Chapter 2: Stakeholders, Managers, and Ethics
Organizational stakeholders
-people who have an interest, claim, or stake in an organization
Two main groups of stakeholders
(1) inside stakeholders: the owners of the organization
-Shareholders, managers, and the workforce
(2) outside stakeholders:
-Customers (largest stakeholder), suppliers, government, unions, community, general public
Organizational Effectiveness: Satisfying Stakeholder’s Goals and Interests
-Competing goals
(goal of manager is to maximize shareholder wealth)
Shareholders : return on their investment
-
-
Customers
Employees
: product reliability and product value
: compensation, working conditions, career advancement
-Allocating rewards: managers must decide how to allocate rewards to provide at least minimal satisfaction of the various stakeholder groups. Managers must also determine how to distribute “extra” rewards.
-Balancing short-term and long-term goals
Top Managers and Organizational Authority
Authority : the power to hold people accountable for their actions and to make decisions concerning the use of organizational resources
-Shareholders- ultimate authority
-Chair of the board of directors- most authority in an organization
The Chief Executive Officer (CEO)
-Person ultimately responsible for setting organizational strategy and policy
-Often the same person is both CEO and chair of the board
A CEO can influence organizational effectiveness and decision making in five principal ways:
(1) The CEO is responsible for setting the organization’s goals and designing its structure.
(2) The CEO selects key executives to occupy the topmost levels of the managerial hierarchy.
(3) The CEO determines top management’s rewards and incentives.
(4) The CEO controls the allocation of scarce resources such as money and decision making power among the organization’s functional areas or business divisions.
(5) The CEO’s actions and reputation have a major impact on inside and outside stakeholders’ views of the organization and affect the organization’s ability to attract resources from its environment.

The Top Management Team
CEO

COO (PRES.)-next in line; reports directly to the CEO

Then, Executive VP’s
Other managers
Divisional managers
-Managers who set policy only for the division they head
Functional managers
-Managers who are responsible for developing the functional skills and capabilities that collectively provide the core competences that give the organization its competitive advantage
An Agency Theory Perspective
-Offers a useful way of understanding the complex authority relationship between top management and the board of directors
-An agency relation arises whenever one person (the principal) delegates decision-making authority or control over resources to another (the agent)
Agency problem
-A problem in determining managerial accountability which arises when delegating authority to managers
-The problem is that shareholders or principals are at an information disadvantage as compared to top managers
The Moral Hazard Problem
When these two conditions exist:
(1) the principal finds it very difficult to evaluate how well the agent has performed because the agent possesses an information advantage
(2) and, the agent has an incentive to pursue goals and objectives that are different from the principal’s
Solving the Agency Problem
Using governance mechanisms
-The forms of control which align the interests of principal and agent so that both parties have the incentive to work together to maximize organizational effectiveness
-Sarbanes Oxley (SOX)
-Use appropriate incentives to align interests of managers and shareholders
-Promotion and career paths
Top Managers and Organizational Ethics
Ethical dilemma
-The quandary people find themselves in when they have to decide if they should act in a way that might help another person or group even though doing so might go against their own self-interest -Choosing “lesser of two evils”

Ethics
-Moral principles and beliefs about what is right and wrong
Ethics and the Law
-Neither laws nor ethics are fixed principles that remain constant over time
-Ethical beliefs alter and change as time passes, and as they do so, laws change to reflect the changing ethical beliefs of a society.
-Both ethical and legal rules are relative
Sources of Organizational Ethics
The three principal sources of ethical values that influence organizational ethics are
(1) Societal ethics: codified in a society’s legal system, in its customs and practices and in the unwritten norms and values
(2) Group or professional ethics: the moral rules and values that a group of people uses to control the way they act
(3) Individual ethics: the personal and moral standards used by individuals to structure their interactions
Why Do Ethical Rules Develop?
-Ethical rules and laws emerge to control self-interested behavior by individuals and organizations that threaten the society’s collective interests
-Ethical rules reduce transaction costs, that is the costs of monitoring, negotiating, and enforcing agreements between people
Why Does Unethical Behavior Occur?
Personal Ethics : ethics developed as part of the upbringing and education
Self-interest: weighing our own personal interest against the effects of our actions on others
Outside pressure: pressures from the reward systems, industry, and other forces
Creating an Ethical Organization
An organization is ethical if its members behave ethically
Put in place incentives to encourage ethical behavior and punishments to discourage unethical behaviors
Managers can lead by setting ethical examples
Managers should communicate the ethical values to all inside and outside stakeholders
Designing an Ethical Structure and Control System
Design an organizational structure that reduces incentives to act unethically
Take steps to encourage whistle-blowing (
Establish position of ethics officer and create ethics committee

