook via Copyright Clearance Center. 201 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T 65 per cent of assets managed.60 Investors have also discovered that socially responsible funds often perform better than the overall investment market. In Australia, responsible investment is now becoming mainstream. Responsible investment considers risk factors beyond purely financial risk when making investment decisions. Considerations might include the company culture or a measure of good corporate governance and ethics, health and safety records or carbon emissions, for example. Australian funds managed in responsible investment portfolios at the end of 2012 totalled AU$152 billion. The level of dollars invested increased an astounding 30 per cent from 2011 to 2012 and represents approximately 16 per cent of the total assets under management in Australia. Moreover, ethical and responsible investment funds returned on average 3 per cent more to investors than their rival, mainstream Australian share funds. This outperformance is consistent across global markets.61 AUSTRALIAN MANAGER PROFILE Source: Courtesy Susan Mizrahi 202 SUSA N MIZR AHI, HUMA N RIGHTS A DVOCATE ‘The difference between what we do and what we are capable of doing would suffice to solve most of the world’s problems,’ said Mahatma Gandhi, in one of his many statements that has inspired me both professionally and personally. Unlike many of my peers, I did not have a specific career goal in mind when finishing high school or even my undergraduate degree. My study of Public Relations at university led me to a position in the Victorian public service where I was privileged to work closely with Ministers on communications and high-profile events, but I felt I was capable of doing more. To the surprise of colleagues at the time, I exchanged my promising career for a backpack, and flew to Asia to work as a tour leader for an adventure travel company. In South-East and East Asia, I saw poverty and injustice first-hand, and sought to use and further develop my skills in political strategy and communications to address these. I volunteered with the Tibetan refugee community in northern India, which was eyeopening and rewarding, and then undertook post-graduate study in International Relations. These experiences opened up opportunities to work in Washington, DC, and across Europe, where I lobbied the United States Government, United Nations and European Union on the Sino–Tibet issue. Today, I manage a team of capable and motivated social justice campaigners at Australia’s largest aid organisation, World Vision Australia. To build a career and life that is impactful, exciting and satisfying, in my opinion you must ensure that your work and management style complements – and, ideally, advances – your personal values and interests. Every day, individuals are appointed as managers, but it is a challenge to be a great manager every day. While the non-profit sector is full of passionate, knowledgeable and committed individuals, I have seen that too few non-profit managers listen, evaluate and respond effectively to their teams. This is an ongoing management challenge that the sector must overcome to help solve the world’s problems. World Vision Australia operates in over 60 countries, striving to improve human outcomes on matters such as: ➜➜ Community development. World Vision works within communities and across geographical areas to help individuals and groups improve the well-being of children and overcome poverty. This is done through long-term projects aimed at empowering communities to sustainably manage their own development. ➜➜ Humanitarian and emergency relief. When disasters strike, World Vision has staff and supplies positioned around the globe to respond to immediate needs like food, water, shelter and safe spaces for children. World Vision also works with communities to recover from disasters and reduce the impacts of future events through planning and capacity building. ➜➜ Tackling injustice through policy change and advocacy. We engage governments, institutions, donors, communities and the public to address the underlying issues that perpetuate poverty. World Vision aims to empower communities to speak up for their 5 : E T H I C S , S O C I A L R E S P O N S I B I L I T Y A N D S U S TA I N A B L E D E V E L O P M E N T rights and influence change, both locally and globally. ➜➜ Engaging Australia. World Vision seeks to educate Australians about the causes of poverty and to challenge them to be involved in its alleviation, including by making 203 financial and non-financial contributions to our work. With this ambitious and important program, World Vision Australia clearly needs to allocate its limited resources wisely and carefully, and this requires dedicated and capable managers. SOURCE: Contributed by Susan Mizrahi. R EMEMBE R THIS ◗◗ Corporate social responsibility is the obligation of organisation management to make decisions and take actions that will enhance the welfare and interests of society as well as the organisation. ◗◗ Stakeholders are any group, inside or outside the organisation, who have a stake in the organisation’s activities. ◗◗ Managers can map their stakeholders’ interests as part of their planning processes. 5.6 THE GREEN MOVEMENT The year was 2004, and Jeffrey Immelt, CEO of General Electric (GE), had just presented a plan for a ‘green’ business initiative to 35 top GE executives. They voted it down. But Immelt, in a rare move, overruled them, and Ecomagination was born. Today, GE’s Ecomagination is one of the world’s most widely recognised corporate green programs. It has not only cut GE’s greenhouse gas emissions by 30 per cent but also added innovative products that are generating billions of dollars in annual revenue.62 Going green has become a new business imperative, driven by shifting social attitudes, new governmental policies, climate change and information technology (IT) that quickly spreads any news of a corporation’s negative impact on the environment. A recent survey found that 90 per cent of Americans agree that there are important ‘green’ issues and problems, and 82 per cent think that businesses should implement environmentally friendly practices.63 S U STA I NA B I L I T Y A N D T H E T R I P L E BO T T O M L I N E As is discussed in the end-of-chapter sustainability examples throughout this textbook, many corporations have embraced the idea of sustainable development. Sustainability refers to economic development that generates wealth and meets the needs of the current generation while preserving the environment and society so future generations can meet their needs as well.64 With a philosophy of sustainability, managers weave environmental and social concerns into every strategic decision so that financial goals are achieved in a way that is socially and environmentally responsible. Managers in organisations that embrace sustainability measure their success in terms of a triple bottom line. The term triple bottom line refers to measuring an organisation’s social performance, its sustainability Economic development that generates wealth and meets the needs of the current population while preserving the environment for the needs of future generations. triple bottom line Triple bottom line performance of an organisation involves measuring the three types of outcomes of an organisation’s activities, namely financial, environmental and community/social. 204 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T environmental performance and its financial performance. This is sometimes called the three Ps – ‘people’, ‘planet’ and ‘profit’.65 The people part of the triple bottom line looks at how socially responsible the organisation is in terms of fair labour practices, diversity, supplier relationships, treatment of employees, contributions to the community and so forth. The planet aspect measures the organisation’s commitment to environmental sustainability. The third P, of course, looks at the organisation’s profit, the financial bottom line. Based on the principle that what you measure is what you strive for and achieve, using a triple bottom line approach to measuring performance ensures that managers take social and environmental factors into account, rather than blindly pursuing profit no matter the cost to society and the natural environment. CASE STUDY Source: Getty Images/Michael Springer A LEADERSHIP DILEMMA AT TIMBERLAND Jeffrey Swartz of Timberland In the early 1990s, Jeffrey Swartz, the then chief operating officer of Timberland, and son, nephew, and grandson of the founders of the company, began transforming Timberland into a company known as much for philanthropy as for its boots. But Swartz found himself in a quandary when one of the company’s bankers implied that the focus on philanthropy was hurting the company and its stakeholders. Swartz’s transformation began when City Year, a non-profit agency involved in community projects such as violence prevention and AIDS education, asked for boots for its workers. Swartz convinced other Timberland executives to answer the call. Over time, Timberland provided free boots and uniforms for about 10 000 people. Visiting some of the community projects, Swartz was deeply moved by what volunteers were accomplishing. ‘I saw what real power was that day,’ Swartz recalls. ‘I didn’t realise how hungry I was for that kind of purpose.’ Timberland began shutting down operations one day each year so the company’s thousands of employees could get paid to take part in a variety of company-sponsored philanthropic projects – building homeless shelters or cleaning up playgrounds. The company also started giving employees 16 hours of paid leave annually to volunteer at charities of their choosing. But the emphasis on corporate social responsibility doesn’t come cheap. The all-day event alone costs about US$2 million a year in lost sales, project expenses and wages for employees. When Timberland’s profits were soaring, that seemed fine, but then the company hit a rough patch. It reported its first operating loss since going public, laid off some employees and shipped some work overseas to cut costs. One of Timberland’s bankers bluntly told Swartz that the company needed to ‘cut this civic stuff out and get back to business’. Swartz wondered if he was right. Maybe managers were failing the organisation and its stakeholders by ploughing too many resources into philanthropic activities. Timberland decided to continue its commitment to social causes. In fact, later the same year when Swartz was faced with this dilemma, the company doubled the number of hours it underwrote for employees to do community service. Timberland, through its Path of Service employee volunteering program, offers employees up to 40 paid hours per year to service in their communities. In 2014, the program had racked up more than 1 000 000 hours since its launch. In order to help employees take advantage of their volunteer service hours, every year Timberland organises two annual global service days: Earth Day in April and ‘Serv-a-palooza’ in autumn. Both events unite the company and its partners to address pressing environmental and social needs. Projects have included planting trees in Thailand, restoring a wildlife reserve near London and helping build homes for families in need in the United States. Timberland’s commitment to discretionary responsibility has contributed to exceptional loyalty among many employees, because people feel good about the work they do. This resulted in Timberland featuring in Fortune magazine’s survey of the 100 Best Companies to Work For. However, some people felt that Timberland should have cut out the charity activities to focus on meeting its economic 5 : E T H I C S , S O C I A L R E S P O N S I B I L I T Y A N D S U S TA I N A B L E D E V E L O P M E N T responsibilities when the company hit difficult times, which resulted in the company being sold to the VF Corporation in 2011. In addition, some felt that the company was not meeting its ethical responsibilities by spending money on community service when it was laying people off and shipping jobs overseas. ‘Some employees asked, ‘“Doesn’t charity begin at home?”‘ Swartz said. He believed, however, that cutting out community service would damage morale and lower commitment without solving the financial problems. Fortunately, Timberland rebounded from its difficulties and continued to grow. However, managers will continue to face challenges concerning how to best meet their responsibilities to all stakeholders. Sources: City Year, ‘Jeffery Swartz,’ https://www.cityyear.org/node/6885 (accessed 3 November 2016); VF Corporation (2016). ‘Volunteerism,’ http://sustainability.vfc.com/people/communities/volunteerism/ (accessed 3 November 2016); De La Merced, M. (13 June 2011). ‘VF Corporation to buy Timberland,’ The New York Times, http://dealbook.nytimes.com/2011/06/13/vf-corporation-to-buy-timberland/ (accessed 3 November 2016); Wahba, P. (13 October 2015). ‘Re-tooled: How Timberland got back on its feet,’ http://fortune.com/2015/10/13/retooled-timberland/ (accessed 3 November 2016); Pereora, J. (9 September 2003). ‘Doing good and doing well,’ The Wall Street Journal, http://www.wsj.com/articles/SB106306120285247900 (accessed 3 November 2016). R EMEMBE R THIS ◗◗ Corporate social responsibility refers to the obligation of organisational managers to make choices and take actions that will enhance the welfare and interests of society, as well as the organisation. ◗◗ Research has shown that the values of an organisation or department strongly influence employee behaviour and decision making. ◗◗ ◗◗ Culture can be examined to see the kinds of ethical signals given to employees. ◗◗ The term stakeholder refers to any group or person within or outside the organisation that has some type of investment or interest in the organisation’s performance. ◗◗ Shareholders, employees, customers and suppliers are considered primary stakeholders, without whom the organisation could not survive. ◗◗ ◗◗ Government, the community and special interest groups are also important stakeholders. ◗◗ Socially responsible investment involves investing in companies, which, in the judgement of the investor, do not harm people or the environment through their activities. ◗◗ ◗◗ The green movement is a special interest group of particular importance today. ◗◗ Companies that embrace sustainability measure performance in terms of financial performance, social performance and environmental performance, referred to as the triple bottom line. ◗◗ A survey in the United States found that 90 per cent of people asked agreed that there are important ‘green’ issues and problems, and 82 per cent think that businesses should implement environmentally friendly practices. Different stakeholders have different interests in the organisation and thus different criteria for social responsiveness. Stakeholder mapping provides a systematic way to identify the expectations, needs, importance and relative power of various stakeholders. Sustainability refers to economic development that generates wealth and meets the needs of the current population while preserving society and the environment for the needs of future generations. 205 206 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T 5.7 EVALUATING CORPORATE SOCIAL RESPONSIBILITY A model for evaluating corporate social performance is presented in EXHIBIT 5.7. The model indicates that total corporate social responsibility can be divided into four primary criteria – economic, legal, ethical and discretionary responsibilities.66 These four criteria fit together to form the whole of a company’s social responsiveness. The first criterion of social responsibility is economic responsibility. The business institution is, above all, the basic economic unit of society. Its responsibility is to produce the goods and services that society wants and to maximise profits for its owners and shareholders. Economic responsibility, carried to the extreme, is called the profit-maximising view, advocated by Nobel economist Milton Friedman. This view argues that the corporation should be operated on a profit-oriented basis, with its sole mission to increase its profits so long as it stays within the rules of the game.67 The purely profit-maximising view is no longer discretionary responsibility Organisational responsibility that is voluntary and guided by the organisation’s desire to make social contributions not mandated by economics, law or ethics. considered an adequate criterion of social performance in Australia, the United States and Europe. This approach means that economic gain is the only responsibility and can lead companies into trouble, as events in the mortgage and finance industries have clearly shown. Legal responsibility defines what society deems as important with respect to appropriate corporate behaviour.68 That is, businesses are expected to fulfil their economic goals within the framework of legal requirements imposed by local town councils, state legislators and federal regulatory agencies. Examples of illegal acts by corporations include corporate fraud, intentionally selling defective goods, performing unnecessary repairs or procedures, deliberately misleading consumers and billing clients for work not done. Organisations that knowingly break the law are poor performers in this category. Walmart, for example, has been embroiled in a bribery scandal amid allegations that the company’s largest foreign subsidiary, Walmart de Mexico, paid bribes to local officials and covered up the wrongdoing to corner every edge of the market in that country. Investigators found ‘reasonable suspicion’ that Walmart managers had violated United States and Mexican laws and called for a broader inquiry into the allegations.69 Ethical responsibility includes behaviours that are not necessarily codified into law and may not serve the corporation’s direct economic interests. As described earlier in this chapter, to be ethical, organisation decision makers should act with equity, fairness and impartiality, respect the rights of individuals, and provide different treatment of individuals only when relevant to the organisation’s goals and tasks.70 Unethical behaviour occurs when decisions enable an individual or company to gain at the expense of other people or society as a whole. Managers at Volkswagen, for example, seriously damaged the company’s reputation after the United States Environmental Protection Agency (EPA) found that Volkswagen had intentionally programmed turbocharged direct injection (TDI) diesel engines to activate certain emissions controls only during regulatory emissions testing. Volkswagen initially insisted that the discrepanices were mere technical glitches before acknowledging that they had manipulated the vehicle emission tests.71 Discretionary responsibility is purely voluntary and is guided by a company’s desire to make social contributions not mandated by economics, law or ethics. Discretionary activities include generous philanthropic contributions that offer no payback to the company and are not expected. For example, in 2012, MasterCard and the United Nations World Food Programme (WFP) entered into a partnership to deliver innovative solutions to meet the needs of the world’s hungry and vulnerable populations. The partnership links MasterCard’s expertise in technology and payment systems to WFP’s expertise in delivering food assistance and strengthens its delivery of ‘digital food’ that comes in the form of e-cards so refugees and other vulnerable people can better access the food they need from local markets. 5 : E T H I C S , S O C I A L R E S P O N S I B I L I T Y A N D S U S TA I N A B L E D E V E L O P M E N T 207 ‘At MasterCard we believe that technology has the power to unlock innovation in food aid delivery, enabling a greater impact and helping achieve the vision that a world beyond cash builds a world beyond hunger,’ said Ann Cairns, MasterCard’s President of International Markets. ‘We are committed to working with the United Nations World Food Programme to end world hunger.’72 In 2016, Gap Inc., described earlier, celebrated their 10-year anniversary of becoming the founding apparel partner of (RED), raising US$10 million for the Global Fund since 2006. Product Red is a licensed brand that seeks to engage the private sector in raising awareness and funds to help eliminate HIV/ AIDS in Africa. Other examples include annual telethons held in Australia, including the Channel Seven Perth Telethon, which has raised more than AU$200 million in 2015 for the Princess Margaret Hospital for Children and the Telethon Kids Institute; NBN Newcastle’s live 24-hour telethons which have raised millions of dollars for local charities; the Good Friday Appeal, broadcast each year on Good Friday on Channel 7 Melbourne, which has raised more than AU$310 million for equipment, research, and education to support the work of The Royal Children’s Hospital in Melbourne; and Channel Nine Sydney’s Gold Week Telethon, which has raised over AU$24.5 million for the Sydney Children’s Hospital. Discretionary responsibility is the highest criterion of social responsibility because it goes beyond societal expectations to contribute to the community’s welfare.73 ilit sib on sp so te ora To tal Legal responsibility y ilit sib co rp on sp l re Ethical responsibility Be ethical. Do what is right. Avoid harm. cia so cia te ora orp Contribute to the community; be a good corporate citizen. lc l re Discretionary responsibility ta To y EXHIBIT 5.7 Criteria of corporate social performance Obey the law. Economic responsibility Be profitable. Sources: Based on Archie B. Carroll. A Three-Dimensional Conceptual Model of Corporate Performance. (1979). Academy of Management Review, 4, 499; A. B. Carroll. (July–August 1991). The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Corporate Stakeholders. Business Horizons, 34, 42; and Mark S. Schwartz and Archie B. Carroll. (2003). Corporate Social Responsibility: A Three-Domain Approach. Business Ethics Quarterly, 13:4, 503–30. Discretionary responsibility is related to organisational virtuousness, which means that an organisation pursues a positive human impact, moral goodness, and unconditional society betterment for its own sake.74 For example, MAS Holdings, a family-owned apparel manufacturer in Sri Lanka, has made a commitment to contribute to economic development while also improving the lives of employees, their families, and the community. organisational virtuousness A principle in which an organisation pursues a positive human impact, moral goodness, and unconditional society betterment for its own sake. 208 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T In an era when clothing manufacturers are in the news every week for another ethical, labour relations, or safety violation, MAS Holdings is making news for its owners’ belief that businesses have the power to make a positive difference in the lives of employees and the community. MAS, the largest supplier for Victoria’s Secret, provides transportation to and from work, free meals and medical care to all of its 45 000 employees in 28 plants. More than 90 per cent of its workers are women, so MAS builds factories in rural areas with easy access so that women can work close to their homes and families.75 R EMEMBE R THIS ◗◗ The model for evaluating a company’s social performance uses four criteria – economic, legal, ethical and discretionary. ◗◗ Companies may get into trouble when they use economic criteria as their only measure of responsibility, sometimes called the profit-maximising view. ◗◗ Discretionary responsibility is purely voluntary and is guided by the organisation’s desire to make social contributions not mandated by economics, laws or ethics. ◗◗ Corporations that sent generous donations to Japan following the devastating earthquake and tsunami were practising discretionary responsibility. MANAGING COMPANY ETHICS AND SOCIAL RESPONSIBILITY 5.8 An expert on the topic of ethics has said, ‘Management is responsible for creating and sustaining conditions in which people are likely to behave themselves.’76 EXHIBIT 5.8 illustrates ways in which managers create and support an ethical organisation. One of the most important steps managers can take is to practise ethical leadership. Ethical leadership means that managers are honest and trustworthy, fair in their dealings with employees and customers, and behave ethically in both their personal and professional lives. In response to recent ethical violations and critics of management education saying MBA stands for ‘Me Before Anyone’,77 some business schools and students are taking a fresh look at how future managers are trained. Changing how future managers are trained could be one key to solving the ethics deficit pervading organisations. Managers and first-line supervisors are important role models for ethical behaviour, and they strongly influence the ethical climate in the organisation by adhering to high ethical standards in their own behaviour and decisions. Moreover, managers are proactive in influencing employees to embody and reflect ethical values.78 This chapter’s management in practice describes an approach that some leading companies are taking to strengthen managers’ ethical and socially responsible underpinning. Managers can also implement organisational mechanisms to help employees and the company stay on an ethical footing. Some of the primary ones are codes of ethics, ethical structures and measures to protect whistleblowers. 5 : E T H I C S , S O C I A L R E S P O N S I B I L I T Y A N D S U S TA I N A B L E D E V E L O P M E N T 209 EXHIBIT 5.8 Building an ethical organisation The ethical organisation Ethical leadership Codes of ethics Ethics committee Chief ethics officer Ethics hotlines Ethics training Support for whistleblowers Source: Adapted from Linda Klebe Treviño, Laura Pincus Hartman and Michael Brown. (Summer 2000). Moral Person and Moral Manager. California Management Review, 42:4, 128–42. INNOVATIVE WAY CULTIVATING A SERVICE MINDSET Some of today’s best companies are taking a new approach to developing managers – global service programs that place employees with non-profit organisations or small businesses, often in developing countries, to provide free or low-cost technical and managerial assistance. In line with the growing emphasis on sustainability and the triple bottom line, organisations want managers who have a service and sustainability mindset rather than an attitude of getting all they can for themselves. In one survey, 88 per cent of top executives said it was important that future managers have the mindset and skills to address sustainability issues. ✚✚ Global service programs benefit everyone. Global service programs have been described as a ‘win-win-win’. It might seem obvious that the non-profit organisations served by these programs benefit, but the companies investing in them and the employees participating in them gain just as much. IBM credits its program with generating about US$5 billion in new business. Companies gain greater knowledge of emerging markets, develop social capital and goodwill, and get more wellrounded managers with the service and sustainability mindset needed in today’s world. Participants benefit in numerous ways, including increased self-awareness, new skills and greater cross-cultural understanding. ✚✚ Many managers view these opportunities as plum assignments. Laura Benetti of Dow Corning spent four weeks working nine-hour days with rural women in India, helping them learn how to price and market the garments they made. She and nine colleagues slept in a lodge with limited access to hot water and electricity. ‘It gives more meaning to your career,’ said Benetti. Participants in global service also appreciate the opportunity to expand their understanding of global issues. ‘We all know about things like poverty in Africa and corruption and bribery . . .,’ said one IBM participant who spent time in Nigeria. ‘This kind of experience really brings . . . things to life, you really feel it.’ ✚✚ How widespread is the trend? In early 2012, at least 27 Fortune 500 companies, including PepsiCo, IBM, FedEx, Dow Corning and Pfizer, had some type of global service program, up from only six in 2006. Since 2008, IBM has sent more than 1400 employees to work with projects such as reforming Kenya’s postal system or developing ecotourism in Tanzania. Pfizer’s program lends employees to nongovernmental organisations (NGOs) to address health care needs in Asia and Africa. The Accenture Development Partnership has been involved in more 210 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T than 200 projects in 55 countries, where Accenture’s professionals work at 50 per cent pay for up to six months with organisations such as UNICEF and Freedom from Hunger. Sources: Based on Philip Mirvis, Kevin Thompson and John Gohring. (Spring 2012). Toward Next-Generation Leadership: Global Service. Leader to Leader, 20–6; Matthew Gitsham. (2012). Experiential Learning for Leadership and Sustainability at IBM and HSBC. Journal of Management Development, 31:3, 298–307; and Anne Tergesen. (9 January 2012). Doing Good to Do Well. The Wall Street Journal, B7. COD E O F E T H I C S code of ethics A formal statement of the organisation’s values regarding ethics and social issues. A code of ethics is a formal statement of the company’s values concerning ethics and social issues – it communicates to employees what the company stands for. Codes of ethics tend to exist in two types: principle-based statements and policy-based statements. Principle-based statements are designed to affect corporate culture; they define fundamental values and contain general language about company responsibilities, quality of products and treatment of employees. Policy-based statements generally outline the procedures to be used in specific ethical situations. These situations include marketing practices, conflicts of interest, observance of laws, proprietary information, political gifts and equal opportunity. General statements of principle are often called corporate credos. One good example is Johnson & Johnson’s ‘The Credo’. Available in 36 languages, The Credo has guided Johnson & Johnson’s managers for more than 60 years in making decisions that honour the company’s responsibilities to employees, customers, the community and shareholders. Another example is Google’s Code of Conduct. Portions of the Google code are shown in the following innovative way. INNOVATIVE WAY GOOGLE Google is one of the best-known companies in the world, and managers take seriously its reputation for both technological superiority and a commitment to ethics and social responsibility. Google’s Code of Conduct starts with these words – ‘Don’t be evil’. Googlers generally apply those words to how we serve our users. But ‘Don’t be evil’ is much more than that. Google uses a well-designed Code of Conduct to put the motto ‘Don’t be evil’ into practice. The code is divided into seven sections, with each subdivided into sections that describe specific values, policies and expectations. The code also clearly states that employees will be protected if they call attention to ethical violations or misconduct. Here are some excerpts from Google’s code: Serve our users Our users value Google not only because we deliver great products and services, but because we hold ourselves to a higher standard in how we treat users and operate more generally. Respect each other We are committed to a supportive work environment, where employees have the opportunity to reach their fullest potential. Each Googler is expected to do his or her utmost to create a respectful workplace culture that is free of harassment, intimidation, bias and unlawful discrimination of any kind. Preserve confidentiality We get a lot of press attention around our innovations and our culture, and that’s usually fine. However, company information that leaks prematurely into the press or to competitors can hurt our product launches, eliminate our competitive advantage and prove costly in other ways. 5 : E T H I C S , S O C I A L R E S P O N S I B I L I T Y A N D S U S TA I N A B L E D E V E L O P M E N T Ensure financial integrity and responsibility Conclusion Financial integrity and fiscal responsibility are core aspects of corporate professionalism. . . .The money we spend on behalf of Google is not ours; it’s the company’s and, ultimately, our shareholders’. Google aspires to be a different kind of company. It’s impossible to spell out every possible ethical scenario we might face. Instead, we rely on one another’s good judgement to uphold a high standard of integrity for ourselves and our company. And remember. . . don’t be evil, and if you see something that you think isn’t right – speak up! Obey the law Google takes its responsibilities to comply with laws and regulations very seriously and each of us is expected to comply with applicable legal requirements and prohibitions. 211 Source: (25 April 2012). Code of Conduct. Google Investor Relations, http://investor.google.com/corporate/code-of-conduct.html (accessed 28 September 2012). Having a strong code of conduct or code of ethics doesn’t guarantee that companies won’t get into ethical trouble or be challenged by stakeholders on ethical issues. Codes of ethics in and of themselves do little to influence and ensure ethical behaviour among employees and managers.79 However, they are one key element of the organisation’s ethical framework. Codes of ethics state the values or behaviours expected and those that will not be tolerated. When top management supports and enforces these codes, including rewards for compliance and discipline for violation, ethics codes can boost a company’s ethical climate.80 E T H I C A L ST R U C T U R E S Ethical structures represent the various systems, positions and programs that a company can undertake to encourage and support ethical behaviour.81 An ethics committee is a group of executives (and sometimes lower-level employees as well) appointed to oversee company ethics. The committee provides rulings on questionable ethical issues and assumes responsibility for disciplining wrongdoers. Motorola’s Ethics Compliance Committee, for instance, is charged with interpreting, clarifying and communicating the company’s code of ethics and with adjudicating suspected code violations. Many companies set up ethics offices with full-time staff to ensure that ethical standards are an integral part of company operations. These offices are headed by a chief ethics officer, sometimes called a chief ethics and compliance officer, a company executive who oversees all aspects of ethics and legal compliance, including establishing and broadly communicating standards, ethics training, dealing with exceptions or problems, and advising senior managers in the ethical and compliance aspects of decisions.82 The title chief ethics officer was almost unheard of a decade ago, but highly publicised ethical and legal problems in recent years have sparked a growing demand for these ethics specialists. The Ethics and Compliance Officer Association, a trade group, reports that membership soared 70 per cent, to more than 1260 companies, in the five years following the collapse of Enron due to financial wrongdoing.83 Most ethics offices also work as counselling centres to help employees resolve difficult ethical issues. A toll-free confidential ethics hotline allows employees to report questionable behaviour, as well as seek guidance concerning ethical dilemmas. ethics committee A group of executives assigned to oversee the organisation’s ethics by ruling on questionable issues and disciplining violators. chief ethics officer A manager who oversees all aspects of ethics and legal compliance. 212 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T W H I ST L E B L OW I NG Employee disclosure of illegal, unethical or illegitimate practices on the employer’s part is called whistleblowing.84 No organisation can rely exclusively on codes of conduct and ethical structures to prevent all unethical behaviour. Holding organisations accountable depends to some degree on individuals who are willing to speak up if they detect illegal, dangerous or unethical activities. Whistleblowers often report wrongdoing to outsiders, such as regulatory agencies, politicians or newspaper reporters. Some firms have instituted innovative programs and confidential hotlines to encourage and support internal whistleblowing. For this practice to be an effective ethical safeguard, however, companies must view whistleblowing as a benefit to the company and make dedicated efforts to encourage and protect whistleblowers.85 TAKE A MOMENT Strive to be an ethical leader by adhering to high standards in your personal and business behaviour. As a new manager, use tools such as codes of ethics, ethics training programs and ethics officers to promote ethical behaviour in your unit and help people resolve ethical dilemmas. Treasure whistleblowers who have the courage to point out wrongdoing, and set up organisational systems to nurture and protect them. CASE STUDY A CRISIS TO MILK The Mengniu Dairy in China was riding a wave. Producing some 10 000 tonnes of milk per day, it was not in control of its supply chain or its demand side operations, meaning that it did not own cows, nor did it control distribution of its milk, but essentially operated dairies. Growth was phenomenal when marketing coups meant that China’s first astronauts drank Mengniu milk on their flight, and the TV show that Mengniu sponsored, Super Girl, also became a big hit. Sales growth and the brand moved ahead faster than quality control in its supply chain. When the whole industry crashed in September 2008, Mengniu was also brought to its corporate knees. From contamination of milk thought to be by downstream distributors, hundreds of thousands of babies were poisoned, with six babies dying across the region. As a result, sales fell away completely. CEO Yang Wenjun played the classic crisis management moves, starting with a massive recall and offering full support to customers and staff. Even though milk wasn’t selling, he continued to buy milk from farmers during the crisis, to keep them afloat. At great expense, he invested in high-quality equipment and supply chain controls, restoring consumer confidence, albeit slowly. Eliminating middleman distributors is expected to eliminate the risk of Source: Getty Images/VGC/Chen Jian whistleblowing Disclosure by an employee of illegal, immoral or illegitimate practices by the organisation. future contamination, and these investments are expected to lead to sales not only being restored, but significantly increased in the next few years. The company is diversifying into other dairy products, such as yoghurt, and at one of its plants, a large entry sign says ‘It takes you 20 years to set up a good reputation and five minutes to destroy it’. Arising from the crisis, this company has invested and set itself up to be milking its markets for many years to come. Source: Epstein, G. (17 September 2010), Golden Cow. Forbes Asia, 108–11. 5 : E T H I C S , S O C I A L R E S P O N S I B I L I T Y A N D S U S TA I N A B L E D E V E L O P M E N T R EMEMBE R THIS ◗◗ Managers are role models. One of the most important ways that managers create ethical and socially responsible organisations is by practising ethical leadership. ◗◗ ◗◗ A code of ethics is a formal statement of the organisation’s values regarding ethics and social issues. ◗◗ Some organisations have ethics offices headed by a chief ethics officer, a manager who oversees all aspects of ethics and legal compliance. ◗◗ Managers who want ethical organisations support whistleblowing, the disclosure by employees of unethical, illegitimate or illegal practices by the organisation. ◗◗ Companies that are ethical and socially responsible perform as well as – often even better than – those that are not socially responsible. ◗◗ One study found that sustainable companies have significantly higher sales growth, and return on assets and profits than companies that are not run on a philosophy of sustainability. An ethics committee is a group of executives (and sometimes lower level employees as well) charged with overseeing company ethics by ruling on questionable issues and disciplining violators. MANAGERIAL ETHICS AND SUSTAINABLE DEVELOPMENT IN AUSTRALIA 5.9 In a review of managerial and business ethics in Australia and New Zealand, J. Milton-Smith pointed out the mixed record of ethical standards.86 He asserted that the Royal Commissions that have been held in every state of Australia have identified that ‘in the 1980s, many senior people in Australian business and government were caught up in a culture of greed, opportunism and abuse of power’. There was ‘exposure and imprisonment of prominent politicians and corporate leaders’. Milton-Smith points to major ethical problems in companies such as BHP Billiton, CSR and Coles, with similar problems in most governments. Research at the St James Ethics Centre in Sydney has shown that the most pressing ethical issues facing executives in Australia are, in order of importance: ◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗ ◗◗ employment conflicts of interest environmental issues sexual harassment workplace safety employee privacy conflicts between company ethics and foreign business practices security of company records affirmative action employee health screening inappropriate gifts to corporate personnel unauthorised payments to foreign officials balancing work and family commitments. 