Chapter 14: Managing Conflict, Power, and Politics
What is Organizational Conflict?
Organizational conflict o the clash that occurs when the goal-directed behavior of one group blocks or thwarts the goals of another o :inevitable in organizations o :not always negative
Goals or behaviors of one group conflict with goals/behaviors of another group
Beyond a certain point, conflict becomes a cause for organizational decline
Conflict leads to inability to reach consensus and indecision
Too much time spent on bargaining rather than acting swiftly to resolve problems
On balance, organizations should be open to conflict, to recognize its value both in helping to identify problems and in contributing to the generation of alternative solutions that improve decision making
Pondy’s Model of Organizational Conflict
Conflict is a process that consists of five sequential stages
Stage 1: Latent Conflict
-No outright conflicts exists, but there is a potential for conflict because of several latent factors
-Sources of conflict
Interdependence
-Difference in goals and priorities
-Bureaucratic factors (line (production) vs. staff (advise/support))
-Incompatible performance criteria
-Competition for scarce resources
Stage 2: Perceived Conflict
-Each subunit begins to define why the conflict is emerging and to analyze the events that led up to it
-Conflict escalates as groups battle over the cause of conflict
Stage 3: Felt Conflict
-Quickly develop an emotional response toward each other
-Us vs. them mentality
-What began as a small problem escalates into a huge conflict
Stage 4: Manifest Conflict
-One subunit gets back at another subunit (“punches are thrown”)
-Can take many forms
-Can get stuck at this stage
Stage 5: Conflict Aftermath
-Conflict is resolved in some way
If sources of conflict are not resolved, the dispute will arise again

Managing Conflict: Conflict Resolution Strategies
-An organization must balance the need to have some “good” conflict (which overcomes inertia) with the need to prevent “bad” conflict
-Choice of conflict resolution method depends on the source of the problem
Methods:
Acting at the Level of Structure
-Altering the level of differentiation and integration to change task relationships is one way to resolve conflict
-Change the structure (See below)
Functional Structure
Multidivisional Structure
Matrix
-Increase the number of integrating roles
-Assign top managers to solve conflict
-Rethink the hierarchy/reporting chain
Acting at the Level of Attitudes and Individuals
Seven Principles for Dealing with Conflict – Individual Level
1. Preserve Dignity and Self Respect
2. Listen
3. Don’t Try to Change Others
4. Encourage Open Expression of all Points of View
5. Consider Your On-going Relationship
6. Give Up Having to Be Right
7. Consider There is Something You Don’t Know
Managing Conflict
5 Step Process for Conflict Resolution ( see worksheet )
1.
Prepare
2.
Plan your session
3.
Your turn, my turn
4.
Mutual planning
5.
Follow-up
What is Organizational Power?
Organizational power
-The ability of one person or group to overcome resistance by others to resolve conflict and achieve a desired objective or result
-The mechanism through which conflict gets resolved
-Conflict and power are intimately (closely) related