213 214 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T Many industries are becoming steeped in ethical challenges and problems, including tobacco, timber, alcohol, gambling, uranium, weapons and fossil fuels (coal and oil). The Australian community is becoming increasingly vocal about issues of false advertising, exploitation of children, and exploitation of workers in low-wage situations. New forces are gaining power, such as those of shareholders who are watching over the actions of organisations with ever-increasing vigilance. The Australian media is also vigilant in watching both business and government actions, and actively reporting any indiscretion, however small. Many organisations and professional associations have published standards of ethical behaviour to which employees or members are expected to conform. These include the legal, accounting, engineering and medical professional bodies. O RGA N I S AT I O NA L S U STA I NA B L E D E V E L O P M E N T Almost every business magazine and newspaper exhorts managers to become active in sustainable development. In most industries, sustainable development efforts have proceeded in fits and starts. Many initiatives, some expensive, have not lasted nor provided any benefits. Success has at best been mixed, from spectacularly useful through to a complete waste of effort and resources. The lack of clarity in terms of what a firm should do is holding many executives and their businesses back from a substantial engagement in sustainable development practices. However, the set of practices and potential outcomes are indeed not a fad when they are done well. Companies which are leading in this area of activity have found ways to simultaneously improve all their three areas of output, namely their economic/financial output of wealth creation, their ‘environmental footprint’ output and their social output, meaning their impact on the communities in which they operate and beyond. They have found ways of adapting their practices and innovating which have not involved tradeoffs or compromises, but rather have achieved ‘win-win’ outcomes for a range of their stakeholders. Sustainable development practices are defined (after World Commission on Economic Development, 1987):87 Sustainable development practices manage technology and social organisation to make balanced and equitable progress on economic, environmental and social needs so that meeting these needs in the present does not compromise the ability of future generations to meet their own needs. The scope of the economic, environmental and social needs addressed by sustainable development practices is described in the Sustainability Reporting Guidelines 2002 published by the Global Reporting Initiative. Doing business has become a lot more complex in the last 30 years. A major aspect of this is the attainment of approval, cooperation and satisfaction of a range of stakeholders, including customers, suppliers, owners, employees, financiers and regulators. These groups are demanding a broader set of performance outcomes than just profit. In the past, it has been possible to be anything from reactive and minimalist in dealing with these requirements through to proactive, strategic and therefore ahead of the pack. From a practical perspective, businesses and their executives can and increasingly must make concrete decisions, other than ‘do nothing’, about why, what, when, how and how much they should engage in sustainable development. 5 : E T H I C S , S O C I A L R E S P O N S I B I L I T Y A N D S U S TA I N A B L E D E V E L O P M E N T The ‘profile’ and importance of sustainable development has increased such that many companies now refer to their stance on sustainable development in their annual reports, or indeed specially publish a separate report on it. Leading organisations such as Westpac and BHP Billiton have paid great attention to their policies and strategies on sustainable development, in which they run their businesses to achieve a high level of ‘sustainability’ and openly measure and report these activities (see http://www.bhpbilliton.com/society/report and https://www.westpac.com.au/about-westpac/ sustainability/). More generally, many national and international systems of measuring and acknowledging the extent of progress made by organisations have been created. An example in Australia is the Banksia Awards (http://www.banksiafdn.com). These awards are in various categories, and are aimed at recognising and promoting their ‘sustainable development’ approach to business and management. Winners of the major Banksia Award have included the Torres Strait Regional Authority (2013 Banksia Gold Award) and Target 100 – Meat and Livestock Australia in 2012. Other winners have included Ferguson Plarre Bakehouses (2009 Gold Award winner), the World Wildlife Foundation, Westpac and Visy.88 Other specialised categories of these awards are in education, Indigenous activities, land and biodiversity, water, agriculture/food, transport, clean technology, leadership of sustainability and other important concerns. In short, the positive message for managers is that organisations must now take into full consideration a broad set of stakeholder requirements. For those who do this effectively, major advantages are available. T H E ‘ W H Y ’ O F S U STA I NA B L E D E V E L O P M E N T Businesses should work to limit the downside and expose the upside of their strategic opportunities by including sustainable development practices for consideration in their business practices choices. They can substantially assist in delivering a complete strategy and satisfying a variety of stakeholders at a higher level than would otherwise be the case. Indeed, advanced companies are proactive and innovative in leading stakeholder expectations and creating new and different forms of value for all players. The motivation need not be altruism, voluntarism and so on. Rather, it is a deep-seated set of principles that guides the organisation to develop its interdependence with its stakeholders, and grows through successive implementation of sustainable development practices. This guiding set of principles is a ‘sustainability orientation’, comprising breadth of vision, stakeholder empowerment and being progressive, as outlined below. The sustainability orientation of a company helps business leaders make the connection between their sustainable development practices and pursuit of the distinctive character and strategic advantage of their business. BREAD TH O F V ISIO N Although some leading companies in this domain are large and some are small, all are big-picture thinkers – in other words, they view the business in its broadest context and appreciate the needs, rights and interests of an extended array of stakeholders. This stakeholder approach goes far beyond a response model. Leading companies value highly the respect of their stakeholders and understand that they need to earn a community leadership position by establishing a reputation for trust and integrity that endures in the long term. Companies view this role as providing the opportunity for business to strive for performance beyond compliance, with the aim of generating sustainable futures for both the business and its stakeholders. 215 216 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T STA KEHO LDER EM P O W E R ME NT Stakeholder empowerment is clearly much deeper than engaging in transactional relationships even if these are long term. Stakeholder empowerment is perhaps the ‘newest’ practice area of the sustainability orientation of leading companies. It describes businesses’ active and consistent efforts to build, lengthen and strengthen relationships with their stakeholders. Where stakeholder empowerment differs from more traditional approaches to stakeholder relations is in the profound degree to which power and influence become shared between the two parties. It is this sharing of power that underpins the shared future described by the principle ‘breadth of vision’ and is the objective of stakeholder empowerment. BEING P ROGRESSIV E In keeping with their long-term vision and enthusiasm for change and new opportunities, the leading companies we studied also shared a commitment to progress through models such as excellence, best practice and high performance. How businesses operationalise the ‘being progressive’ principle depends on their business strategy. For companies like Eli Lilly, Multiplex and OneHarvest/Vegco, innovation is core to their competitiveness; whereas for companies like Blackmores, VicSuper and BHP Billiton, other forms of competitive advantage are supported by quality, service and reliability. These are all ‘being progressive’ practices that are chosen at the operational level to complement the strategy of the business. T H E ‘ W H AT ’ O F S U STA I NA B L E D E V E L O P M E N T Given this sustainability orientation, sustainable development practices are a subset of business practices, engaged in to achieve sound strategy and performance outcomes. Every firm has a unique business strategy. In essence, three generic strategic requirements can be pursued, namely: ◗◗ stakeholder support ◗◗ efficiency ◗◗ market edge. These are critical to sustainable development. STA KEHO LDER SUP P O RT This refers to all the stakeholders in the business. Their support as shareholders and debt-holders may be increased by: an improved organisational risk profile; recognition by socially responsible investment indices; or improved communication. Employee support may be increased not only through programs directly related to their employment such as training and wage negotiation, but also by support programs such as child care and health and fitness provisions, and further by involvement in philanthropic programs such as charitable donations from wages matched by the company, special leave for charity work and so on. The support of suppliers may be increased through evidence of mutuality or partnering in the supply chain, whereby the company promotes, supports and brokers their efforts to improve efficiency or standards and agrees to share the benefits. 5 : E T H I C S , S O C I A L R E S P O N S I B I L I T Y A N D S U S TA I N A B L E D E V E L O P M E N T Customer support may be increased by efforts that recognise their needs and preferences such as environmentally friendly products, health information and product security and quality control. Finally, the support of regulators may be increased by evidence of responsible and consistent adherence to required performance and reporting, support for international relations such as inter-country aid programs, and support for local programs such as community liaison committees and customer training and support. EFFICIE NC Y This refers to the range of sustainable development practices that makes a direct or indirect contribution to the company’s financial performance. Waste minimisation is an example of a practice that generates efficiency gains through reduced costs of raw materials, and reduced costs of treatment, storage, handling and disposal of wastes. Similar benefits apply to practices that reduce energy or water consumption and reduce greenhouse gas emissions. Areas of practice that are less commonly associated with efficiency gains, but which do have the potential to generate them, are multi-skilling and other forms of workforce training and support, and life-cycle analysis of products, whereby the costs of product maintenance and disposal are internalised to the business rather than being shifted to consumers and governments. Plastic bag bans and levies are a simple example of this kind of initiative, although much more complex versions are being developed in industries such as the information industry. MARKET EDGE This describes those practices that contribute to the company’s market opportunities in terms of new markets, market share and profit opportunity. Research and development, innovation and supply chain improvements are all examples of practices that can have a sustainable development component and that can open up new markets for a company or assist it to be more responsive to existing ones. Practices that contribute to the reputation of the company or brand can also increase its market edge. These practices may also contribute to the strategies of stakeholder support and efficiency mentioned earlier, but the company’s market orientation is the driving force for their adoption. TAKE A MOMENT What will your position be in terms of sustainable development practices, as a manager? Do you have a personal ‘sustainability orientation’? What actions will that lead to in your managerial life? T H E ‘ W H E N ’ O F S U STA I NA B L E D E V E L O P M E N T Businesses derive long-term success from sustainable development practices that they are well placed to broker and benefit from. Specifically, sustainable development practices give businesses a greater opportunity for long-term success when they are: ◗◗ strategically congruent with the business – specifically, by contributing to the business strategic requirements of stakeholder support, efficiency and market edge 217 218 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T ◗◗ deep practices that achieve genuine improvements in sustainable development outcomes, rather than superficial tick-a-box efforts ◗◗ mature, leading-edge approaches that offer the best available value proposition for the business on the scale from comply through to transform ◗◗ well-integrated with other business practices, thus promoting efficiency and effectiveness in implementation. R EMEMBE R THIS SUSTAINABLE DEVELOPMENT TAKING MANAGERIAL ACTION ON SUSTAINABLE DEVELOPMENT ◗◗ ◗◗ Australian organisations face a wide range of ethical challenges. ◗◗ Sustainability involves economic development that generates wealth and meets the needs of the current population while preserving the environment for the needs of future generations. ◗◗ Australian companies have increased the attention that they are paying to the environmental and social bottom lines of their organisations. ◗◗ In Australia, many challenges exist in the domain of managerial ethics, such as conflict of interest. Australian stakeholders are increasingly requiring higher standards of ethical and responsible behaviour from managers than ever before. It is not possible to specify one single formula that connects sustainable development practices to business success. Further, there is no definitive set of sustainable development practices, nor is there a single persuasive argument or motivation for embarking on them. However, it is possible to recognise the high-level framework for sustainable development that is common to advanced companies. From our observations, companies that are successful: 1. review, recognise and acknowledge the company’s sustainability orientation as it develops as an integral part of the business strategy and culture 2. canvass their specific sustainable development issues and business activities for opportunities to make beneficial changes (implement sustainable development practices) 3. analyse the potential for these sustainable development practices to contribute to one or more of three strategic business requirements, namely stakeholder support, efficiency and market edge 4. choose, develop and implement their unique set of sustainable development practices 5. measure progress, adapt, review and extend their sustainable development practices within an evolving business environment, strategy, culture and business practice set. In short, companies can make the most of their sustainable development practices, not simply by reacting to a single stimulus like managing compliance or protecting their reputation. Rather, a stronger argument for sustainable development practices rests in the creation of business advantage and innovation. 219 STUDY TOOLS ONLINE STUDY RESOURCES Visit http://login.cengagebrain.com and use the access code that comes with this book for 12 months access to the resources and study tools for this chapter. Express CO UR SEM AT E EX PR ES S FO R MANAG E M E N T S E A R C H M E ! M A NAG E M E N T The CourseMate Express website contains: Explore Search Me! Management for articles relevant to this chapter. Fast and convenient, Search Me! Management is updated daily and provides you with 24-hour access to full text articles from hundreds of scholarly and popular journals, e-books and newspapers, including The Australian and The New York Times. Log in to the Search Me! Management database via http://login.cengagebrain.com and try searching for the following key words: • revision quizzes • video cases • self-assessments • audio summaries • and more! • Ethics • Corporate social responsibility • Sustainable development • Green movement • Environmental management • Stakeholder management. Search tip: Search Me! Management contains information from both local and international sources. To get the greatest number of search results, try using both Australian and American spellings in your searches, e.g. ‘globalisation’ and ‘globalization’; ‘organisation’ and ‘organization’. RESPONSE TO THE MANAGEMENT CHALLENGE MONSANTO’S ETHICAL CHALLENGES In light of the stakeholder concerns about genetically modified food issues outlined in the chapter-opening management challenge, Monsanto CEO Hendrik Verfaillie offered an apology to some stakeholders at a Farm Journal Conference in Washington, DC, saying that Monsanto ‘was so blinded by its enthusiasm for this great new technology that it missed the concerns the technology raised for many people’. Verfaillie also announced a five-part pledge that aims to restore positive stakeholder relationships. Each of the five commitments requires an ongoing dialogue between Monsanto managers and various stakeholder constituencies. The company paid US$1.5 million to settle the Securities and Exchange Commission (SEC) charges and voluntarily cooperated with regulatory investigators. Monsanto managers understood the importance of effectively managing critical stakeholder relationships. 220 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T Monsanto has published a pledge to stakeholders and measures itself against this pledge: we want to make the world a better place for future generations. As an agricultural company, Monsanto can do this best by providing value through the products and systems we offer to farmers. With the growth of modern agricultural practices and crops that generate ever increasing yields, we are helping farmers around the world to create a better future for human beings, the environment, and local economies. Monsanto’s long term vision and sustainability strategy is that by 2030, Monsanto globally commits to help farmers produce more and conserve more by: ◗◗ conserving resources through developing seeds and traits that use one-third fewer key resources per unit of output to grow crops while working to lessen habitat loss and improve water quality ◗◗ helping improve the lives of all farmers who use our products, including an additional five million people in resource-poor farm families by 2020. And specifically in Australia, support the long-term viability of rural communities for future generations. Sources: Wheeler, D., Colbert, B. and Freeman, R. E. (Spring 2003). Focusing on Value: Reconciling Corporate Social Responsibility, Sustainability, and a Stakeholder Approach in a Networked World. Journal of General Management, 28:3, 1–28; Post, J. E., Preston, L. E. and Sachs, S. (Fall 2002). Managing the Extended Enterprise: The New Stakeholder. California Management Review, 45:1, 6–28.; Fritsch, P. and Mapes, T. (5 April 2005). Seed Money; In Indonesia, a Tangle of Bribes Creates Trouble for Monsanto. The Wall Street Journal; Monsanto website, http://www. monsanto.com.au/sustainable_agriculture/default.asp,http://www.monsanto.com. au/who_we_are/our_pledge.asp. ◗◗ developing improved seeds and traits that help farmers double yields from 2000 levels for corn, canola, soybeans and cotton, with a US$10 million grant also pledged to improve wheat and rice yields globally DISCUSSION QUESTIONS 1 Is it reasonable to expect that managers can measure their social and environmental performance on the same level as they measure financial performance with a triple bottom line? Discuss. 2 In September 2013, Tokyo Electric Power Company (Tepco) reported highly contaminated water leaking from a storage tank at the Fukushima nuclear power plant crippled in the March 2011 earthquake and tsunami. From what you know of the ongoing Fukushima disaster, discuss the various stakeholder groups that Tepco should respond to in order to handle this latest crisis. 3 Imagine yourself in a situation of being encouraged by colleagues to inflate your expense account. What factors do you think would influence your decision? 4 Is it socially responsible for organisations to undertake political activity or join with others in a trade association to influence the government? Discuss. 5 Managers at some banks and mortgage companies have argued that providing subprime mortgages was based on their desire to give poor people a chance to participate in the dream of home ownership. What is your opinion of this explanation in terms of ethics and social responsibility? 6 A noted business executive once said, ‘A company’s first obligation is to be profitable. Unprofitable enterprises can’t afford to be socially responsible’. Discuss why you agree or disagree with this statement. 7 Do you believe that it is ethical for organisational managers to try to get access to and scrutinise the Facebook pages of employees or job applicants? Discuss. 8 Which do you think would be more effective for shaping longterm ethical behaviour in an organisation, a written code of ethics combined with ethics training or strong ethical leadership? Which would have more impact on you? Why? 9 The technique of stakeholder mapping lets managers classify which stakeholders they consider more important and will invest more time in to satisfy. Is it appropriate for management to define some stakeholders as more important than others? Should all stakeholders be considered equal? 5 : E T H I C S , S O C I A L R E S P O N S I B I L I T Y A N D S U S TA I N A B L E D E V E L O P M E N T 10 Many people think cheating is more common today than it was a decade ago. Do you think cheating is more common, or does it just seem so? Why? 221 their own. Why might this happen? Do you believe being more of a ‘giver’ than a ‘taker’ will translate into greater career success for these managers? Discuss. 11 This chapter described studies that show that people work harder and better for managers who put the interests of others above ETHICAL CHALLENGE WHAT IS RIGHT? It is often hard for a manager to determine what is ‘right’ and even more difficult to put ethical behaviour into practice. A manager’s ethical orientation often brings him or her into conflict with people, policies, customers or bosses. Consider the following dilemmas. How would you handle them? 1 2 3 A well-liked member of your staff with an excellent record confides to you that he has acquired immune deficiency syndrome (AIDS). Although his illness has not affected his performance, you are concerned about his future health and about the reactions of his co-workers. You: a tell him to keep you informed about his health and say nothing to his co-workers b arrange for him to transfer to an area of the organisation where he can work alone c hold a staff meeting to inform his co-workers and ask them how they feel about his continued presence on your team d consult your human resources officer on how to proceed. During a reorganisation, you are told to reduce staff in the department you manage. After analysing staffing requirements, you realise the job would be a lot easier if two professionals, who are both over age 60, would retire. You: a say nothing and determine lay-offs based purely on performance and length of service b schedule a meeting with both employees and ask if they would consider early retirement c schedule a meeting with all staff and ask if anyone is interested in severance or early retirement d lay off the older workers. One of your colleagues has recently experienced two personal tragedies – her husband filed for divorce and her mother died. Although you feel genuine sympathy for her, her work is suffering. A report you completed, based on inaccurate data she provided, has been criticised by management. Your manager asks you for an explanation. You: a apologise for the inaccuracies and correct the data b tell your manager that the data supplied by your colleague was the source of the problem c say your colleague has a problem and needs support d tell your manager that because of your work load, you did not have time to check the figures in the report. 4 Your firm recently hired a new manager who is at the same level you are. You do not like the man personally and consider him a rival professionally. You run into a friend who knows your rival well. You discover this man did not attend Sydney University, as he stated on his résumé, and that he in fact has not graduated from any institution. You know his supposed university background was instrumental in getting him hired. You: a expose the lie to your superiors b without naming names, consult your human resources officer on how to proceed c say nothing – the company obviously failed to check him out, and the lie probably will surface on its own d confront the man with the information and let him decide what to do. 5 During a changeover in the accounting department, you discover your company has been routinely overcharging members of the public for services provided to them. Your superiors say repayment of charges would wreak havoc on company profits. Your bosses say the problem will never come to light and they will take steps to correct the problem so it never happens again. You: a make the matter public, anonymously or otherwise b say nothing – it is now in the hands of the bosses 222 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T c 6 work with the bosses on a plan to recognise the company’s error and set up a schedule of rebates that would not unduly penalise the company. In this morning’s mail, you received plans and samples for a promising new product from a competitor’s disgruntled employee. You: a throw the plans away b send the samples to your research department for analysis c notify your competitor about what is going on d call the police. A D D I T I O NA L QU E S T I O N S 1 Use the guidelines described in Management in practice, ‘guidelines for ethical decision making’ to determine the appropriate behaviour in these cases. Do you have all the information you need to make an ethical decision? How would family or friends react to each alternative if you were in these situations? 2 Which approach to ethical decision making – utilitarian, individualism, justice or moral rights – seems most appropriate for handling these situations? SOURCES: Game developed by Nelson, K. (Spring 1990). Board Games. Owen Manager, 14–16; Dreilinger, C. and Rice, D. (December 1991). Office Ethics. Working Woman, 35–9; Kelly, K. and Weber, J. (20 May 1991). When a Rival’s Trade Secret Crosses Your Desk. BusinessWeek, 48. GROUP CHALLENGE ETHICS AND BUSINESS COSTS Your discussion group is the leadership team of a company called Aussie Furniture Imports, which imports lounge and dining suites from China and Vietnam and sells them to Australian retailers. Your biggest customer has recently sent you a letter of demand requiring that you provide them with documentary evidence that all the furniture you sell them comes from factories that apply high standards of ethics, workplace health and safety, and environmental performance. This is a noble ideal, but it costs extra to do these things, and those foreign CASE FOR CRITICAL ANALYSIS suppliers would not bear those costs. So you are stuck in the middle between a customer who is holding to high ideals and suppliers who will not comply. Switching suppliers will lead to higher costs and cut your profitability to the bone. What policy will you adopt? Generate some alternative responses to your customer’s demand and evaluate these, before making a decision. (This exercise is based closely on a real situation, one that is becoming increasingly common in Australian businesses.) TOO MUCH INTELLIGENCE? The rapid growth of InPace Solutions occurred in no small part because of sales manager Ken Bodine and the skills of the savvy young sales team he had assembled. Bodine prided himself on finding and hiring top graduates from two major business schools in the state. In addition to the top salaries offered by InPace, the graduates were attracted by Bodine’s energy, innovative thinking and can-do attitude. He was the embodiment of InPace culture – moving fast and ahead of the knowledge curve in high-tech. InPace’s sales force consistently stunned the competition with their high performance level. Among other things, InPace had the reputation for aggressive business intelligence. Competitors found both amusing and frustrating the company’s ability to outmanoeuvre others and capture accounts. Bodine enjoyed the air of mystery surrounding the InPace organisation. Awareness that some competitor sat on the verge of a big sale always stirred Bodine’s passion for sales and ignited his desire to ‘one-up these guys’ and grab the sale out from under them. ‘If this was a poker game,’ one board member mused, ‘ InPace would win every hand. It’s like Bodine as well as his staff possess the uncanny ability to know the cards your company is holding. He keeps a straight face, a low profile throughout the game, and then suddenly he lays his cards on the table and you’re sunk. Here at InPace, we all love it.’ A former military intelligence officer, Bodine brought that ‘sneaky’ air into the InPace culture, adding a bit of excitement to the day-to-day business of sales. ‘With a great product, great staff, and great business intelligence,’ Bodine was fond of saying, ‘you can dominate the market.’ He wanted everyone – customers, 5 : E T H I C S , S O C I A L R E S P O N S I B I L I T Y A N D S U S TA I N A B L E D E V E L O P M E N T competitors and the media – to see InPace everywhere. ‘Every time the competition holds a staff meeting,’ he said, ‘the first question should be, “What’s InPace doing?”’ The sales staff was a mirror image of Bodine – younger, but with the same air of invincibility, and very competitive with one another. This, too, Bodine encouraged. A chess player, he enjoyed observing and encouraging the competition within his own sales staff. And seeing the thrill it brought ‘the boss’, ambitious salespeople worked vigorously to prove their competitive worth. Bodine’s latest competitive ‘match’ pitted Cody Rudisell and Ali Sloan in an intellectual and strategic struggle for a coveted assignment to a potential major account with a company that had just expanded into the state. Bodine let it be known that Cody and Ali were being considered for the assignment and that each could submit a proposal to lure the account to InPace and away from its top rival, Raleigh-Tech. Both Cody and Ali eagerly grabbed the opportunity to expand their influence within the company and to build their reputations. Putting together their presentations within a short time period meant working long days and late nights. On the night before the presentations, Cody bounded into Ali’s office and dropped a file on her desk. ‘Top that!’ he said. Ali began thumbing through the file, and as she looked up in startled amazement, Cody slammed the folder and jerked it from her desk. ‘That’s like a watershed of Raleigh-Tech’s trade secrets,’ Ali said. ‘Where did you get that?’ ‘That’s for me to know and you to find out,’ Cody replied, taking a seat and noisily drumming his fingers on the folder. ‘With this information, R-T doesn’t have a chance. And neither do you.’ ON THE JOB VIDEO CASE ‘You could get into all sorts of trouble’, Ali said, ‘When you lay that on Bodine’s . . .’ ‘Bodine’s espionage side will love it,’ Cody interrupted. ‘This is classic Bodine, classic InPace. You can’t tell me that with all the brilliant moves he’s made over the years, Bodine hasn’t done the same thing. This is business, cut-throat business, and I may have just topped the master. See you tomorrow.’ As he left, Ali sat in stunned silence. ‘Cut-throat, indeed,’ she whispered, reaching for the phone. She held the phone for a moment, wondering who she should call. This is unethical and illegal, she thought. She hung up the phone. Should I let him hang himself tomorrow? What if Bodine really does love it? If I call some manager tonight, will everyone see me as a sore loser and a crybaby? Is this really what it takes to win in the big leagues? Is this really the culture of this organisation? QU E S T I O N S 1 How has Ken Bodine shaped the sales culture at InPace Solutions? Do you consider this culture to be at a preconventional, conventional or postconventional level of ethical development? Why? 2 What should Ali Sloan do? What would you do if you were in her place? Explain. 3 How might Cody Rudisell’s decision differ if he based it on the utilitarian approach vs individualism approach vs practical approach to ethical decision making? Which approach does he appear to be using? THEO CHOCOLATE: MANAGING ETHICS AND SOCIAL RESPONSIBILITY For a real-world application of the management theories described in this chapter, log on to CourseMate Express to watch the On the Job video and answer the following questions. QUESTIO NS 1 223 What practices at Theo Chocolate reflect the concept of sustainability? 2 What does vice president Debra Music mean when she says that Theo is a ‘triple bottom line’ company? How is this different from any other company? 3 What does the term fair trade mean to the leaders at Theo? What happens if fair trade goals conflict with a company’s primary responsibility to be profitable? 224 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T ENDNOTES 1 Wallington, P. (15 March 2003). Honestly?! CIO, 41–2; McLean, B. (24 December 2001). Why Enron Went Bust. Fortune, 58–68. 2 Kaptein, M. (2003). The Diamond of Managerial Integrity. European Management Journal, 21:1, 99–108. 3 Gilley, B. (30 August 2001). Jiang’s Turn Tempts Fate. Far Eastern Economic Review, 30. 4 Waldholz, M. (5 March 1998). AZT Price Cut for Third World Mothers-to-be. The Wall Street Journal, B1, B12; Arnst, 1997; Franchise Inc. (November 1997). Inc., 121; Kurschner, D. (September–October 1995). Tying Executive Pay to Social Responsibility. Business Ethics, 47. 5 Gordon F. Shea, Practical Ethics (New York: American Management Association, 1988); and Linda K. Treviño. (1986). Ethical Decision Making in Organizations: A Person-Situation Interactionist Model. Academy of Management Review, 11, 601–17. 6 Thomas M. Jones. (1991). Ethical Decision Making by Individuals in Organizations: An Issue-Contingent Model. Academy of Management Review, 16: 366–95. 7 Shelby D. Hunt and Jared M. Hansen. (2007). Understanding Ethical Diversity in Organizations. Organizational Dynamics 36: 2, 202–16. 8 Socialising for Intelligence. (2 November 2011). Computer News Middle East. 9 Justin Scheck. (11 August 2009). Accusations of Snooping in Ink-Cartridge Dispute. The Wall Street Journal Online, http://online.wsj.com/article/SB124995836273921661. html?KEYWORDS=%22Accusations+ of+Snooping+in+Ink-Cartridge+Dispute%22 (accessed 14 August 2009). 10 Kabel, M. (27 January 2006). Former Walmart Executive to Plead Guilty to Fraud. USA Today, http://www.usatoday.com/money/industries/retail/2006-01-27-retail-fraud_x.htm (accessed 2 July 2012); and A. Jones and N. Koppel. (7 August 2010). Ethical Lapses Felled Long List of Company Executives. The Wall Street Journal, http://online.wsj.com/article/SB1000142405 2748703309704575413842089375632.html (accessed 2 July 2012). 11 These examples are from Jones and Koppel. Ethical Lapses Felled Long List of Company Executives. 12 Rushworth M. Kidder. (30 January 1990). The Three Great Domains of Human Action. Christian Science Monitor. 13 Gallup Survey results reported in Martin, R. (2011). The CEO’s Ethical Dilemma in the Era of Earnings Management.,Strategy & Leadership 39, no. 6: 43–47. 14 Marist College Institute for Public Opinion and Knights of Columbus survey, results reported in Kevin Turner, ‘Corporate Execs: Nobody Trusts Us; U.S. Lacks Confidence in Business Ethics, Poll Says,’ Florida Times Union, 27 February, 2009. 15 Reported in Dan Kadlec, ‘Gordon Gekko Lives: New Evidence That Greed Is Rampant on Wall Street,’ Time, 17 July 2013, http://business.time.com/2013/07/17/gordon-gekko-livesnew-evidence-that-greed-is-rampant-on-wall-street/ (accessed 19 July 2013). 16 Gary R. Weaver, Linda Klebe Treviño, and Bradley Agle, ‘’Somebody I Look Up To’: Ethical Role Models in Organizations,’ Organizational Dynamics 34, no. 4 (2005): 313–330. 17 Gary Yukl et al., ‘An Improved Measure of Ethical Leadership,’ Journal of Leadership and Organizational Studies 20, no. 1 (2013): 38–48. 18 John Revill and Vanessa O’Connell. (23 October 2012). Armstrong Is Stripped of Titles in Cycling. The Wall Street Journal, A4; and A. Hartocollis. (26 March 2012). At Ailing Brooklyn Hospital, Insider Deals and Lavish Perks. The New York Times, A1. 19 Elizabeth Povoledo. (28 May 2012). Vatican Allows That Butler Scandal Is Hurting Trust. The New York Times, http://www.nytimes.com/2012/05/29/world/europe/vatican-says-scandalinvolving-popes-butler-erodes-trust.html (accessed 2 July 2012). 20 Marist College Institute for Public Opinion and Knights of Columbus survey, results reported in K. Turner. (27 February 2009). Corporate Execs: Nobody Trusts Us; U.S. Lacks Confidence in Business Ethics, Poll Says. Florida Times Union. 21 Gary R. Weaver, Linda Klebe Treviño and Bradley Agle. (2005). ‘Somebody I Look Up To:’ Ethical Role Models in Organizations. Organizational Dynamics, 34:4, 313–30. 22 These measures of unethical behaviour are from Muel Kaptein. (October 2008). Developing a Measure of Unethical Behavior in the Workplace: A Stakeholder Perspective. Journal of Management, 34:5, 978–1008. 23 Homer H. Johnson, ‘Does It Pay to Be Good? Social Responsibility and Financial Performance,’ Business Horizons (November–December 2003): 34–40; Jennifer J. Griffin and John F. Mahon, ‘The Corporate Social Performance and Corporate Financial Performance Debate: Twenty-Five Years of Incomparable Research,’ Business and Society 36:1 (March 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 1997): 5–31; Bernadette M. Ruf et al., ‘An Empirical Investigation of the Relationship Between Change in Corporate Social Performance and Financial Performance: A Stakeholder Theory Perspective,’ Journal of Business Ethics 32:2 ( July 2001): 143ff; Philip L. Cochran and Robert A. Wood, ‘Corporate Social Responsibility and Financial Performance,’ Academy of Management Journal 27 (1984): 42–56. Heli Wang, Jaepil Choi, and Jiatao Li, ‘Too Little or Too Much? Untangling the Relationship Between Corporate Philanthropy and Firm Financial Performance,’ Organization Science 19:1 ( January–February 2008): 143–159; Philip L. Cochran, ‘The Evolution of Corporate Social Responsibility,’ Business Horizons 50 (2007): 449–454; Paul C. Godfrey, ‘The Relationship Between Corporate Philanthropy and Shareholder Wealth: A Risk Management Perspective,’ Academy of Management Review 30:4 (2005): 777–798; Oliver Falck and Stephan Heblich, ‘Corporate Social Responsibility: Doing Well by Doing Good,’ Business Horizons 50 (2007): 247–254; J. A. Pearce II and J. P. Doh, ‘The High Impact of Collaborative Social Initiatives,’ MIT Sloan Management Review (Spring 2005): 31–39; Curtis C. Verschoor and Elizabeth A. Murphy, ‘The Financial Performance of Large U.S. Firms and Those with Global Prominence: How Do the Best Corporate Citizens Rate?’ Business and Society Review 107:3 (Fall 2002): 371–381; Johnson, ‘Does It Pay to Be Good?’; Dale Kurschner, ‘5 Ways Ethical Business Creates Fatter Profits,’ Business Ethics (March–April 1996): 20–23. Rashid Ameer and Radiah Othman, ‘Sustainability Practices and Corporate Financial Performance: A Study Based on the Top Global Corporations,’ Journal of Business Ethics 108:1 (June 2012): 61–79. Verschoor and Murphy, The Financial Performance of Large U.S. Firms. Richard McGill Murphy, ‘Why Doing Good Is Good For Business,’ Fortune (February 8, 2010): 90–95; Jean B. McGuire, Alison Sundgren, and Thomas Schneeweis, ‘Corporate Social Responsibility and Firm Financial Performance,’ Academy of Management Journal 31 (1988): 854–872; and Falck and Heblich, ‘Corporate Social Responsibility: Doing Well by Doing Good.’ Daniel W. Greening and Daniel B. Turban, ‘Corporate Social Performance as a Competitive Advantage in Attracting a Quality Workforce,’ Business and Society 39:3 (September 2000): 254–280; and Kate O’Sullivan, ‘Virtue Rewarded,’ CFO (October 2006): 47–52. ‘The Socially Correct Corporate Business,’ in Leslie Holstrom and Simon Brady, ‘The Changing Face of Global Business,’ a special advertising section, Fortune (24 July 2000): S1–S38. Remi Trudel and June Cotte, ‘Does Being Ethical Pay?’ The Wall Street Journal, 12 May 2008. Roger Martin. (2011). The CEO’s Ethical Dilemma in the Era of Earnings Management. Strategy & Leadership, 39:6, 43–7. Remi Trudel and June Cotte, ‘Does Being Ethical Pay?’ The Wall Street Journal, 12 May 2008. Linda K. Treviño and Katherine A. Nelson. (1995). Managing Business Ethics: Straight Talk About How to Do It Right (New York: John Wiley & Sons, Inc), p. 4. Jones. Ethical Decision Making by Individuals in Organizations. This example is from Francis J. Flynn and Scott S. Wiltermuth. (2010). Who’s with Me? False Consensus, Brokerage, and Ethical Decision Making in Organizations. Academy of Management Journal, 53:5, 1074–89. Based on a question from a General Electric (GE) employee ethics guide, reported in Kathryn Kranhold. (28 November 2005). U.S. Firms Raise Ethics Focus. The Wall Street Journal. D. Wallis. (3 May 2012). Loose Lips Can Sink Trips. The New York Times, F1. From Jeffrey Kluger. (3 December 2007). What Makes Us Moral? Time, 54–60. The Morality Quiz. Time, http://www.time.com/morality (accessed 19 February 2008). This discussion is based on Gerald F. Cavanagh, Dennis J. Moberg and Manuel Velasquez. (1981). The Ethics of Organizational Politics. Academy of Management Review, 6, 363–74; Justin G. Longenecker, Joseph A. McKinney and Carlos W. Moore. (Winter 1988). Egoism and Independence: Entrepreneurial Ethics. Organizational Dynamics: 64–72; Carolyn Wiley. (February 1995). The ABCs of Business Ethics: Definitions, Philosophies, and Implementation. IM, 22–7; Mark Mallinger. (August 1997). Decisive Decision Making: An Exercise Using Ethical Frameworks. Journal of Management Education, 411–17. Michael J. McCarthy. (21 October 1999). Now the Boss Knows Where You’re Clicking; and Virtual Morality: A New Workplace Quandary. The Wall Street Journal; and Jeffrey L. Seglin. (8 August 2000). Who’s Snooping on You? Business 2.0, 202–3. John Kekes. (1988). Self-Direction: The Core of Ethical Individualism. In Organizations and Ethical Individualism, ed. Konstanian Kolenda (New York: Praeger), pp. 1–18. Tad Tulega. (1987). Beyond the Bottom Line (New York: Penguin Books). 5 : E T H I C S , S O C I A L R E S P O N S I B I L I T Y A N D S U S TA I N A B L E D E V E L O P M E N T 42 Bill Lynn. Ethics. Practical Ethics website, http://www.practicalethics.net/ethics.html (accessed 23 March 2010); Richard E. Thompson. (January 2003). So, Greed’s Not Good After All. Trustee, 28; and Dennis F. Thompson. What Is Practical Ethics? Harvard University Edmond J. Safra Foundation Center for Ethics website, http://www.ethics.harvard.edu/thecenter/what-is-practical-ethics (accessed 23 March 2010). 43 Anonymous official quoted in Carol D. Leonnig and David Nakamura. (23 May 2012). Four in Secret Service Fight Back. The Washington Post, A1. 44 Gerard L. Rossy. (2011). Five Questions for Addressing Ethical Dilemmas. Strategy & Leadership, 39:6, 35–42. 45 John D. Kammeyer-Mueller, Lauren S. Simon and Bruce L. Rich. (May 2012). The Psychic Cost of Doing Wrong: Ethical Conflict, Divestiture Socialization, and Emotional Exhaustion. Journal of Management, 38:3, 784–808. 46 L. Kohlberg. (1976). Moral Stages and Moralization: The Cognitive-Developmental Approach. In Moral Development and Behavior: Theory, Research, and Social Issues, ed. T. Lickona (New York: Holt, Rinehart and Winston), pp. 31–83; L. Kohlberg. (1969). Stage and Sequence: The Cognitive-Developmental Approach to Socialization. In Handbook of Socialization Theory and Research, ed. D. A. Goslin (Chicago: Rand McNally); Linda K. Treviño, Gary R. Weaver and Scott J. Reynolds. (December 2006). Behavioral Ethics in Organizations: A Review. Journal of Management, 32:6, 951–90; and Jill W. Graham. (January 1995). Leadership, Moral Development, and Citizenship Behavior. Business Ethics Quarterly, 5:1, 43–54. 47 Ihosvani Rodriguez. (3 July 2012). Hallandale Beach Lifeguard Fired After Participating in Beach Rescue. Sun Sentinel, http://articles.sun-sentinel.com/2012-07-03/news/fl-hallandalebeach-lifeguards-20120703_1_ lifeguard-services-jeff-ellis-beach-rescue (accessed 9 July 2012); and Gilma Avalos and Ari Odzer. (5 July 2012). Hallandale Beach Lifeguard Fired for Leaving His Zone to Rescue Drowning Man. NBCMiami.com, http://www. nbcmiami.com/news/local/Hallandale-Beach-Lifeguard-Fired-For-Leaving-His-Zone-ForRescue-161372785.html (accessed 9 July 2012). 48 Studies cited in Adam Grant, ‘Turning the Tables on Success,’ Strategy + Business (Summer 2013). 49 Adam Grant, ‘Givers Take All: The Hidden Dimension of Corporate Culture,’ McKinsey Quarterly, Issue 2 (2013): 52–65; and Grant, ‘Turning the Tables on Success.’ 50 Donaldson, T. and Dunfee, T. W. (Summer 1999). When Ethics Travel: The Promise and Peril of Global Business Ethics. California Management Review, 41:4, 45–63. 51 Transparency International (2004). Transparency International Releases New Bribe Payers Index, http://www.transparency.org (accessed 24 February 2004). 52 Transparency International (2011). Bribe Payers Index Report 2011, pp. 8 and 9, http://bpi. transparency.org/bpi2011/results/ (accessed 11 March 2014). 53 Szwajkowski, E. W. (1986). The Myths and Realities of Research on Organizational Misconduct, in J. E. Post (ed.) Research in Corporate Social Performance and Policy (Greenwich: JAI Press), 9:, 103–22; Davis, K., Frederick, W. C. & Blostrom, R. L. (1979). Business and Society: Concepts and Policy Issues (New York: McGraw-Hill). 54 Sherwin, D. S. (November–December 1983). The Ethical Roots of the Business System. Harvard Business Review, 61, 183–92. 55 Nancy C. Roberts and Paula J. King. (Winter 1989). The Stakeholder Audit Goes Public. Organizational Dynamics, 63–79; Thomas Donaldson and Lee E. Preston. (1995). The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications. Academy of Management Review 20:1, 65–91; and Jeffrey S. Harrison and Caron H. St. John. (1996). Managing and Partnering with External Stakeholders. Academy of Management Executive, 10:2, 46–60. 56 R. Mitchell, B. Agle and D. J. Wood. (1997). Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who or What Really Counts. Academy of Management Review, 22, 853–86; Virginie Vial. (September–October 2011). Taking a Stakeholders’ Approach to Corporate Social Responsibility. Global Business and Organizational Excellence, 37–47; and Martijn Poel, Linda Kool and Annelieke van der Giessen. (2010). How to Decide on the Priorities and Coordination of Information Society Policy? Analytical Framework and Three Case Studies. Info: The Journal of Policy, Regulation and Strategy for Telecommunications, Information, and Media, 12:6, 21–39. 57 N. Craig Smith, Sean Ansett and Lior Erex. (Summer 2011). How Gap Inc. Engaged with Its Stakeholders. MIT Sloan Management Review, 52:4, 69–76. 58 Max B. E. Clarkson. (1995). A Stakeholder Framework for Analyzing and Evaluating Corporate Social Performance. Academy of Management Review, 20:1, 92–117. 59 Thomson, J. (27 July 2001). Test of Virtue. Business Review Weekly, 60–5. 60 2013 Responsible Investment Benchmark Report, p. 25, http://www.responsibleinvestment.org/ wp-content/uploads/2013/07/2013-Benchmark-Report.pdf (accessed 15 July 2013). 61 Ibid. pp. 4,11,15,16. 225 62 Rich Kauffeld, Abhishek Malhotra and Susan Higgins. (21 December 2009). Green Is a Strategy. Strategy + Business. 63 Reported in Dung K. Nguyen and Stanley F. Slater. (2010). Hitting the Sustainability Sweet Spot: Having It All. Journal of Business Strategy, 31:3, 5–11. 64 This definition is based on Marc J. Epstein and Marie-Josée Roy. Improving Sustainability Performance: Specifying, Implementing and Measuring Key Principles. Journal of General Management, 29:1 (Autumn 2003): 15–31; World Commission on Economic Development. (1987). Our Common Future (Oxford, UK: Oxford University Press; and A. W. Savitz and K. Weber. (2006). The Triple Bottom Line: How Today’s Best-Run Companies Are Achieving Economic, Social, and Environmental Success (San Francisco: Jossey-Bass). 65 This discussion is based on Nguyen and Slater. Hitting the Sustainability Sweet Spot; Savitz and Weber. The Triple Bottom Line; and Triple Bottom Line, an article adapted from The Economist Guide to Management Ideas and Gurus, by Tim Hindle (London: Profile Books, 2008), The Economist (17 November 2009), http://www.economist.com/node/14301663 (accessed 5 July 2012). The ‘people, planet, profit’ phrase was first coined in 1994 by John Elkington, founder of a British consulting firm called SustainAbility. 66 Mark S. Schwartz and Archie B. Carroll. (2003). Corporate Social Responsibility: A ThreeDomain Approach. Business Ethics Quarterly, 13:4, 503–30; and Archie B. Carroll. (1979). A ThreeDimensional Conceptual Model of Corporate Performance. Academy of Management Review, 4, 497–505. For a discussion of various models for evaluating corporate social performance, also see Diane L. Swanson. (1995). Addressing a Theoretical Problem by Reorienting the Corporate Social Performance Model. Academy of Management Review, 20:1, 43–64. 67 Milton Friedman. (1962). Capitalism and Freedom (Chicago: University of Chicago Press, p. 133; and Milton Friedman and Rose Friedman. (1979). Free to Choose (New York: Harcourt Brace Jovanovich). 68 Eugene W. Szwajkowski. (1985). Organizational Illegality: Theoretical Integration and Illustrative Application. Academy of Management Review, 10, 558–67. 69 David Barstow. (21 April 2012). Vast Mexico Bribery Case Hushed up by Walmart After Top-Level Struggle. The New York Times, http://www.nytimes.com/2012/04/22/business/atwalmart-in-mexico-a-bribe-inquiry-silenced.html?pagewanted=all (accessed 6 July 2012). 70 David J. Fritzsche and Helmut Becker. (1984). Linking Management Behavior to Ethical Philosophy – An Empirical Investigation. Academy of Management Journal, 27, 165–75. 71 Kresge, Naomi (21 September 2015). Volkswagen drops 23% after admitting diesel emissions cheat, Bloomberg, http://www.bloomberg.com/news/articles/2015-09-21/ volkswagen-drops-15-after-admitting-u-s-diesel-emissions-cheat (accessed 3 November 2016); Plungis, Jeff and Hull, Dana (20 September 2015). VW’s emissions cheating found by curious clean-air group, Bloomberg, http://www.bloomberg.com/news/ articles/2015-09-19/volkswagen-emissions-cheating-found-by-curious-clean-air-group (accessed 3 November 2016). 72 MasterCard (10 October 2013). WFP launches e-cards for Syrian refugees in Lebanon with MasterCard’s support, http://newsroom.mastercard.com/press-releases/wfp-launches-ecards-for-syrian-refugees-in-lebanon-with-mastercards-support/ (accessed 3 November 2016); World Food Programme (2016). MasterCard. http://www.wfp.org/partners/privatesector/meet-our-partners/mastercard (accessed 3 November 2016). 73 (RED) (2016). About (RED). https://red.org/about/ (accessed 4 November 2016); (RED) (2016). Gap. https://red.org/partners/gap/ (accessed 4 November 2016); Knox, David (15 October 2015). Telethon raises $25.8m in WA. http://www.tvtonight.com.au/2015/10/telethon-raises25-8m-in-wa.html (accessed 4 November 2016); Murphy, Emma (11 June 2012). A look back at NBN’s Telethon efforts. http://media.nbnnews.com.au/index.php/2012/06/11/a-look-backat-nbns-telethon-efforts/ (accessed 4 November 2016); Good Friday Appeal (2015). About us. http://www.goodfridayappeal.com.au/about-us (accessed 4 November 2016). 74 D. Bright, K. Cameron, and A. Caza, ‘The Amplifying and Buffering Effects of Virtuousness in Downsized Organizations,’Journal of Business Ethics 64 (2006): 249–269; Mario Fernando and Shamika Almeida, ‘The Organizational Virtuousness of Strategic Corporate Social Responsibility: A Case Study of the Sri Lankan Family-Owned Enterprise MAS Holdings,’ European Management Journal 30 (2012): 564–576. 75 Fernando and Almeida, The Organizational Virtuousness of Strategic Corporate Responsibility. 76 Saul W. Gellerman. (Winter 1989). Managing Ethics from the Top Down. Sloan Management Review, 73–9. 77 Attributed to Philip Delves Broughton in David A. Kaplan. (26 October 2009). MBAs Get Schooled in Ethics. Fortune, 27–8. 78 Michael E. Brown and Linda K. Treviño. (2006). Ethical Leadership: A Review and Future Directions. The Leadership Quarterly, 17, 595–616; Weaver, Treviño and Agle. ‘Somebody I Look Up To’; and L. K. Treviño et al. (Winter 1999). Managing Ethics and Legal Compliance: What Works and What Hurts? California Management Review, 41:2, 131–51. 226 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T 79 M. A. Cleek and S. L. Leonard. (1998). Can Corporate Codes of Ethics Influence Behavior? Journal of Business Ethics, 17:6, 619–30. 80 K. Matthew Gilley, Chris Robertson and Tim Mazur. (January–February 2010). The BottomLine Benefits of Ethics Code Commitment. Business Horizons, 53, 31–7; Joseph L. Badaracco and Allen P. Webb. (Winter 1995). Business Ethics: A View from the Trenches. California Management Review, 37:2, 8–28; and Ronald B. Morgan. (February 1993). Self- and CoWorker Perceptions of Ethics and Their Relationships to Leadership and Salary. Academy of Management Journal, 36:1, 200–14. 81 Cheryl Rosen. (Summer 2006). A Measure of Success? Ethics After Enron. Business Ethics, 22–6. 82 Alan Yuspeh. (1 August 2000). Do the Right Thing. CIO, 56–8. 83 Reported in Rosen. A Measure of Success? Ethics After Enron. 84 Marcia P. Miceli and Janet P. Near. (1984). The Relationship Among Beliefs, Organizational Positions, and Whistle-Blowing Status: A Discriminant Analysis. Academy of Management Journal, 27, 687–705; and Michael T. Rehg et al. (March–April 2008). Antecedents and 85 86 87 88 Outcomes of Retaliation Against Whistleblowers: Gender Differences and Power Relationships. Organization Science, 19:2, 221–40. Eugene Garaventa. (December 1994). An Enemy of the People by Henrik Ibsen: The Politics of Whistle-Blowing. Journal of Management Inquiry, 3:4, 369–74; Marcia P. Miceli and Janet P. Near. (1994). Whistleblowing: Reaping the Benefits. Academy of Management Executive, 8:3, 65–74. Milton-Smith, J. (1997). Business Ethics in Australia and New Zealand. Journal of Business Ethics, 16:14, 1485–97. World Commission on Economic Development (1987). Our Common Future. Oxford: Oxford University Press. Banksia Foundation, http://www.banksiafdn.com/the-awards/42/239.html. The Banksia Gold Award: Torres Strait Regional Authority (TSRA), QLD (2013); Kimberly-Clark Australia and New Zealand Target 100 Meat & Livestock Australia, NSW (2012); Qantas – large organisation; Gippsland Water Factory – A new way to care for water Gippsland Water, VIC (2011); Fujitsu – large organisation. CHAPTER 6 M A N AGING S TA R T- U P S A ND N E W V E N T U R E S L E A R N I NG OBJ E C T I V E S AFTER STU DYI N G T H I S C H A P T E R , YO U S H O U L D B E A B L E TO : 1 define entrepreneurship and the five classifications of entrepreneurs 2 describe the importance of entrepreneurship to the global and Australian economies 3 appreciate the influence of globalisation on entrepreneurship and innovation 4 define the personality characteristics of a typical entrepreneur 6 outline the planning necessary to launch an entrepreneurial startup and describe the five stages of growth for an entrepreneurial company 7 explain how the management activities of planning, organising, decision making, leading and controlling apply to a growing entrepreneurial company. 5 explain social entrepreneurship as a vital part of today’s small business environment Express Throughout this chapter, the CourseMate Express icons indicate an opportunity for online self-study, linking you to activities and other online resources. 228 MANAGEMENT CHALLENGE CHALLENGES OF TRADITIONAL RETAILERS Gerry Harvey is one of Australia’s most successful entrepreneurs. He began his retailing activities by selling vacuum cleaners door to door before opening a furniture store known as Norman Ross with partner Ian Norman in 1961. Over 50 years later, Harvey is in control of a thriving and growing retail business that has been very well valued in the share market. When Alan Bond bought Norman Ross in 1981 and shortly afterwards sacked Harvey and his partner, the pair started again, showing the resilience that is characteristic of many entrepreneurs. Harvey has kept close control of this business, even as it has become very large, which is very different from other public companies such as Coles. Harvey’s wife is managing director and his son is also on the board, with the only other previous board member being a lawyer. However, the company has recently expanded its board of directors to include five independent directors as well as six executives, which many would see as an improvement in governance practice. Gerry Harvey points to his company’s superior growth and profitability compared with the more traditional retailing companies. Is successful performance sufficient justification of Gerry Harvey’s methods? He appeared on many of the retailer’s TV and radio advertisements, and some say his approach is egotistical, while others acknowledge that he has ‘runs on the board’ to back up this approach. Despite its success, the question asked about the Harvey Norman company is whether it is overly dominated by one person and one school of thought, and therefore vulnerable to mistakes. Will a company that has principally relied on the energy and strategies of one person be sustainable after that person retires? Are Harvey’s widely reported negative views on Internet retailing good for the company? With Mr Harvey owning 30 per cent of the group, is the control too concentrated? This company operated a scalable franchise model, and has opened new stores in recent years in Malaysia, Singapore, Slovenia, Ireland and New Zealand, in addition to Australia. 2012 was a very challenging year for the Harvey Norman company as consumers resisted the temptation to spend their earnings. In order to compete on price and tempt customers, the company had to drastically cut margins with ‘product being sold at never before seen prices’. The smaller margins and heavy competition for customers resulted in a year’s profit loss of nearly AU$150 million for the group. Despite a difficult business climate, the company still holds a strong position in the market, with nearly 290 destination stores and sales and profit of AU$4.8 billion and just over AU$227 million, respectively. This company is also a major holder of property investments, which were recently valued at over AU$2.12 billion. Harvey Norman must cope with the challenges of online retailing, which has become a global phenomenon, coupled with the vagaries of economic forces and the need to keep staff highly motivated. Sources: Thomson, J. (13 July 2001). Retail: Kings in Paper Castles. Business Review Weekly, 44–5; 2012 Harvey Norman Annual Report, p. 4, http://www. harveynormanholdings.com.au (accessed 13 August 2013). QU E S T I O N What advice would you give Gerry Harvey about continuing to build his business? Do you think one person can continue to build and grow a successful business using an entrepreneurial style such as this, in competition with the mainstream corporations such as Coles and Woolworths? Where is the future of online retailing going, and will start-ups take over, or can Harvey Norman adjust to new market forces and technologies? 229 230 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T NEW MANAGER SELF-ASSESSMENT DO YOU THINK LIKE AN ENTREPRENEUR? An entrepreneur faces many demands. Do you have the inclination to start and build your own business? It is not for the faint of heart. To find out, consider the extent to which each of the following statements characterises your behaviour. Please answer each of the following items as Mostly true or Mostly false for you. MOSTLY TRUE MOSTLY FALSE 1 Give me a little information and I can come up with a lot of ideas. 