Sources of Organizational Power
Authority
-Power that is legitimized by the legal and cultural foundations on which an organization is based
-Ultimate source of power in an organization
Empowerment is the deliberate decentralization of authority to encourage subordinates to assume responsibility for organizational activities
Control over Resources
-Power within an organization comes from the control of resources
-Money or capital is, in a way, the ultimate organizational resource because money buys other resources
Control over Information
-Access to strategic information and the control of the info are sources of considerable power
Nonsubstitutability
-If no one else can perform the tasks that a person or subunit performs, that person or subunit is nonsubstitutable
Centrality
-The subunits that are most central to resource flows have the ability to reduce the uncertainty facing other subunits
Control over Uncertainty
-A subunit that can actually control the principal sources of uncertainty has significant power
Ex) fluctuation in gas prices
Using Power: Organizational Politics
-To enhance the power and influence they have
-Activities taken within organizations to acquire, develop, and use power and other resources to obtain one’s preferred outcomes
Tactics for playing politics
Increasing Indispensability
-Can be achieved by an increase in nonsubstitutibility or an increase in centrality
-Nonsubstitutability- specialization
-Centrality- accept responsibilities that enhance one’s reputation
Associating with Powerful Managers
-Supporting a powerful manager who is clearly on the way to the top

-Negative- What if they fail?
Building and Managing Coalitions
-Forming relationships with other subunits
-Skills in coalition building are important
Influencing Decision Making
-Knowing how and when to use power
Controlling the Agenda
-By controlling the agenda, they are able to control the issues and problems
Bringing in an Outside Expert
-Use supposedly neutral outsiders to support
-Chicago ex in class
Chapter 6: Designing Organizational Structure
Organizational structure:
-The formal system of task and authority that control how people coordinate actions and resources to achieve organizational goals
-Looking at who has authority (final call) on different situations
Functional Structure
-A design that groups people together on the basis of their common expertise and experience or because they use the same resources
-Groups tasks into functions to increase the effectiveness with which it achieves its goals
Advantages:
-Learn from another, Groups can supervise one another and control each others behavior People develop norms and values
Problems:
-Communication problems: distance from one another, Measurement:profitability is hard to figure out because everything is separate, Location: different geographies, Strategic: too much time figuring out coordination
Functional structure is appropriate if the organization:
-Limits itself to producing a small number of similar products
-Produces those products in one or a few locations
-Sells them to only one general type of client or customer

Multidivisional Structure
-Support functions are placed in divisions
-Each division has its own set of support functions and controls its own value creation
-Corporate headquarters staff: responsible for overseeing the activities of the managers heading each division
-Allows a company to operate in many different businesses
Matrix Structure
-An organizational design that groups people and resources in two ways simultaneously, by function and product
-The members of the team are called two-boss employees because they report to two superiors: the product team manager and the functional manager
Advantages:
Better direct control
No unnecessary duplications of task
Problems:
Confusing who reports to who

Every good-to-great company had Level 5 leadership during the pivotal transition years.
Level 5 Leadership
Characteristics of a Level 5 Leader:
1.
Humility
2.
Professional will
3.
Ambition for company
4.
Modesty
5.
Successors set up for success
Chapter 5
“The Hedgehog and the Fox”
-“the fox knows many things, but the hedgehog knows one big thing”
Hedgehogs
-rolls into a ball of sharp spikes… “Will he ever learn?”
-always wins… “simplify a complex world into a single organizing idea, a basic principle or concept that unifies and guides everything”
-see what is essential, and ignore the rest
Walgreens vs. Eckerd
Walgreens:
-Simply this: the best, most convenient drugstores, with high profit per customer
-9 nine stores in 1 mile radius
-“corner pharmacy”
-build convenient stores…not just “drugstores”
Eckerd: “snazzy strategies for growth”
The three circles
Hedgehog Concept wasn’t just any random simple idea
-must have a deep understanding of the intersection of three circles
-need all three circles
1) What you can be the best in the world at
2) What drives your economic engine
3) What you are deeply passionate about
Personal example 1) “I feel that I was just born to be doing this” 2) “I get paid to do this?
Am I dreaming?” 3) “I look forward to getting up and throwing myself into my daily work, and I really believe in what I’m doing”
1) A Hedgehog Concept is not a goal to be the best, a strategy to be the best, an intention to be the best, a plan to be the best. It is an understanding of what you can be the best at.
2) If you could pick one and only one ratio-profit per x- to systematically increase over time, what x would have the greatest and most sustainable impact on your economic engine?