2 Pressure helps me to focus. 3 I don’t easily get frustrated when things don’t go my way. 4 I identify how resources can be recombined to produce novel outcomes. 5 I enjoy competing against the clock to meet deadlines. 6 People in my life have to accept that nothing is more important than the achievement of my school, my sport or my career goals. 7 I serve as a role model for creativity. 8 I think on my feet when carrying out tasks. 9 I am determined and action oriented. Scoring and Interpretation: each question relates to some aspect of improvisation, which is a correlate of entrepreneurial intentions. Entrepreneurial improvisation consists of three elements. Questions 1, 4 and 7 relate to creativity/ingenuity, the ability to produce novel solutions under constrained conditions. Questions 2, 5 and 8 relate to working under pressure/stress, the ability to excel under pressure-filled circumstances. Questions 3, 6 and 9 relate to action/persistence, the determination to achieve goals and solve problems in the moment. If you answered ‘mostly true’ to at least two of three questions for each subscale or six of nine for all the questions, then consider yourself an entrepreneur in the making with the potential to manage your own business. If you scored one or fewer ‘mostly true’ on each subscale or three or fewer for all nine questions, you might want to consider becoming a manager by working for someone else. Sources: Based on Hmieleski, Keith M. and Corbett, Andrew C. January 2006. Proclivity for Improvisation as a Predictor of Entrepreneurial Intentions. Journal of Small Business Management, 44:1, 45–63; and (19 October 2005). Do You Have an Entrepreneurial Mind? Inc.com. Nick D’Aloisio wasn’t even born when Jerry Yang and David Filo founded Yahoo!, but a news-reading app that he created is an important part of the company’s new mobile strategy. When he was just 15 years old, D’Aloisio got seed funding from investors for the purpose of leasing office space and hiring employees to help him create and market Summly, an algorithmic program that takes long stories and shortens them for readers using smartphones. He sold Summly to Yahoo! in 2013, just before he turned 18, for a price reported to be in the tens of millions. D’Aloisio was one of the richest high school students in Britain, and he took time out of his last year of school to work at the company’s London office. Yahoo!, at the time, was reinventing itself as a mobile-first technology company, and Summly fit right in with a slew of 6 : M A N A G I N G S TA R T- U P S A N D N E W V E N T U R E S 231 other mobile app start-ups that Yahoo! had bought, such as On the Air, Stamped, Snip.it, and Alike. As with those other entities, Summly ceased to exist as a separate firm, and its technology was incorporated into the overall mobile experiences that Yahoo! offered. D’Aloisio doesn’t like to talk about the huge paycheque that he got for Summly, preferring to focus on the technology. But when he was asked what he plans to do with the money, he said that ‘angel investing could be really fun,’ which is helping other young entrepreneurs start businesses.1 Nick D’Aloisio’s parents didn’t have any special knowledge of technology, but they encouraged their son’s fascination with it from an early age. He started writing code at the age of 12, and within a few years, he decided to solve a problem that is often summed up with the abbreviation tl; dr (meaning ‘too long; didn’t read’).2 Starting and growing your own business successfully requires a combination of many skills. One essential quality is a passion for an idea, such as D’Aloisio had for coding and solving technological problems. His passion is shared by many other courageous self-starters who take the leap and start a sole proprietorship, one of the fastest-growing segments of small business in both the United States and Canada. The small business sector is growing rapidly, with the rate of start-ups increasing and the rate of failures declining.3 6.1 WHAT IS ENTREPRENEURSHIP? Entrepreneurship is the process of initiating a business venture, organising the necessary resources, and assuming the associated risks and rewards.4 An entrepreneur is someone who engages in entrepreneurship. An entrepreneur recognises a viable idea for a business product or service and carries it out. This means finding and assembling the necessary resources – money, people, machinery, location etc. – to undertake the business venture. The entrepreneur also assumes the risks and reaps the rewards of the business. He or she assumes the financial and legal risks of ownership and receives the business’s profits. For example, Ruslan Kogan began his entrepreneurial activities as a child of 10 years old, and then when he finished university started his online retailing company, Kogan.com, which has grown and been brilliantly successful. Starting with TV sets, then branching into hundreds of other types of products, Kogan now sells groceries, travel services, telephone plans, and many other categories of things that people want to buy, at a profit. Based in Melbourne, Australia, Mr Kogan has built a very successful business supported by doing sophisticated data analytics on consumer behaviour, and offering products and services that his research indicates people want, at reasonable prices. Technico, a company based in Bowral, New South Wales, has taken the humble potato to new heights. Beginning in 1987, entrepreneurs David Montgomery and David Waterhouse developed a method for speeding up the propagation of potato seed production that reduced the cycle time from five years to just two. In March 2012, Technico became a direct subsidiary of an Indian-based company called ITC that maintains varied interests in agribusinesses, cigarettes and branded packaged foods. Their turnover and net profit of AU$1.39 million and AU$0.14 million, respectively, continue to climb as the company achieves better prices for their product and greater seed volumes.5 The company is now valued at around AU$67 million, with major customers in China, India and Thailand as well as Australia. The finance for Technico’s original growth came from venture capitalists, and dealing with these groups required the entrepreneurs to develop a new set of skills. The company’s customers are companies as big as Frito Lay, McCain and Simplot – food industry giants. The company can provide seed potatoes entrepreneurship The process of initiating a business venture, organising the necessary resources, and assuming the associated risks and rewards. entrepreneur Someone who recognises a viable idea for a business product or service and carries it out. Source: Getty Images/Peter Muhly 232 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T U2 lead singer Bono is a classic example of an idealist entrepreneur. He started a fashion company, Edun (yes, that’s ‘nude’ spelled backwards) to reflect his strong commitment to social causes. The for-profit Dublin-based company’s high-end apparel is made in locally run African, South American, and Indian factories that use fair labour practices and, whenever possible, organic materials. Bono believes fostering increased participation in world trade is the best way to help developing nations. EXHIBIT 6.1 Five types of small business owners in commercial quantities and at a cost to growers that increases their competitiveness. The company has not patented its technology of seed production because it operates in countries where patents are often not adhered to. Rather, Technico has chosen to move into scaled-up production to increase its ability to create value for customers and ensure its future viability as a user of its own technology.6 By 2014, Technico had gone global, with operations in major markets including North America, China and India. Successful entrepreneurs have many different motivations, and they measure rewards in different ways. One study classified small business owners in five different categories, as illustrated in EXHIBIT 6.1. Some people are idealists, who like the idea of working on something that is new, creative or personally meaningful. Optimisers are rewarded by the personal satisfaction of being business owners. Entrepreneurs in the sustainer category like the chance to balance work and personal life and often don’t want the business to grow too large, while hard workers enjoy putting in the long hours and dedication to build a larger, more profitable business. The juggler category includes entrepreneurs who like the chance a small business gives them to handle everything themselves. These high-energy people thrive on the pressure of paying bills, meeting deadlines and making payroll.7 Rewarded by chance to work on something new and creative Thrive on the challenge of building a larger, more profitable business Enjoy chance to balance work and personal life Idealists Optimisers Hard workers Jugglers Sustainers 24% 21% 20% 20% 15% Get personal satisfaction from being business owners High-energy people who enjoy handling every detail of their own business Source: Study conducted by Yankelovich Partners, reported in Mark Hendricks. (March 2000). Type-Cast. Entrepreneur, 14–16. Reproduced by permission of Harris Interactive. E NTR E PR E NEURSH I P AS A N OPTION For decades, half the working population has been confiding to friends and pollsters its desire to leave corporate life and go it alone or with a few partners, but until recently most of the ideas were just dreams, discouraged by worried parents, friends and partners. Clearly, times have changed. After growing steadily since the 1950s, many of the largest manufacturers began cutting their payrolls in the 1970s and have been doing so ever since. Downsizing throughout the corporate world forced many employees to consider other options. The global financial crisis (GFC) of 2008–10 accelerated the downsizing of many organisations and led many people to start up entrepreneurial businesses, especially in the ‘new economy’. In addition, many people are beginning to regard entrepreneurship as a better use of their time and skills. They see the opportunity to make more money on their own, while at the same time having more freedom and a better quality of life, through being their own boss. Advances in technology have also made it easier than ever for small organisations to compete in a global economy.8 However, it is not easy to create profits in most industries, as high levels of competition from all over the world exist. Entrepreneurs in recent decades have included Steve Jobs, Bill Gates, Richard Branson, Hugh Hefner and Oprah Winfrey, all of whom built successful business empires from scratch. More recently, Mark Zuckerberg started Facebook, following in the footsteps of Larry Page and Sergey Brin, who founded Google, and built the company into a multibillion dollar enterprise. Australian entrepreneurs include Frank Lowy of Westfield Group and Andrew Forrest of Fortescue Metals Group, and Dick Smith, who started the Dick Smith retail chain and a number of Australian food products. More recently, Gina Rinehart has become Australia’s wealthiest person through very astute business development in the booming local mining sector. Sergey Brin, billionaire co-founder of Google. R EMEMBE R THIS ◗◗ Entrepreneurship is the process of initiating a business, organising the necessary resources, and assuming the associated risks and rewards. ◗◗ One of the fastest-growing segments of small business is in one-owner operations, called sole proprietorships. ◗◗ An entrepreneur recognises a viable idea for a business product or service and carries it out by finding and assembling the necessary resources to start the business. ◗◗ Entrepreneurs may be classified as idealists, optimisers, sustainers, hard workers or jugglers. 6.2 ENTREPRENEURSHIP INTERNATIONALLY Globally, entrepreneurship has experienced a tremendous boost due to huge advances in technology and the rapid expansion of the middle class in countries such as China and India. Consider one of India’s most successful entrepreneurs, Narayana Murthy. He and several co-founders launched Infosys and sparked an outsourcing revolution that has brought billions of dollars into the Indian economy. Infosys offers business consulting, technology, engineering, and outsourcing services and has been ranked number one on the list of India’s most admired companies in the Wall Street Journal Asia 200 survey from 2000 up until 2012. Murthy started the organisation from scratch and, typical of most start-ups, endured years of hardship. ‘It is all about sacrifice, hard work, lots of frustration, being away from your family, in the hope that some day you will get adequate returns from that,’ explains Murthy.9 Entrepreneurship in other countries is also booming, as reflected in the Global Entrepreneurship Monitor (GEM) 2012 Global Report.10 This project, which each year measures entrepreneurial activity, reports that an estimated 41 per cent of adults age 18 to 64 in Zambia are either starting or managing new enterprises. The percentage in Ecuador is 27 per cent, in Thailand 19 per cent, and in China, 13 per cent. One intriguing aspect of the 2012 report is the rise of female entrepreneurs. EXHIBIT 6.2 shows the rate of entrepreneurial activity for women compared to men in seven geographic regions.11 Women have historically started fewer businesses than men, but the gap is closing. The rate of entrepreneurial activity among women surpassed the rate among men in Panama and Thailand and was about equal in Ghana, Ecuador, Nigeria, 233 Source: Getty Images/Kim Kulish 6 : M A N A G I N G S TA R T- U P S A N D N E W V E N T U R E S 234 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T Mexico and Uganda.12 However, the opportunities for women across regions are uneven. According to new data analysis by Dell, the nine nations where women have the greatest opportunity to start their own businesses are (in descending order) the United States, Australia, Germany, France, Mexico, the United Kingdom, South Africa, China and Malaysia.13 EXHIBIT 6.2 Entrepreneurial activity around the world Percentage of Individuals Age 18 to 64 Active in Starting or Managing a New Business, 2012 27% Sub-Saharan Africa 30% 4% MENA/Mid-Asia 14% 15% Latin America/Caribbean 19% 13% 13% Asia, Developing 5% Asia, Developed Female 10% Male 6% Europe, Developing 13% 5% Europe, Developed 9% 10% United States 15% 5% Israel 8% 0% 10% 20% 30% Note: Total early-stage Entrepreneurial Activity (TEA) is the percentage of 18–64 population who are either a ‘nascent entrepreneur’ or owner-manager of a ‘new business’. A ‘nascent entrepreneur’ is defined as someone actively involved in setting up a business they will own or co-own. This business has not paid salaries, wages, or any other payments to the owners for more than three months. A ‘new business’ is defined as a running business that has paid salaries, wages, or any other payments to the owners for more than three months, but not more than 42 months. Source: Global Entrepreneurship Monitor 2012 Women’s Report, Figure 4. GEM is an international consortium, and this report was produced from data collected in, and received from, 67 countries in 2012. Our thanks go to the authors, national teams, researchers, funding bodies, and other contributors who have made this possible. In most countries, entrepreneurship and small business are the engines behind job creation and innovation: ◗◗ Job creation. Researchers disagree over what percentage of new jobs is created by small business. Research indicates that the age of a company, more than its size, determines the number of jobs it creates. That is, virtually all new jobs in recent years have come from new companies, which include not only small companies, but also new branches of huge, multinational organisations.14 However, small companies still are thought to create a large percentage of new jobs. ◗◗ Innovation. Small business owners typically gain an intimate understanding of their customers, which places them in an ideal position to innovate. According to research by entrepreneurship expert David Birch that traced the employment and sales records of some 9 million companies, new and smaller firms have been responsible for 55 per cent of the innovations in 362 different industries and 95 per cent of all radical innovations. In addition, fast-growing businesses, which Birch calls gazelles, produce twice as many product innovations per employee as do larger firms. Small firms that file for patents typically produce 13 times more patents per employee than large patenting firms.15 6 : M A N A G I N G S TA R T- U P S A N D N E W V E N T U R E S E NTRE PRE NEURSH IP A ND THE BUSI NE SS E N V I RO N M E N T Not so long ago, scholars and policymakers were worrying about the potential of small business to survive. Today, entrepreneurship and small business are increasingly important parts of the business world. In 2012 approximately 7.5 million people from 131 countries in thousands of businesses took part in Global Entrepreneurship Week activities, involving networking and seminars.16 The annual Doing Business Report published by the World Bank ranked Australia as the second easiest country in which to start a business in 2012.17 One-person offices constitute a large segment of the computer and office equipment markets, and marketing researchers believe solo professionals will continue to be the fastest-growing market for phone, printer/scanner and computer makers. Some of the more common businesses for solo professionals are financial services, high-tech marketing, political consultation and software. As organisations continue to downsize, decentralise operations and outsource more functions, the opportunities for solo professionals will increase.18 The long-term trend towards ever-larger organisations has been reversed for a number of reasons, including economic changes, globalisation and increased competition, technology, and new opportunities and market niches.19 ECONOM IC C HA NGES Today’s economy is fertile soil for entrepreneurs. The economy changes constantly, providing opportunities for new businesses. For example, around a decade ago, the demand for services was booming and 97 per cent of service firms were small, with fewer than 100 employees. Landscaping, for example, was one of the fastest-growing small businesses, spurred by a surge in housing and office construction.20 Home and personal services such as cleaning and personal training have significantly grown in recent years. The trend towards outsourcing work to companies that can do it cheaper has also given entrepreneurs new openings. The 2011 Global Entrepreneurship Monitor reported that of its 175 000 surveyed entrepreneurs in 59 countries, in general, small and innovative businesses are mostly expecting to grow and employ large numbers of additional staff in coming years.21 INNOVATIVE WAY What are some of the key characteristics of Australia’s fast-growth companies and their founders? The following statistics and examples will give readers an idea of what is involved in taking a company essentially from zero to profitable growth. According to BRW’s study of ‘Fast 100’ companies: ✚✚ only nine of the hundred had female chief executives ✚✚ average company size was 42 employees ✚✚ 95 per cent were still growing and hiring ✚✚ 24 per cent of company founders were in their 20s and 7 per cent of the companies were franchised Source: Fairfax Syndication/Michel O’Sullivan FAST-GROWING COMPANIES: WHAT ARE THEY LIKE? 235 236 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T ✚✚ more than 50 per cent felt that the business had adversely impacted on their health and personal lives, and 37 per cent experienced anxiety or burnout ✚✚ 70 per cent of founders had at least one university degree. The founders who are running these businesses are generally doing better than average in their economic zones, and are more confident than average CEOs of their future. The number one fastest growing company in Australia is Time Telecom, which started in 2008 and in 2012 had 86 employees and sales revenue of AU$51.1 million. The company is a fixed and mobile phone line reseller and in March 2012 sold access to its 30 000 customer data base for an impressive AU$18.5 million. Fast-growing companies in Australia operate in many industries, mostly in a variety of service sectors, from mining services, financial services and training to consulting and retailing. Their common characteristics that differentiate them from longer-established businesses include a focus on agility, simplicity, use of teams, niche and specialty services, and growth through and for people. They work hard on both culture and systems. They are led by passionate people who are prepared to invest and take a loss in the short term, yet look for quick wins in their marketplaces. They are opportunistic, keeping up with the pulse of market changes and moving with or ahead of the times. They are knowledgeable about new technology. However, there are clearly risks in smaller start-up businesses, such as receiving too high a proportion of revenue from a single client, technology or business idea. For most fast-growing companies, the rewards from growth and success, both financial and personal, are worth the risks! Source: Sibllian, A. (18–24 November 2010). Fast Companies. BRW, 18–26 and http://www.brw.com.au/p/sections/features/brw_fast_the_top_ qXQFiA9Cn2zixPhs83MYSJ (accessed 13 August 2013). GLO BA LISATIO N A ND I NC R E A S E D C O MP E T I T I O N Even the largest organisations can no longer dominate their industries in a fast-changing global marketplace. Globalisation demands entrepreneurial behaviour – organisations have to find ways to do things faster, better and less expensively. Large organisations are cutting costs by outsourcing work to smaller businesses or freelancers, and selling off non-core operations. Globalisation and increased competition also give an advantage to small businesses, which can offer flexibility and fast responses, rather than to huge organisations, which rely on economies of scale. TAKE A MOMENT Are you interested in becoming a new manager by starting your own business? Explore your inclination for the efforts and benefits of entrepreneurship by completing the items in the self-assessment at the beginning of this chapter. T EC HNOLO GY Rapid advances and falling prices in technology have spawned whole new industries, as well as entirely new methods of producing goods and delivering services. Unlike technological advances of the past, many of these are within the reach of organisations of all sizes. The explosive growth of the Internet created tremendous opportunities for entrepreneurs. For every story of a failed Internet business, numerous other small companies are successfully using the web to sell products and services, to improve productivity, communications, and customer service, or to obtain information and market their services. 6 : M A N A G I N G S TA R T- U P S A N D N E W V E N T U R E S You can buy groceries, books, software, gifts, sporting goods – indeed, almost anything – from the Internet in Australia, and the goods may come from anywhere in the world. If you bought a Dell computer directly from its website, you would not know where it had been built, warehoused or shipped, which in the case of Australia is most likely to be Malaysia. As the new millennium continues to take shape, small businesses are starting up without the need for investment in retail outlets, substituting ‘virtual’ outlets. This is clearly a lower-cost option, which can be more convenient for consumers. NEW OP P O RT UNITIES A ND MA R K E T NI C HE S Entrepreneurs are taking advantage of the opportunity to meet changing needs in the marketplace. Cleanevent is an example of an Australian-based company that took advantage of an opportunity in an overseas market (see the case study). EXHIBIT 6.3 illustrates general categories of businesses most entrepreneurs start: these are retail, manufacturing and service. Additional categories of small businesses are construction, hospitality, communications, finance and real estate. TAKE A MOMENT As an aspiring entrepreneur, can you see a market niche that is not being met by an existing organisation? How do you feel about organising the necessary resources and taking the risks to start a company to serve that niche? CASE STUDY CLEANEVENT (DIVISION OF SPOTLESS GROUP) Craig Lovett was a bar manager in Australia in 1996. While in Atlanta to book accommodation for the Olympic Games, he negotiated an AU$150 000 contract, putting him in charge of the cleaning budgets and cleaning operations for eight Olympic venues in Atlanta. He ultimately achieved AU$500 000 of value from that event. By 1997 his company, Cleanevent, achieved sales of AU$6 million and employed 25 full-time staff and over 1000 part-time cleaning staff in Australia. The company doubled its size to AU$12 million in sales and 100 full-time people by 2002. By 2005, sales were AU$48 million and the number of people employed was over 10 000, including casuals. Lovett has gained the cleaning contracts for the Melbourne Cup and also had major success at the 2000 Sydney Olympics, as its official provider of waste management and cleaning services. Cleanevent has also achieved contracts for cleaning and waste management at the Formula 1 Grand Prix, the Australian and United States Tennis Opens, and many other football, sporting and nonsporting events. Cleanevent has developed quickly and successfully in the United States as well, with operations there being twice the size of the Australian base operation. In March 2010, Cleanevent was regularly providing its services to some 350 events of all types around the world, and the company was acquired and integrated into the larger Spotless group. Spotless is an Australian-based facilities management company, employing 45 000 people all over the world. It is estimated that it serves 77 million customers globally each year and is an ASX top 200 company. Cleanevent became the events division of this major listed company with profitable sales in 2013 of over AU$2.0 billion. Sources: Spotless website, http://www.spotless.com/au/About-Us/About-Us.htm (accessed 27 August 2013); Austrade website, http://www.austrade.gov.au/Buy/Australian-Industry-Capability/Major-sporting-events/Track-Record/Event-Staging-Services/Cleanevent—A-SpotlessCompany (accessed 20 December 2013). 237 238 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T I M PAC T O F E N T R E P R E N E U R I A L O R GA N I S AT I O N S Entrepreneurs and small businesses are driving the Australian economy, and a similar phenomenon can be seen in Europe, the United States and many Asian countries. Small businesses have traditionally employed about 50 per cent of the private workforce in Australia and New Zealand, generated 34 per cent of industry value-add (measured by their contribution to the nation’s GDP) in 2010–11 and are responsible for between 30 and 50 per cent of all business innovations.22 EXHIBIT 6.3 Examples of definitions of small business MANUFACTURING Soft-drink manufacturing Number of employees does not exceed 100 Electronic computer manufacturing Number of employees does not exceed 300 Prerecorded CD, tape and record producing Number of employees does not exceed 200 RETAIL (STORE AND NON-STORE) Sporting goods stores Average annual receipts do not exceed US$2.0 million Electronic auctions Average annual receipts do not exceed US$5.0 million Vending machine operators Average annual receipts do not exceed US$2.0 million MISCELLANEOUS INTERNET SERVICES Internet service providers Average annual receipts do not exceed US$5.0 million Web search portals Average annual receipts do not exceed US$2.0 million Internet publishing and broadcasting Number of employees does not exceed 100 Source: Study conducted by Yankelovich Partners, reported in Mark Hendricks. (March 2000). Type-Cast. Entrepreneur, 14–16. Reproduced by permission of Harris Interactive. Many converts to entrepreneurship are ‘corporate refugees’ (often middle-management victims of corporate layoffs and downsizing) and ‘corporate dropouts’ (those who prefer the uncertainty and flexibility of self-employment to the corporate bureaucracy). For over a decade, growing numbers of executives have been voluntarily leaving their big-company pay and perks to work for small start-up companies, citing the opportunity to do something new, creative and exciting.23 EXHIBIT 6.4 shows the relative importance of small business when compared with the world’s largest economies. Traditionally, new entrepreneurs have most frequently started businesses in the areas of business services and restaurants. Today, inspired by the success of companies such as Amazon, Google, eBay and many others, entrepreneurs are flocking to the Internet to start new businesses quickly and inexpensively. Demographic and lifestyle trends have created new opportunities in areas such as environmental services, children’s markets, fitness and home healthcare. JOB C REATIO N Researchers disagree about the percentage of new jobs created by small business. As large businesses have been downsizing their staff numbers and outsourcing their non-core activities, small businesses have been starting and growing as never before. The Global Entrepreneurship Monitor (2011) reports continue to support this view, with significant growth expected after the GFC in most countries. Small businesses are 6 : M A N A G I N G S TA R T- U P S A N D N E W V E N T U R E S $ Trillion EXHIBIT 6.4 Total output of small business in world’s largest economies (showing small business output in the US compared to total output in the US and other countries) 6 4.9 5 4 2.9 3 1.9 2 1.4 0.9 0.8 1 0 United States 239 Japan Small business in USA Germany France United Kingdom Source: Inc. Technology by John Case. Copyright 1995 by Mansueto Ventures LLC. Reproduced with permission of Mansueto Ventures LLC in the format textbook via Copyright Clearance Center, 27. ‘popping up’ all over the economy, and this, aided by the Internet as a source of data, marketing capacity and trading convenience, is a global phenomenon. O RGA N I S AT I O NA L I N NOVAT I O N Organisational innovation can be considered as the processes of developing new products or services, technologies, systems, business models and ideas. Innovation is much more than invention. It involves taking an idea for something new or different through to full-scale commercialisation. Hence the act of invention is just the very first step in the broader process of innovation. Companies that are systematically and successfully innovative do not need to be the inventors of their new and innovative products and technologies; indeed, they can buy or license such inventions, ideas or technologies. Innovation involves bringing together many aspects of a new idea to achieve overall feasibility for the new idea. Consider any new product idea or technology – it must pass a number of ‘tests’ to become commercially successful. 1 The innovation must be ‘fit for purpose’. It must functionally solve a need or satisfy a requirement in a way that adds value and is competitive or superior relative to existing offerings or technologies. 2 The innovation must have a sound marketing strategy and selling proposition. This channel to market and value proposition should be based on evidence of market research. 3 The capability to scale up must be established. It is not enough to build or make a prototype, because wealth is only ultimately created through full-scale market and production operations. So the supply chain must be proven. 240 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T 4 The team to bring the innovation from early stage to fruition must be capable of the many tasks required. Successful entrepreneurs and innovation-focused companies require multiskilled managers who can champion and do the hard work required to overcome the many obstacles along the way. 5 The commercialisation should be positive from a sustainability perspective. This means that it should See Chapter 5 for further discussion on sustainability and commercialisation. produce positive outcomes for the society and community that it impacts on, and be acceptable from an environmental perspective. 6 Financial returns must be at least acceptable and are hopefully superior. Those who fund the innovation have taken risks, and deserve rewards commensurate with such risk, so the innovation should demonstrate a positive net return to investors. Whether it is a new e-business making some Internet-based idea work for consumers, a new manufactured product, or a new technology or business organisation idea that consumers will never see, the six criteria above can be applied to determine the value of proceeding with the innovation initiative. Consider a new product such as Apple’s latest iPhone or iPad, an Android app or even a sophisticated console computer game. Consider a new suburban residential building development, or a new technology for a vehicle such as electric engines, or a new flavour of a soft drink. The critical feasibility tests above must be considered to determine whether such products or services are developed. Innovation can sometimes occur as a single breakthrough idea, such as was the case with the establishment of Slack, a cloud-based team collaboration-messaging platform for business use co-founded by Stewart Butterfield, Eric Costello, Cal Henderson, and Serguei Mourachov. Slack was launched in August 2013 and began as an internal tool in the development of Glitch (a now defunct online game used by their company, Tiny Speck). Slack’s goal is to reduce the volume of emails that an organisation uses by moving to a team-communication instant-messaging app (available on both mobile and desktop). Slack is currently valued at US$3.8 billion and in 2015 was one of Fast Company’s Most Innovative Companies.24 Innovation involves taking risks. Consider the biotechnology companies searching for cures for diseases and attempting to find a variety of new products that will make human health, animal health and agribusinesses more effective. Just as for consumer products, such efforts at innovation are mostly doomed to fail. However, with the wisdom of hindsight, the possibility of substantial success in any case makes the effort worthwhile at the time. Research and development, new technology, new products etc. involve a lot of risk, and so a key skill for innovation activities is knowing when to take decisions to resource certain projects and not others, and also being able to decide to kill off projects when the prospective risks, costs and benefits looking forward indicate that the upside is not worth the downside. These can be called ‘stage-gate’ decision points, and in well-disciplined companies that are systematically good at innovation, these are formalised decision points that new ideas must pass through or fail on. In the development of pharmaceutical products, there is typically a decade of progress that must occur in testing and development before a new medicine can go into production and sale processes. The challenge is severe when it is considered that the revenue that might arise from the ‘one in 100’ that proves successful must pay for its development in discounted cash flow terms and also pay for the other 99 chemicals that were tried and did not make it to market because they failed one of the tests. Imagine 6 : M A N A G I N G S TA R T- U P S A N D N E W V E N T U R E S if you were starting to conduct research on some chemicals, say 100 or 1000, in the hope that just one of them might, in 10 years, become a success. This requires an appetite for risk and a sharp ability to use judgement in managing this portfolio of investments, and rigorous application of the tests described above at stage-gate points. Innovation can be incremental or more radical. Incremental innovation is more like continuous improvement, meaning a series of relatively small ideas. A radical innovation is a product, service, system or technology which is brand new to the industry, country or world. For example, when 3M invented its Post-It Note, which has now become a familiar part of most of our homes and offices, it was a radically new product idea, brand new to the world. Since then a series of more incremental ideas has led to Post-It Notes of different sizes, colours, customised with images on them and many other variants. The same thing is apparent with the iPhone. The original radical innovation has been followed with a series of new models of different sizes, features, processes and so on, which are continuous or incremental innovations based around the original idea. Innovation can be in processes just as much as in new products. These processes might be to improve the production costs, service levels or quality of existing offerings. For example, Toyota uses incremental innovation in all its factories and businesses, drawing on the skills and knowledge that it imparts to all its workers, to drive for process improvement in every corner of its business activities. Simultaneously, Toyota made large investments in new product features and technologies such as the hybrid synergy drive, self-parking vehicles, new safety systems and many other technical aspects related to delivering new features and benefits to consumers. Proving that no organisation is perfect or even close to it, Toyota experienced significant quality issues and major recalls in the United States in 2010, which is more something that owners of other brands are used to. Toyota has since bounced back with new waves of innovation and product development, incorporating new features and technologies, and with new risk management practices in place, based on its hard-won lessons from the 2010 and 2013 recalls. Both in the large and in the small, in both product features and in processes, innovation is the lifeblood of progress in organisations, keeping them on the cutting edge of productivity and competitiveness, and keeping them in the limelight of consumer interest. There is a saying in business – ‘If you want to manage it well you have to be able to measure it.’ This applies to innovation just as much as to other aspects of business such as employee morale and customer satisfaction. So how is it possible to measure innovation? Considering innovation as a set of processes, we can imagine measuring the inputs and outputs of those processes, and the effectiveness or intensity of those innovation processes. Some companies measure and benchmark themselves in terms of how much resource they allocate to innovation. For example, some very innovation-intensive companies measure and report the amount of money they allocate to research and development as a proportion of their sales revenue, with 10 per cent being a high ratio. This can be thought of as the amount of resource going into the ‘innovation funnel’. The innovation process can be measured in technical terms by considering the number of new product developments being undertaken at a point in time. Innovation output can be measured in technical terms such as the number of patents successfully taken out by a company. Ultimately, the bottom line business measure is of money or return on investment, so companies such as 3M measure the percentage of sales revenue that they achieve from new products in any given year. All divisional executives in 3M must deliver on the annual stretch goal of 10 per cent of total sales revenue coming from new products. 