(Walgreens: switched its focus from profit per store to profit per customer visit)
-discover a key economic denominator
3) The good-to-great companies did not say “OK folks, lets get passionate about what we do”…they went the other way entirely: We should only do those things that we can get passionate about.
(Gillette: can’t get excited about cheap disposable razors- made the choice to build sophisticated expensive shaving systems)
“Growth!” is not a Hedgehog Concept
-it took about four years on average for companies to clarify Hedgehog Concepts
-iterative (repetition) process
Chapter 6
A Culture of Discipline
George Rathmann (Amgen): Avoid bureaucracy and hierarchy and instead create a culture of discipline
1.
Build a culture around the idea of freedom and responsibility, within a framework
2.
Fill that culture with self-disciplined people who are willing to go to extreme lengths to fulfill their responsibilities. They will ‘rinse their cottage cheese’
3.
Don’t confuse a culture of discipline with a tyrannical disciplinarian
4.
Adhere with great consistency to the Hedgehog Concept, exercising an almost religious focus on the intersection of the three circles. Equally important, create a
‘stop doing list’ and systematically unplug anything extraneous
A Culture of Discipline: It starts with disciplined people . Next we have disciplined thought . Finally, we have disciplined action .
Rinsing your cottage cheese
Dave Scot- Ironman Triathlon six time winner
A man who would burn 5,000 calories a day in training would literally rinse his cottage cheese to get the extra fat off.
(one more small step added to his consistent program of superdiscipline)
Good-great-companies became like Scot: do whatever it takes to become the best
Whereas the good-to-great companies had Level 5 leaders who built enduring culture of discipline , the comparison companies had Level 4 leaders who personally disciplined the organization through sheer force.
:Discipline is essential for great results, but disciplined action without disciplined understanding of the three circles cannot produce sustained great results.
-R.J. Reynolds bought oil company: not within three circles
-it takes discipline to say, “no thank you”

“Being right” means getting the Hedgehog Concept; “highly diversified” means investing fully in those things that fit squarely within the three circles and getting rid of everything else.
:The single most important form of discipline for sustained results is fanatical adherence to the Hedgehog Concept and the willingness to shun opportunities that fall outside the three circles
:The fact that something is a “once-in-a-lifetime opportunity” is irrelevant, unless it fits within the three circles. A great company will have many of these
“Stop doing” lists are more important than “to do” lists.
Chapter 4
You absolutely cannot make a series of good decisions without first confronting the brutal facts.
Leadership is about vision. But leadership is equally about creating a climate where the truth is heard and the brutal facts confronted. There’s a huge difference between the opportunity to “have your say” and the opportunity to be heard . The good-to-great leaders understood this distinction, creating a culture wherein people had a tremendous opportunity to be heard and, ultimately, for the truth to be heard.
How do you create a climate where the truth is heard-FACTS?
1.
Lead with questions, not answers.
2.
Engage in dialogue and debates, not coercion
3.
Conduct autopsies, without blame
4.
Build “red flag” mechanisms
Kimberly-Clark:
Moment of silence for P&G…taking on the Goliath
The good-to-great companies faced just as much adversity as the comparison companies, but responded to that adversity differently. They hit the realities of their situation headon. As a result, they emerged from adversity even stronger
The Stockdale Paradox
In every case, the management team responded with a powerful psychological duality:
On one hand, they accepted the brutal facts of reality.
On the other hand, they maintained an unwavering faith in the endgame, and a commitment to prevail as a great company despite the brutal facts.
…call this the Stockdale Paradox
Admiral Jim Stockdale, high ranked military officer
Thrown in POW camp for eight years