241 242 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T Innovation is not just a ‘high-tech’ phenomenon. It is occurring in all industries, from primary industries to pure services, and in industries with both short and long product life cycles, from mobile phones to basic mining and agriculture. For example: ◗◗ in agriculture, the production of grains such as wheat and barley uses genetic engineering to produce crop varieties that need less water and are disease resistant ◗◗ in mining, new ways of obtaining and processing minerals and rock from the ground, such as block caving, allow for cheaper, better and more sustainable methods of extraction than traditional mechanical digging or blasting and explosives processes. Getting the minerals from the rock, which used to be a combination of crushing and chemical processes, now includes possible biological processes in which microbes are used to extract minerals such as copper from the ore body ◗◗ manufactured goods are continuously evolving and occasionally experiencing revolutionary innovations. New pharmaceuticals, medical implants and devices and technologies are continuously contributing to human health and longevity. New transport technologies, new communications technologies – indeed, new technologies for just about everything – pervade most industries. This is also the case with processes, such as the use of robots in factories, pilotless planes, artificial intelligence in consumer products and equipment for running business more efficiently ◗◗ new services and ways of producing services are being created innovatively in most industries. Free Internet audio and video services (for example, Skype), blogs and Wikis, YouTube and many social networking services are innovations from the past decade. Internet banking has reduced the cost and increased the convenience of such activities for consumers. Stockbroking has mostly moved online, as has quite a lot of shopping and advertising. Effective innovation requires certain capabilities and skills in organisations. How do Toyota, 3M, Google and a host of smaller and larger companies organise themselves to achieve innovation that is not just ‘one-off’ but is systematic? These companies invest in achieving the culture, mindset and skills which bring them a systematic ability to develop and implement new products, services and processes, including: ◗◗ vision, stretch goals and a strategy for innovation ◗◗ a measured approach to risk taking and a tolerance of failure in the culture ◗◗ a knowledge management system that intelligently seeks out information and identifies and matches opportunity in both the supply side (technology) with the market requirement. This includes creativity and idea management systems ◗◗ strong disciplines for project managing innovation initiatives ◗◗ technical competence ◗◗ structures that empower the ‘new-stream’ of innovative activities in parallel with mainstream business processes ◗◗ rewards and recognition for people who contribute to innovation efforts, in addition to business-asusual efforts ◗◗ an organisation-wide ‘hunger’ for progress, representing both dissatisfaction with the present state of products and services and a desire for improvement in all aspects of the organisation ◗◗ a foundational and strong leadership of the systematic innovation value system of the firm and an entrepreneurial spirit. 6 : M A N A G I N G S TA R T- U P S A N D N E W V E N T U R E S CASE STUDY COMPETITIVE INNOVATION IN THE MINING INDUSTRY Mining is a high-volume commodity operation involving moving and crushing millions of tons of rocks that are dug up from the earth. This may at first sound like an industry that is purely about brawn, not brains. While it is essentially true that mining is all about large amounts of rock, therein also lies the prize for innovative methods. In mining, small improvements in efficiency and effectiveness are multiplied by very large volumes, and hence the business benefits of innovation can be substantial. As one of the world’s leading mining countries, Australia is not only very efficient at largescale mining operations, but is also a leader in the mining services industry and in driving mining innovation. Rio Tinto is a large miner with many operations in Australia as well as elsewhere. It has a twolevel approach to innovation – incremental innovations and radical/step change innovations. Innovation in mining can be thought of as continuous improvement, in a similar way to what one would see at companies such as Toyota, which has been practising this at a very effective level for 50 years. Australia’s mining industries and companies are far from competition free. Other major mining nations include Chile, which is nationally funding its mine technology innovation and providing major research and development tax concessions to its miners, South Africa, the United States and the United Kingdom, Germany and Sweden. Canada is a major mining nation that has allocated large amounts to mining technologies research and development. China, which is producing many thousands of scientists and engineers, is expected to become a leading innovator in mining and many other sectors. An example of entrepreneurial excellence in this field is MineWare, a small company founded by Andrew Jessett. The company and Mr Jessett have won prestigious export awards and several ‘Entrepreneur of the Year’ awards for their accomplishments, and all that with only 16 employees! The company has found a special niche where its electrical and software services improve the effectiveness of major mining operations in its client firms, which are clearly very much larger organisations. Source: Forrestal, L. (8–14 March 2007). Mine Games. BRW, 43–8; MineWare website, http://www.mineware.com. DIVERSIT Y Entrepreneurship offers opportunities for individuals who may feel blocked in established organisations. Businesses owned by women may be the fastest-emerging growth organisations. Women have traditionally not progressed as fast as men in large, traditional or conservative businesses, but that is not the case in smaller, entrepreneurial businesses – from home-based accounting services, to Internet distribution businesses and specialised gymnasiums, to a wide variety of service businesses. The energy in the small-business sector and the new economies of the information and knowledge age have given our economy the opportunity to take fuller advantage of the capabilities of potential entrepreneurs from diverse backgrounds. In 2010, a study of Australia’s top female entrepreneurs listed 10 women whose businesses had annual revenue above AU$80 million. The top five were: Jan Cameron of Retail Adventures; Naomi Milgram of Sussan Group; Julia Ross of Ross Human Directions; Maxine Horne of Vita Group; and Charlotte Vidor of Toga Group. These businesses are large and provide employment to many thousands of people. Jan Cameron is a leading example of a ‘serial entrepreneur’, having started the Kathmandu group, then sold it for some AU$300 million, followed by numerous further retail start-ups, such as Chickenfeed, Crazy Clark’s, Sam’s Warehouse and Go-Lo. 243 244 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T R EMEMBE R THIS ◗◗ Entrepreneurship and small business are essential parts of the economy, representing the large majority of all firms and employing about half of all private sector employees. ◗◗ Entrepreneurial activity is booming in most countries, with some of the highest rates in developing nations. ◗◗ ◗◗ ◗◗ Entrepreneurship and small business is an engine for job creation and innovation. ◗◗ Globalisation demands entrepreneurial behaviour – organisations have to find ways to do things faster, better and less expensively. ◗◗ Rapid advances and falling prices in technology have spawned whole new industries, as well as entirely new methods of producing goods and delivering services. ◗◗ The explosive growth of the Internet created tremendous opportunities for entrepreneurs to take advantage of openings to meet changing needs in the marketplace. Today, entrepreneurship and small business are increasingly important parts of the business world. The economy changes constantly, providing opportunities for new businesses. The trend towards outsourcing work to companies that can do it cheaper has given entrepreneurs new openings. 6.3 WHO ARE ENTREPRENEURS? The heroes of business in Australia and elsewhere – such as George and Peter Dryen (Dryen Australia), Gerry Harvey (Harvey Norman), Ray Kroc (McDonald’s), Henry Ford (Ford Motor Company), Bill Gates (Microsoft), Steve Jobs (Apple), Mark Zuckerberg (Facebook), Sergey Brin and Larry Page (Google) and Michael Dell (Dell Computer) – are almost always entrepreneurs. Entrepreneurs start with a vision. Often they are unhappy with their present job and see an opportunity to bring together the resources needed for a new venture. However, the image of entrepreneurs as bold pioneers is probably overly romantic. In the United States, a survey of the CEOs of the fastest-growing small firms found that entrepreneurs could best be characterised as hard-working and practical, with great familiarity with their market and industry.25 CASE STUDY WESFARMERS Dr Michael Chaney AO is a former petroleum geologist who worked at Wesfarmers from 1983 until 2005, returning as chairman in 2015. Chaney is the son of Menzies government minister Sir Fred Chaney. He has two brothers, one is former Liberal Party deputy leader Fred Chaney Jr (a WA senator and member for the federal seat of Pearce) and the other, John Chaney, is a WA Supreme Court Judge. Michael Chaney was appointed an Officer in the Order of Australia in 2004 for ‘service to the business sector through innovative leadership and management strategies, and to the community through involvement with and support for a broad range of artistic, cultural and scientific organisations.’ As managing director of Wesfarmers from 1992 to 2005, Chaney oversaw Wesfarmers’ share price move more than 800 per cent. During this time, profits from Wesfarmers’ home improvement, coal, insurance, chemicals, energy businesses rose from AU$63 million to more than AU$650 million. Further, during Chaney’s reign, Wesfarmers’ share price rose from AU$6 to more than AU$40, with its market capitalisation jumping from AU$1 billion to AU$13 billion, making it one of Australian’s ten largest companies. In addition to being Chairman of Wesfarmers Limited, Chaney is also the current Chairman of Woodside Petroleum Limited (an Australian petroleum exploration and production company), a Director of the Centre for Independent Studies (an Australian libertarian think tank funded by BHP), and Chancellor of the University of Western Australia. Chaney has also been a director of BHP Limited (and subsequently BHP Billiton Limited) (1995 to 2005), Chairman of the National Australia Bank Limited (2005 to 2015), and a member of the JP Morgan International Council (2004 to 2015). Wesfarmers began as a cooperative of farmers in Western Australia in 1914, but now participates successfully in industries as different as coal mining, hardware retailing, liquid petroleum gas, chemicals and fertiliser production, insurance, trucking and railways. In 2001, Wesfarmers acquired and rebranded the Howard Smith company, whose brands included BBC Hardware and Hardwarehouse, with the integration of its operations into Wesfarmers’ Bunnings retail division. This allowed the company, through its Bunnings brand, to expand into New Zealand. Further, in 2016, Wesfarmers expanded into the UK by acquiring the home improvement and garden retailer Homebase. Wesfarmers will work to rebrand these Homebase stores with the Bunnings name, adopting the same low-cost warehouse model as the local Australian stores. Bunnings, which has been entrepreneurially grown by its parent company, Wesfarmers, took over the sleepy retail hardware market from less efficient corner stores. It provides a much wider range of choice for the customer and its supply chain efficiency ensures competitive prices. Chaney practises a ‘patience is a virtue’ mantra, vowing that he will not bow to pressure to put shortterm performance ahead of long-term gains. This is a different mentality to rival Woolworths Limited who posted a loss of AU$972.7 million (their first in more than 20 years), after their failed Masters Home Improvement venture, a direct competitor to Wesfarmers’ Bunnings stores. During Chaney’s absence, Wesfarmers diversified its interests into the retail sector, acquiring Coles Group in 2007 for AU$20 billion. This gave them access to supermarkets (Coles), liquor (Liquorland, Vintage Cellars, and First Choice Liquor), fuel (Coles Express), convenience (Coles Online), office supplies (Officeworks), and department stores (Kmart, Kmart Tyre & Auto Service, and Target) businesses. In 2015, after being appointed as Chairman of Wesfarmers, Chaney noted that, ‘Over the last 10 years, Wesfarmers has grown enormously and very much retains the strong shareholder focus for which it has been well known.’ Despite these new additions and his relative inexperience in managing supermarkets, Chaney feels that he is up to the challenge stating that, ‘Ten years is sufficient time, the company has changed quite a lot since I was there in terms of size … having been out for 10 years I can adopt a truly independent state of mind.’ Sources: The University of Western Australia (2015). Chancellor. http://www.web.uwa.edu.au/university/executive/executive/chancellor (accessed 4 November 2016); Australian Government (2004). It’s an honour. http://www.itsanhonour.gov.au/honours/honour_roll/search.cfm?aus_award_ id=1056756&search_type=simple&showInd=true (accessed 4 November 2016); SBS (11 May 2015). Michael Chaney to rejoin Wesfarmers. http://www. sbs.com.au/news/article/2015/05/11/michael-chaney-rejoin-wesfarmers (accessed 4 November 2016); Mitchell, S. (12 May 2015). Wesfarmers defends governance as Chaney returns as chairman. The Sydney Morning Herald, http://www.smh.com.au/business/wesfarmers-defends-governanceas-chaney-returns-as-chairman-20150510-ggyjw5.html (accessed 4 November 2016); Densley, J. (13 December 2012). Most powerful person in Australian boardrooms: #3 Michael Chaney. http://www.smartcompany.com.au/people-human-resources/leadership/39292-most-powerful-personin-australian-boardrooms-3-michael-chaney/ (accessed 4 November 2016); The Australian (7 May 2015). Ken Henry to succeed Michael Chaney as NAB chairman. The Australian, http://www.theaustralian.com.au/business/financial-services/ken-henry-to-succeed-michael-chaney-as-nab-chairman/ news-story/e048a580125d7755032ef0b16e102a22 (accessed 4 November 2016); Woodside (2016). Board of directors. http://www.woodside.com.au/ About-Us/Board-and-Management/Pages/Board-of-Directors.aspx (accessed 4 November 2016); The Centre for Independent Studies (2016). Board of directors. https://www.cis.org.au/about/board-of-directors (accessed 4 November 2016); Pownall, M. (30 November 2005). Chaney to chair Woodside in mid-2007. https://www.businessnews.com.au/article/Chaney-to-chair-Woodside-in-mid-2007 (accessed 4 November 2016); Wesfarmers (2016). Our history. http://www.wesfarmers.com.au/who-we-are/our-history (accessed 4 November 2016); Appleby, M. (26 October 2016). Homebase increases transactions 8.4 per cent, according to new Wesfarmers quarterly results. http://www.hortweek.com/homebase-increases-transactions-84-per-centaccording-new-wesfarmers-quarterly-results/retail/article/1413513 (accessed 4 November 2016); Mitchell, S. (1 September 2016). Why Lowe’s wants Woolworths’ Masters linen aired. Australian Financial Review, http://www.afr.com/business/retail/why-lowes-wants-woolworths-masters-linen-aired20160901-gr65kb (accessed 4 November 2016); Pash, C. (24 August 2016). Woolworths shuts Masters, sells the property, and now 7700 jobs are on the line. Business Insider, http://www.businessinsider.com.au/woolworths-is-about-to-announce-a-deal-on-its-masters-business-2016-8 (accessed 4 November 2016); Wesfarmers (2016). Our businesses. http://www.wesfarmers.com.au/our-businesses/our-businesses (accessed 4 November 2015). Source: Fairfax Syndication/Michele Mossop 6 : M A N A G I N G S TA R T- U P S A N D N E W V E N T U R E S 245 246 PA R T T W O : T H E E N V I R O N M E N T O F M A N A G E M E N T EXHIBIT 6.5 Personal characteristics of entrepreneurs Internal locus of control High energy level Tolerance for ambiguity Entrepreneurial personality Need to achieve Awareness of passing time Self-confidence Source: Adapted from Leigh Buchanan. (March 2012). The Motivation Matrix. Inc., http://www.inc.com/magazine/201203/ motivation-matrix.html (accessed 20 August 2012); and Charles R. Kuehl and Peggy A. Lambing, Small Business: Planning and Management, Fort Worth, TX: The Dryden Press, 1994, p. 45. TR A ITS OF E NTR E PR E NE URS A number of studies have investigated the characteristics of entrepreneurs and how they differ from successful managers in established organisations. Some suggest that entrepreneurs in general want something different from life than do traditional managers. Entrepreneurs seem to place high importance on being free to achieve and maximise their potential. Some 40 traits are identified as being associated with entrepreneurship, but seven have special importance.26 These characteristics are illustrated in EXHIBIT 6.5. A UTONO MY In a survey of 2000 entrepreneurs, the desire for autonomy was the primary motivator for pursuing an entrepreneurial life. Entrepreneurs driven by the desire for autonomy cherish the freedom of making their own decisions about their business. Because of this desire for independent planning and decision making, these entrepreneurs may consider flying solo, without partners or significant investors. But flying solo has drawbacks. It may limit a firm’s growth and result in a smaller-scale business.27 For start-ups to succeed in the long run, a founder may have to forgo autonomy and allow someone else with a different set of managerial skills to lead the company into the next phase of growth. ‘When you’re facing that tradeoff, you have to strike a stark balance. You’re going to have to give up something dear to you in order to get something that is even more dear to you,’ said Noam Wasserman, author of The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup.28 Sometimes, this means giving up the autonomy that motivated an entrepreneur to start a business in the first place. ENT REP RENEURIA L STR UGGL E Another common trait among entrepreneurs is the ability to persevere and stay positive after long periods of struggle. Consider Justin Carden, a 29-year-old software engineer, who shares cramped, communal housing with other aspiring tech entrepreneurs near Silicon Valley. He and other hopeful entrepreneurs toil for long hours in tiny living spaces working to develop ideas for new apps and websites. These ‘hacker hostels’ often house ten or more people, crammed into two bedrooms. People try out their sales talks on one another before pitching them to investors. P O WER A ND INFLUEN C E Some entrepreneurs are driven by the desire for power and influence. Sam Walton, founder of Walmart, was the most successful retailer in United States history, partly because he was far ahead of his competitors in bringing efficiency to the supply chain and selling goods at the lowest possible prices. Walton was able to exert significant pressure on manufacturers to improve their efficiency and bring down costs. As 6 : M A N A G I N G S TA R T- U P S A N D N E W V E N T U R E S 247 Walmart’s influence grew, so did Walton’s power to dictate price, volume, delivery, packaging and quality of many of its suppliers’ products. Walton was a man who was driven by power and influence and will long be recognised as the entrepreneur who flipped the supplier-retailer relationship upside down.29 HIG H ENERGY A business start-up requires great effort. A survey of small business owners found that 43 per cent of small business owners work more than a regular 40-hour week, 31 per cent report working during holidays, and 13 per cent say they regularly work more than 80 hours a week.30 High levels of passion also help entrepreneurs overcome inevitable obstacles and traumas.31 You can recognise entrepreneurial passion in people by their unwavering belief in a dream, intense focus and unconventional risk taking. ‘To succeed, you have to believe in something with such a passion that it becomes a reality,’ said Anita Roddick of the Body Shop.32 Long before ‘going green’ was popular, Roddick created a business that was socially and environmentally responsible. By 2014, the Body Shop empire numbered more than 2605 stores in over 50 countries.33 NEED TO A C HIEV E Another characteristic closely linked to entrepreneurship is the need to achieve, which means that people are motivated to excel and pick situations in which success is likely.34 People who have high achievement needs like to set their own goals, which are moderately difficult. Easy goals present no challenge, but unrealistically difficult goals cannot be achieved. Intermediate goals are challenging and provide great satisfaction when achieved. High achievers also like to pursue goals for which they can obtain feedback about their success. ‘I was very low and I had to achieve something,’ recalls Harry Potter creator and billionaire author J. K. Rowling. ‘Without the challenge, I would have gone stark raving mad.’35 need to achieve A human quality linked to entrepreneurship in which people are motivated to excel and pick situations in which success is likely. SELF- CONFIDENC E People who start and run a business must act decisively. They need confidence about their ability to maste