“I never lost faith in the end of the story…I never doubted not only that I would get out, but also that I would prevail in the end and turn the experience into the defining event of my life”
Collins- Who didn’t make it out?
Stockdale- The optimists…they died of a broken heart
Contrast to Stockdale: “Can’t tell you when, but we ARE going to get out of this….”
Stockdale Paradox- you must retain faith that you will prevail in the end , regardless of the difficulties AND at the same time confront the most brutal facts of your current reality , whatever they might be
Chapter 8
Pushing a flywheel
All the pushes added together in an overall accumulation of effort applied in a consistent direction was what made the flywheel turn. Some pushes may have been bigger than others, but any single heave-no matter how large- reflects a small fraction of the entire cumulative effect upon the flywheel.
Chicken egg example:
No one pays it much attention until it jumps out.
To the chicken, cracking the egg is simply one more step in a log chain of steps leading up to that moment.
Executives could not pinpoint one single event that exemplified the transition.
:had no name for their transformations…no launch event…no tag line…
The Doom Loop
:continually stop and change course looking for that one…
“the single defining action, the grand program, the one killer innovation, the miracle moment”
:failed to build sustained momentum
:consistency
:disappointing results
Two prevalent patterns:
The misguided use of acquisitions and leaders who stop the flywheel
Stockdale paradox: “We’re not going to hit breakthrough by Christmas, but if we keep pushing in the right direction, we will eventually hit breakthrough”

How to be rigorous, not ruthless
To be ruthless means hacking and cutting, especially in difficult times
Or
To let people languish in uncertainty for months or years, stealing precious time in their lives that they could use to move on the something else, when in the end they aren’t going to make it anyway- that would be ruthless. To deal with it right up front and let people get on with their lives- that is rigorous .
How to be rigorous
Three practical disciplines:
#1
When in doubt, don’t hire --- keep looking.
#2 When you know you need to make a people change, act.
#3 Put your best people on your biggest opportunities, not your biggest problem.
Chapter 9
From Good to Great to Build to Last
Core values are essential for enduring greatness, but it doesn’t seem to matter what those core values are.
Enduring great companies preserve their core values and purpose while their business strategies and operating practices endlessly adapt to a changing world. This is the magical combination of “preserve the core and stimulate progress.”
Disney:
holding a core ideology fixed while changing strategies and practices over time
Core ideology: Instill core values and core purpose as principles to guide decisions and inspire people throughout the organization over a long period of time.
Preserve the Core/Stimulate Progress: Preserve the core ideology as an anchor point while stimulating change, improvement, innovation, and renewal in everything else.
Change practices and strategies while holding core values and purpose fixed.

(Identifying and discussing crises, potential crises, or major opportunities)
(Put together a group with enough power to lead change… Getting that group to work together like a team)
(Within a department, you may need to find the “UNOFFICIAL” leaders and get them on board with the change you want to occur)
(Creating a vision to help direct the change effort… Developing strategies for achieving that vision)
(Using every vehicle possible to constantly communicate the new vision and strategies)
(Having the guiding coalition role model the behavior expected of employees.)
(How do you communicate a Vision to support CHANGE?- Keep it simple, “Telling a story”, Multiple media/forums, REPEAT REPEAT (7 times!)(Want it to stick), “Walk the
Talk”, Know where the “holes” are – address the “unasked” question
Allow for give & take (feedback)
(Getting rid of obstacles…Changing systems or structures that undermine the change vision… Encouraging risk taking and nontraditional ideas, activities, and actions)
(Planning for visible improvements in performance, or wins… Creating those wins
(small successes (ex. Diet))… Visibly recognizing and rewarding people who made the wins possible)
(Using increased credibility to change all systems, structure, and policies that do not fit together and do not fit the vision…Promoting and developing people who can implement the vision… Reinvigorating the process with new projects and themes)
(Creating better performance through customer and productivity oriented behavior, more and better leadership and more effective management…Articulating the connections between new behaviors and organization success…Developing means to ensure leadership development and succession)